1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
@PLAN.INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TENNESSEE 8732 62-1643381
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
THREE LANDMARK SQUARE, SUITE 400
STAMFORD, CONNECTICUT 06901
(203) 961-0340
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
MARK K. WRIGHT
CHIEF EXECUTIVE OFFICER
@PLAN.INC
THREE LANDMARK SQUARE, SUITE 400
STAMFORD, CONNECTICUT 06901
(203) 961-0340
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
J. PAGE DAVIDSON, ESQ. JAMES N. STRAWBRIDGE, ESQ.
BASS, BERRY & SIMS PLC WILSON SONSINI GOODRICH & ROSATI
2700 FIRST AMERICAN CENTER 650 PAGE MILL ROAD
NASHVILLE, TENNESSEE 37238 PALO ALTO, CALIFORNIA 94304-1050
(615) 742-6200 (415) 493-9300
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------
Common Stock (no par value)............................... $34,500,000 $9,591
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 16, 1999
PROSPECTUS
SHARES
[@PLAN LOGO]
COMMON STOCK
This is an initial public offering of common stock by @plan.inc. We are
selling shares of common stock. The estimated initial public
offering price is between $ and $ per share.
------------------------
There is currently no public market for the common stock. The shares of
common stock have been proposed to be listed for quotation on the Nasdaq
National Market under the symbol APLN.
------------------------
PER SHARE TOTAL
--------- -----
Initial public offering price......................... $ $
Underwriting discounts and commissions................ $ $
Proceeds to @plan.inc, before expenses................ $ $
@plan.inc has granted the underwriters an option for a period of 30 days to
purchase up to additional shares of common stock.
-------------------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HAMBRECHT & QUIST
BEAR, STEARNS & CO. INC.
FIRST UNION CAPITAL MARKETS CORP.
, 1999
3
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward Looking Statements.................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 29
Management.................................................. 42
Transactions with Executive Officers and Directors.......... 50
Principal Shareholders...................................... 52
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 59
Underwriting................................................ 62
Legal Matters............................................... 64
Experts..................................................... 64
Change in Independent Certified Public Accountants.......... 64
Where You Can Find More Information......................... 64
Index to Financial Statements............................... F-1
---------------------
Information contained on our Web site does not constitute part of this
prospectus. All brand names and trademarks appearing in this prospectus are the
property of their respective holders.
All information in this prospectus relating to the number of shares of our
common stock, options or warrants is based upon information as of December 31,
1998, assuming a 1.8 for 1 stock split which was effected on March 10, 1999. For
a more complete discussion regarding our capital stock and other related
matters, please see "Capitalization" and "Description of Capital Stock."
4
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" and our financial statements and
the notes to those statements, before making an investment decision.
OUR BUSINESS
We are the leading provider of market research decision support and
planning systems specifically designed for Internet advertisers, advertising
agencies, and Web publishers, and we recently introduced a system for online
retailers and consumer brand marketers. These systems help enable our clients to
effectively harness the power of the Internet as an advertising, marketing and
retailing medium. Our proprietary systems, which our clients access through our
Web site, combine our databases of consumer lifestyle, product preference and
demographic data with powerful query, search and planning technologies. Our
syndicated Internet consumer research data is collected, on an exclusive basis,
by The Gallup Organization, Inc., from a statistically representative group of
approximately 40,000 active adult Web users. We believe that our systems are a
critical component in facilitating the purchase and sale of advertising on the
Internet and are becoming a key information tool in enabling the increase in
consumer electronic commerce.
We introduced the @plan Gutenberg Advertising System in June 1997 and as of
February 28, 1999 we had contracts representing a total of over 250 Internet
advertisers, advertising agency offices, Web sites, online retailers and
consumer brand marketers. We currently have subscription contracts for our
systems with all of the top 20 Web publishers as measured by advertising
revenue, 65% of the top 20 U.S. advertising agencies primarily focused on the
Web as measured by billings and 60% of the top 20 "traditional" U.S. advertising
agencies as measured by billings. We introduced the @plan Kepler E-Business
System in December 1998 and as of February 28, 1999 we already had contracts
with five online retailers and consumer brand marketers.
A representative list of our clients includes Buy.com, CBS MarketWatch,
Grey Interactive, Modem Media.Poppe Tyson, Starcom IP (Leo Burnett),
TicketMaster Online, Time Inc. New Media and US Web/CKS. We believe that our
systems have been accepted as a necessary tool by our clients as evidenced by
our 95% subscription contract renewal rate from our inception through February
28, 1999.
THE MARKET OPPORTUNITY
Market research decision support and planning tools enable advertisers,
marketers and retailers in many industries to optimize their competitive
strategies by providing them with highly detailed consumer behavior information.
The characteristics of the Internet as both a unique medium for advertising and
a distinct marketing and sales channel plus the substantial potential size of
the Internet market have heightened the need among Internet advertisers,
advertising agencies, Web publishers, online retailers and consumer brand
marketers for these tools. The rapid growth of the number of users and the
number of content and electronic commerce sites on the Internet requires these
online market participants to recognize and adapt to changing conditions more
quickly than in many traditional media, marketing and retailing worlds. The
diversity of these users and sites requires online market participants to
process vast amounts of information to achieve an understanding of their target
market and the online market as a whole. In addition, the competitive
environment on the Internet for a particular retailing category may be wholly
different than that in the traditional marketplace, requiring online market
participants to develop new understandings of different and evolving competitive
factors. As a result, online market participants are seeking trusted,
third-party
1
5
neutral market research decision support and planning tools that will enable
them to navigate the dynamic online marketplace.
To meet the needs of online market participants and help enable the rise of
advertising and consumer electronic commerce on the Web, a provider of market
research decision support and planning systems must be able to overcome certain
challenges, including:
- amassing and maintaining a large, statistically representative consumer
research database;
- developing a sophisticated yet user-friendly, Web-based software
interface;
- establishing rigorous, third-party neutral methodological and data
collection procedures; and
- identifying, researching and reporting emerging consumer electronic
commerce trends.
OUR STRATEGY
Our objective is to be the leading provider of market research decision
support and planning systems for online market participants including Internet
advertisers, advertising agencies, Web publishers, online retailers and consumer
brand marketers. The following are the key elements of our strategy:
- Increase market penetration of the @plan Kepler E-Business System
- Enhance and expand the @plan Gutenberg Advertising System
- Develop additional revenue sources
- Expand sales efforts and maximize sales effectiveness
- Continue to provide the highest level of client service
- Leverage our market research to identify key trends
Our headquarters are located at Three Landmark Square, Suite 400, Stamford,
Connecticut 06901, and our telephone number is (203) 961-0340.
2
6
THE OFFERING
Common Stock offered by @plan............... shares
Common Stock to be outstanding after the
offering.................................... shares (1)
Use of proceeds............................. For general corporate purposes,
including working capital,
expansion of sales, marketing
and customer service
capabilities, product
development and possible
acquisitions. See "Use of
Proceeds."
Risk Factors................................ For a discussion of risks that
you should consider before
investing in our common stock,
see "Risk Factors."
Proposed Nasdaq National Market symbol...... APLN
- -------------------------
(1) This information is based on the number of shares actually outstanding on
December 31, 1998. It excludes 1,980,000 shares of our common stock subject
to outstanding options or reserved for issuance under our stock option
plans. It also excludes warrants for shares of common stock issuable
upon consummation of this offering.
3
7
The information in the table below excludes 1,980,000 shares of common
stock subject to outstanding options or reserved for issuance under our stock
option plans. It also excludes warrants to purchase shares of common
stock issuable upon consummation of this offering. The "as adjusted" column
gives effect to our sale of common stock in this offering at an assumed initial
public offering price of $ per share. For a more complete discussion
regarding the historical financial information in this table, please see the
notes to our financial statements.
SUMMARY FINANCIAL INFORMATION
PERIOD FROM
INCEPTION
(MAY 29, 1996) YEAR ENDED DECEMBER 31,
THROUGH --------------------------
DECEMBER 31, 1996 1997 1998
----------------- ----------- -----------
STATEMENTS OF OPERATIONS DATA:
Revenues.............................. $ -- $ 422,401 $ 3,108,356
Loss from operations.................. (678,005) (2,894,307) (2,049,464)
Net loss.............................. (660,638) (2,813,939) (1,870,879)
Basic and diluted loss per share...... $ (0.73) $ (3.13) $ (2.07)
Weighted average shares used in the
calculation of basic and diluted
loss per share...................... 900,000 900,000 901,993
DECEMBER 31, 1998
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 3,682,576 $
Working capital........................................ 3,716,071
Total assets........................................... 6,026,481
Mandatory redeemable convertible preferred stock....... 9,582,802
Stockholders' equity (deficit)......................... (5,310,037)
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
OTHER DATA:
Contract value......................................... $1,555,000 $4,595,000
- ---------------
Contract value represents the annualized value of all of our subscription
contracts outstanding at the end of each period. This value includes amounts
that we have previously recognized as revenue as well as amounts which we expect
to recognize as revenue over the remainder of a contract. Contract value is
provided because we believe that it is useful information for evaluating our
future ability to generate revenues. Contract value should not be construed as
an alternative to revenue or deferred revenue, or any other indicator of our
future operating performance or liquidity. Contract value is not a financial
measure determined in accordance with generally accepted accounting principles
and may not be comparable to similarly titled measures of other companies.
4
8
RISK FACTORS
You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks, as well as other risks and uncertainties that are not yet
identified or that we currently think are immaterial, could harm our business,
results of operations and financial condition and could result in a complete
loss of your investment.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT IS DIFFICULT TO EVALUATE OUR
BUSINESS AND PROSPECTS
We were incorporated in May 1996 and have a limited operating history. An
investor in our common stock must consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets,
including the Internet advertising and electronic commerce markets. These risks
include our ability to:
- sustain revenue growth rates;
- manage our expanding operations;
- compete with companies that have longer operating histories, greater name
recognition and greater financial resources;
- attract, retain and motivate qualified personnel, especially our sales
force;
- expand our current client base; and
- anticipate and adapt to the rapidly changing Internet market.
We also depend on the growing use of the Internet for advertising, commerce
and communication, and on general economic conditions. We cannot assure you that
our business strategy will be successful or that we will successfully address
these risks. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for detailed information on our limited
operating history.
WE HAVE A HISTORY OF LOSSES, AND WE ANTICIPATE CONTINUED LOSSES
To date, we have not made a profit. We incurred net losses of approximately
$661,000 during our inception period from May 29, 1996 through December 31,
1996, $2.8 million in 1997, and $1.9 million in 1998. As of December 31, 1998,
our accumulated deficit was $5.3 million. We expect to continue incurring
significant operating and net losses through at least 2000 and, as a result, we
will need to generate significant revenues to achieve and maintain
profitability. Although our revenues have grown in recent quarters, we cannot
assure you that we will achieve sufficient revenues for profitability. Even if
we do achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or annual basis in the future. Our results
of operations and financial condition will be harmed if revenues grow more
slowly than we anticipate, or if operating expenses exceed our expectations and
cannot be adjusted accordingly. Please see "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes to those statements
included in this prospectus for detailed information on our history of losses
and anticipation of continued losses.
5
9
WE DEPEND ON SUBSCRIPTION RENEWALS BY OUR CLIENTS AND WE MAY NOT BE ABLE TO
CONTINUE OUR CURRENT RATE OF RENEWAL
We derive all of our revenues from subscriptions to our systems. We are not
sure that we will continue to experience our current rate of subscription
renewal. If our renewal rate percentage declines, our results of operations and
financial condition could be harmed. Our subscription renewal rates may decline
as a result of a consolidation in our client base, the emergence of direct
competition or if a significant number of our clients cease operations.
OUR BUSINESS IS DEPENDENT ON OUR RELATIONSHIP WITH GALLUP
The methodology, sampling and data collection for both our Web user
database and our U.S. population database is controlled and conducted by Gallup.
Our agreement with Gallup extends through 2006. Circumstances beyond our control
could cause the agreement to terminate early. We cannot be sure that Gallup will
continue to provide us services in a manner that allows us to execute our
business strategy. If our agreement with Gallup is terminated for any reason, we
will need to find another firm to perform our research data collection services
and this could harm our business by delaying our ability to update our database
and introduce new products.
WE RELY ON THE TIMELY COLLECTION, PROCESSING AND DELIVERY OF DATA BY GALLUP
The data that comprises our proprietary databases is collected and
statistically processed by Gallup and delivered to us on a quarterly basis.
Gallup could experience problems with, or make errors in, collecting, processing
or storing the data. In addition, Gallup could experience problems with the
computer systems that process and store the data. These problems could result in
inaccuracies in, or in delays in delivery or loss of, the data from Gallup.
These inaccuracies, delays or losses could cause us to lose credibility with our
clients or breach some client contracts which could cause us to lose clients and
could harm our business.
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS AND OUR
ABILITY TO MANAGE THIS GROWTH AND ANY FUTURE GROWTH WILL AFFECT OUR
BUSINESS
We have grown and expect to continue to grow both by adding new products
and hiring new employees. This growth has placed, and our anticipated future
growth in our operations will continue to place a strain on our management
systems and resources. We cannot assure you that our management team will be
able to efficiently or successfully manage our growth. In addition, we will need
to hire additional financial and operations personnel. We expect that we will
need to continue to improve our financial and managerial controls and reporting
systems and procedures, and we will need to continue to expand, train and manage
our workforce.
OUR BUSINESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN SALES AND CLIENT
SERVICE PERSONNEL AND OUR ABILITY TO MAKE OUR SALES PERSONNEL PRODUCTIVE
Our business would be harmed if we were unable to continue to attract,
retain and motivate highly qualified, experienced sales and client service
personnel. We need to hire additional sales and client service personnel to
achieve our growth objectives. Competition for these individuals is intense.
Even if we are able to hire additional sales personnel it will take months of
training before they are fully
6
10
productive. We may be unable to attract, train and retain an adequate number of
individuals to meet our sales and client service objectives.
WE MAY ENCOUNTER RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT
Our future growth depends in part on our ability to offer new products and
services on a timely and cost-effective basis. Our business may suffer if we
fail to develop and introduce new products or if our new products are not
accepted by the market or are accepted at a slower rate than we anticipate. In
December 1998, we introduced the @plan Kepler E-Business System for online
retailers and consumer brand marketers. We are currently developing more
detailed market research and planning systems for specific client groups. There
are many costs and risks associated with developing introducing these and other
new products, including:
- significant market research data collection and software development
costs;
- a need for additional sales, client service and other personnel;
- diversion of management attention and resources; and
- the lack of acceptance of new products in the marketplace.
We cannot assure you that we will be successful in developing and
introducing new products.
OUR FUTURE REVENUES MAY BE UNPREDICTABLE AND OUR QUARTERLY RESULTS ARE EXPECTED
TO FLUCTUATE
Our operating results have varied on a quarterly basis and may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside our control. Due to these fluctuations, it is likely that in some
future quarters our operating results will fall below the expectations of
securities analysts and investors, which could cause the price of our common
stock to drop. Factors that may affect our quarterly operating results include:
- market acceptance of the Web as an advertising medium;
- the development of the electronic commerce market;
- market acceptance of our products;
- the amount and timing of operating costs and capital expenditures
relating to the expansion of our business, including those related to our
planned development of more detailed market research and planning
systems;
- variations in product or client mix, as pricing may vary based on the
volume and type of subscriptions being sold to a client;
- our ability to expand our client base and retain current clients;
- new competitors entering our market;
- general economic conditions as well as economic conditions specific to
the Internet;
- our ability to attract, train and retain qualified sales and other
personnel;
- technical difficulties or service interruptions; and
- the magnitude and timing of strategic pricing changes, marketing
decisions or acquisitions.
7
11
Our limited operating history and the emerging nature of our markets make
prediction of future revenues difficult. Our expense levels are based, in part,
on our expectations with regard to future revenues, and to a large extent our
expenses are fixed, particularly in the short term. We cannot assure you that we
will be able to predict our future revenue accurately and we may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in our expectations could
cause significant declines in our quarterly operating results.
Due to all the foregoing factors, our quarterly revenues and operating
results are difficult to forecast. We believe that our quarterly revenues,
expenses and operating results could vary significantly in the future, and that
period-to-period comparisons should not be relied upon as indicators of future
performance.
WE MAY EXPERIENCE CLIENT DISSATISFACTION OR BE EXPOSED TO LIABILITY FOR
SUPPLYING INACCURATE INFORMATION TO OUR CLIENTS
Our data may contain inaccuracies. Our clients may become dissatisfied with
our systems, or we may face liability if we supply inaccurate information. Any
client dissatisfaction with our data would hinder our ability to attract new
clients and retain existing clients. If we face liability for supplying
inaccurate data, our business may suffer.
OUR COMPUTING SYSTEMS AND OUR INTERNET SERVICE PROVIDER'S COMPUTING SYSTEMS
MAY FAIL
The performance of our server and networking hardware and software
infrastructure is critical to our business, reputation and ability to attract
and retain clients. Any system failure that causes an interruption in service or
a decrease in responsiveness of our processing or data storage capabilities
could impair our reputation and the attractiveness of our products. We entered
into an agreement with UUNet for our Internet connectivity. Any interruption in
the service that UUNet provides, or any failure of UUNet to handle higher
volumes of Internet users, would harm our business.
WE HAVE EXPERIENCED AND MAY AGAIN EXPERIENCE SYSTEM CAPACITY CONSTRAINTS
An increase in the number of our clients, the addition of new products or
spikes in client demand, either unexpected or in connection with new data
releases, could strain the capacity of our computer systems, which could lead to
slower response time or system failures. For example, some of our clients
recently experienced delays in accessing our systems due to increased client use
following the Spring 1999 update of our databases. Our business could be harmed
by system failures or slowdowns that reduce the speed and responsiveness of our
data processing and diminish the experience for our clients. We face risks
related to our ability to scale up to our expected client levels while
maintaining superior performance. We may need to purchase additional servers to
maintain adequate data processing speeds.
8
12
OUR NETWORK INFRASTRUCTURE MAY BE DAMAGED
The availability of our systems is dependent upon our ability and the
ability of UUNet to protect our server and network infrastructure against damage
from:
- human error;
- fire;
- flood;
- power loss;
- telecommunications failure;
- sabotage; and
- intentional acts of vandalism.
Despite precautions taken by us and UUNet, the occurrence of natural
disasters or other unanticipated problems at our or their facilities could
result in interruption in the availability of our systems or significant damage
to our equipment. Even though we have implemented network security measures, our
servers are vulnerable to computer viruses, break-ins, and similar disruptions
from unauthorized tampering. The occurrence of any of these events could result
in interruptions, delays, the loss or corruption of our data or cessations in
the availability of our systems, which could harm our business and our
reputation.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED SERVICE OF OUR KEY EXECUTIVES
Our future success depends to a significant extent on the continued service
of our key executives, in particular, Mark K. Wright, our Chief Executive
Officer and Chairman of our Board of Directors, and Karl A. Spangenberg, our
President and Chief Operating Officer. We have no employment agreements with
either of these executives. The loss of the services of Messrs. Wright or
Spangenberg, or other key executives, would likely hurt our business. Please see
"Management" for detailed information on our key executives.
OUR MARKET IS HIGHLY COMPETITIVE
Our market, namely providing market research tools for Internet
advertisers, advertising agencies, Web publishers, online retailers and consumer
brand marketers, is new and rapidly evolving. Competition for clients is intense
and is expected to increase in the future as existing competitors develop new
solutions, potential competitors become active in the market and our industry
consolidates. We cannot assure you that we will be able to compete successfully
or that competitive pressures will not harm our business. We believe that our
ability to compete depends upon many factors both within and beyond our control,
including the following:
- the timing and market acceptance of new products and enhancements to
existing products developed either by us or our competitors;
- our client service and support efforts;
- our sales and marketing efforts; and
- the ease of use, performance, price and reliability of products developed
either by us or our competitors.
9
13
Most of our competitors have longer operating histories, greater name
recognition, larger client bases and significantly greater financial, technical
and marketing resources than we do. This may allow them to respond more quickly
than we can to new or emerging technologies and changes in client requirements.
It may also allow them to devote greater resources than we can to the
development, promotion and sale of their products and services. Such competitors
may also engage in more extensive research and development, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to existing and potential employees, strategic
partners, advertisers and Web publishers. We cannot assure you that our current
and potential competitors will not develop products or services that are of
equal or superior quality to ours or that achieve greater market acceptance or
that may be offered at lower prices. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products or
services to address the needs of our prospective customers. It is possible that
new competitors may emerge and rapidly acquire significant market share.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, all of which will harm our business. Please
see "Business -- Competition" for detailed information about our competition.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities. All of the systems on which we rely may not be Year
2000 compliant, and we cannot assure you that all these systems will be made
Year 2000 compliant in a timely manner or that the third parties upon which our
business depends will achieve Year 2000 compliance. We may incur significant
additional expense for Year 2000 issues.
Our business is heavily dependent on the timely collection, processing and
delivery of data by Gallup. Gallup's systems may be subject to Year 2000
complications. Any failure to fix or replace Gallup's systems, our internally
developed systems or other third-party software, hardware or services on a
timely basis could result in lost revenues, increased operating costs, the loss
of clients, or other business interruptions, any of which could harm our
business, results of operations and financial condition. Moreover, the failure
to adequately address Year 2000 compliance issues in our internally developed
systems could result in claims of negligence, mismanagement, misrepresentation
or breach of contract and related litigation, which could be costly and
time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by these
entities to be Year 2000 compliant could result in a systemic failure beyond our
control, such as prolonged Internet, telecommunications or electrical failure.
This could prevent our users from accessing our system, which could harm our
business, results of operations and financial condition.
10
14
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS, AND WE MAY INFRINGE THE
PROPRIETARY RIGHTS OF OTHERS
Proprietary rights are important to our success and our competitive
position. To protect our proprietary rights, we rely generally on copyright,
trademark, and trade secrecy laws, confidentiality agreements with third
parties, and license agreements with consultants, vendors and customers. Despite
these protections, a third party could, without authorization, copy or otherwise
take information from our database. Our agreements with employees, consultants
and others who participate in development activities could be breached. We may
not have adequate remedies for any breach, and our trade secrets may otherwise
become known or independently developed by competitors. In addition, the laws of
some foreign countries do not protect our proprietary rights to the same extent
as do the laws of the United States. Effective copyright, trademark and trade
secret protection may not be available in those jurisdictions.
We have filed applications for several trademarks in the United States. We
cannot assure you that any of our trademark applications will be approved. Even
if these applications are approved, the trademarks may be successfully
challenged by others or invalidated. If the applications are not approved
because third parties own the trademarks, our use of the trademarks will be
restricted unless we enter into arrangements with the third parties. These may
be unavailable on commercially reasonable terms.
There have been substantial amounts of litigation in the computer and
online industries regarding intellectual property assets. Third parties may
claim infringement by us with respect to current and future products, trademarks
or other proprietary rights, or we may counterclaim against these parties. Any
claims or counterclaims could be time-consuming, result in costly litigation,
divert management's attention, cause product release delays, require us to
redesign our products or require us to enter into royalty or licensing
agreements, any of which could harm our business and operating results. Royalty
and licensing agreements, if required, may not be available on terms acceptable
to us, or at all.
WE RELY ON THIRD PARTIES FOR THE DEVELOPMENT OF SOME OF OUR PROPRIETARY SOFTWARE
TECHNOLOGY
We outsource some of our software technology development to third parties.
We cannot assure you that we will continue to receive this technology from third
parties or that this technology will continue to be available at a reasonable
cost. If we are unable to develop additional software or upgrade our existing
software, we may experience delays in making our current and future systems
accessible to our clients.
WE MAY NOT BE SUCCESSFUL IN INTEGRATING ANY BUSINESSES OR TECHNOLOGIES WE
ACQUIRE
We may acquire or make investments in complementary businesses, products,
services or technologies. We cannot assure you that we will be able to make such
acquisitions or investments on commercially acceptable terms. If we acquire a
company, we could have difficulty in assimilating that company's personnel and
operations. In addition, the key personnel of the acquired company may decide
not to work for us. If we make other types of acquisitions, we could have
difficulty in assimilating the acquired products, services or technologies into
our operations.
11
15
These difficulties could disrupt our ongoing business, distract our management
and employees, increase our expenses and harm our results of operations due to
accounting requirements such as the amortization of goodwill. Furthermore, we
may incur debt or issue equity securities to pay for any future acquisitions.
The issuance of equity securities could be dilutive to our existing
shareholders.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS DEPENDS ON CONTINUED GROWTH IN THE USE AND IMPROVEMENT OF THE
INTERNET
Our business would be adversely affected if Internet usage does not
continue to grow rapidly. Internet usage may be inhibited for a number of
reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; or
- lack of availability of cost-effective, high-speed service.
Even if Internet usage grows, the Internet infrastructure may not be able
to support the demands placed on it by this growth. As a result, its performance
and reliability may decline. Even if the necessary infrastructure or
technologies are developed, we may have to adapt our systems accordingly. In
addition, Web sites and proprietary online services have experienced
interruptions in their service as a result of outages and other delays occurring
throughout their infrastructure. If these outages or delays frequently occur in
the future, Internet usage could grow more slowly or decline.
OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE ELECTRONIC COMMERCE
MARKET
If electronic commerce does not grow or grows more slowly than expected,
our business will suffer. Our long-term success depends on widespread market
acceptance of electronic commerce. A number of factors could prevent this
acceptance, including the following:
- electronic commerce is at an early stage and buyers may be unwilling to
shift their purchasing from traditional vendors to online vendors;
- the necessary network infrastructure for substantial growth in usage of
the Internet may not be adequately developed;
- increased government regulation or taxation may adversely affect the
viability of electronic commerce;
- increases in the cost of telecommunications services could make access to
the Internet prohibitively expensive for consumers;
- insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and
- adverse publicity and consumer concern about the security of electronic
commerce transactions could discourage its acceptance and growth.
12
16
ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN
Our future success depends on an increase in the use of the Internet as an
advertising medium. Our business would be adversely affected if the market for
Internet advertising fails to develop or develops more slowly than we expect.
The Internet advertising market is new and rapidly evolving, and it cannot yet
be compared with traditional advertising media to gauge its effectiveness and
value to advertisers. As a result, demand and market acceptance for our systems
is uncertain. Many of our current or potential clients have little or no
experience using the Internet for advertising purposes, and they have allocated
only a limited portion of their advertising budgets to Internet advertising. The
adoption of Internet advertising, particularly by those entities that have
historically relied upon traditional media for advertising, requires accepting a
new way of conducting business, exchanging information and advertising products
and services. Clients may find that Internet advertising is less effective for
promoting their products and services relative to traditional advertising media.
In addition, most of our current and potential Web publisher clients have little
or no experience in generating revenues from the sale of advertising space on
their Web sites.
THE INTERNET MARKET RESEARCH DECISION SUPPORT AND PLANNING INDUSTRY IS NEW
AND CHANGING QUICKLY
To date, no industry consensus has emerged as to what information tools
will be essential to buying and selling Internet advertising as well as to the
development of electronic commerce. Our existing and future clients may
challenge or refuse to accept the market research information that our systems
provide. Our clients may not be satisfied with our methodology for data
collection or may feel that our databases do not represent Internet users. Our
clients might turn to other current or future providers of market research
decision support and planning systems.
INDUSTRY INITIATIVES MAY NOT SUPPORT OUR METHODOLOGIES OR MAY ENDORSE OTHER
METHODOLOGIES
Certain key industry organizations, including the Internet Advertising
Bureau, the Media Ratings Council, the Advertising Research Foundation and FAST
Forward, have begun initiatives focusing on standards for Internet market
research and audience measurement. To the extent that some or all of these trade
groups do not support our methodologies or endorse other methodologies, our
business and financial condition could be harmed.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO ADAPT TO TECHNOLOGICAL CHANGE
The Internet, the Internet advertising and electronic commerce markets are
characterized by rapidly changing technologies, evolving industry standards,
frequent new product and service introductions, and changing client demands. Our
future success depends on our ability to adapt to rapidly changing technologies,
to enhance our existing products and to develop and introduce a variety of new
products to address our clients' changing needs. We may experience difficulties
that could delay or prevent the successful design, development, introduction or
marketing of our products. In addition, our new products or enhancements must
meet the requirements of our current and prospective clients and must achieve
significant market acceptance. Delays in introducing new products and
enhancements may cause clients to forego purchases of our products and purchase
those of our competitors.
13
17
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB
Any new laws or regulations relating to the Web could adversely affect our
business. In particular, laws and regulations may be adopted in the future that
address the pricing of Internet access. Several telecommunications companies
have petitioned the Federal Communications Commission to regulate Internet
service providers and online service providers in a manner similar to long
distance telephone carriers and to impose access fees on these companies. This
could increase the cost of providing our systems over the Internet.
RISKS RELATED TO THIS OFFERING
CURRENT SHAREHOLDERS, OFFICERS AND DIRECTORS OWN A LARGE AMOUNT OF OUR STOCK AND
WILL BE ABLE TO CONTROL MATTERS REQUIRING SHAREHOLDER APPROVAL
After this offering, the directors and executive officers and their
affiliates will beneficially own % of the outstanding common stock. They
will be able to exercise control over all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership could deter, delay or
prevent transactions that could result in a change in control which could cause
the price at which our common stock trades to drop.
SUBSTANTIAL SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
After this offering, we will have outstanding shares of
common stock. Sales of a substantial number of shares of common stock in the
public market following this offering could depress the market price of our
common stock. All the shares sold in this offering will be freely tradable.
Assuming the effectiveness of certain lock-up arrangements restricting the sale
of common stock for a period of 180 days between our shareholders and us or the
underwriters, of the remaining shares of common
stock outstanding after this offering will be available for sale in the public
market 180 days following the date of this prospectus. Of these shares,
shares will be subject to volume limitations under federal
securities laws. In addition, at such time, shares subject to
options and warrants currently outstanding will be exercisable and may be
resold.
If our shareholders sell substantial amounts of common stock in the public
market, including shares issued upon the exercise of outstanding options and
warrants, the market price of our common stock could fall. Please see "Shares
Eligible for Future Sale" and "Underwriting" for an explanation of what could
happen if our shareholders sell substantial amounts of common stock.
OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED
There has never been a public market for our common stock. We cannot
predict if a trading market will develop or be maintained or if the market price
will stay above the initial offering price. The initial offering price was
determined by negotiations between representatives of the underwriters and us
and may not be indicative of prices in the future.
14
18
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE
The market price of our common stock is likely to be highly volatile as the
stock market in general, and the market for Internet-related and technology
companies in particular, has been highly volatile. Factors that could cause
volatility may include, among other things:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet industry;
- changes in the market valuations of other Internet companies;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
- capital commitments;
- additions or departures of key personnel; and
- sales of common stock.
Many of these factors are beyond our control. These factors may depress the
market price of our common stock, regardless of our operating performance. As a
result, investors may not be able to resell their shares of our common stock at
or above the initial offering price. The trading prices of many technology and
Internet-related companies' stocks have reflected valuations substantially above
historical levels. We cannot assure you that our stock will trade at the same
levels of other Internet stocks or that Internet stocks in general will sustain
their current market prices.
WE HAVE BROAD DISCRETION IN THE USE OF PROCEEDS
The net proceeds of this offering will be added to our working capital and
will be available for general corporate purposes, including expansion of sales,
marketing and customer service capabilities and product development. In
addition, we may use a portion of the net proceeds to acquire or invest in
complimentary businesses, technologies, services or products. We cannot state
with certainty particular uses for the net proceeds from this offering. Our
management will have broad discretion in the use of the net proceeds. Please see
"Use of Proceeds."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BYLAW AND STATE LAW PROVISIONS
INCLUDING POSSIBLE ISSUANCE OF PREFERRED STOCK
Our charter and bylaws provide for the establishment of a classified board
of directors, limitations on the ability of shareholders to call special
meetings, the lack of cumulative voting for directors and procedures for advance
notification of shareholder nominations and proposals. These charter and bylaw
provisions and certain provisions of Tennessee law could delay, deter or prevent
a change in control. After this offering our board of directors may issue up to
10,000,000 shares of preferred stock without any further vote or action by the
shareholders. The board can determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares. The preferred stock
may be issued with voting, liquidation, dividend and other rights superior to
those of the common stock. The
15
19
issuance of preferred stock could make it hard for a third party to acquire a
majority of our outstanding voting stock. Please see "Description of Capital
Stock" for more information about material provisions of our charter, bylaws and
Tennessee law.
INVESTORS IN THE OFFERING WILL INCUR DILUTION OF THEIR SHARES
Investors purchasing shares of common stock in this offering will incur
immediate and substantial dilution in pro forma net tangible book value per
share. All of our outstanding options will be immediately exercisable and vested
upon the consummation of this offering. If these options are subsequently
exercised, there will be further dilution. Please see "Dilution" for an
explanation of the dilution investors will incur.
FORWARD LOOKING STATEMENTS
There are statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," and elsewhere in this
prospectus that are "forward-looking statements." These forward-looking
statements include, but are not limited to, statements about our plans,
objectives, expectations and intentions and other statements contained in this
prospectus that are not historical facts. When used in this prospectus, the
words "expect," "anticipate," "intend," "plan," "believe," "estimate" and
similar expressions are generally intended to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including our plans, objectives, expectations and intentions and
other factors discussed under "Risk Factors."
16
20
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the
shares of common stock we are offering will be approximately $ million,
assuming an initial public offering price of $ per share and after deducting
the underwriting discounts and commissions and estimated offering expenses. If
the underwriters' over-allotment option is exercised in full, we estimate that
our net proceeds will be approximately $ million, at an assumed initial
public offering price of $ per share.
We intend to use the net proceeds of this offering for general corporate
purposes including working capital, for the expansion of our sales, marketing
and client service capabilities, and for product development. In addition, we
may use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, services or products; however, we currently have no
commitments or agreements and are not involved in any negotiations with respect
to any acquisition or investment. We cannot specify with certainty the
particular uses for the net proceeds to be received upon the completion of this
offering. Accordingly, our management team will have broad discretion in
applying the net proceeds.
Pending such uses, we intend to invest the net proceeds of this offering in
short-term, interest-bearing, investment grade securities, certificates of
deposit or direct guaranteed obligations of the United States.
DIVIDEND POLICY
We have never declared or paid any cash dividends. We do not expect to pay
any cash dividends on our capital stock in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the growth
of our business. We may incur indebtedness in the future which may prohibit or
effectively restrict the payment of dividends, although we have no current plans
to do so. Any future determination to pay cash dividends will be at the
discretion of our board of directors.
17
21
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998:
- on an actual basis; and
- on a pro forma, as adjusted basis to give effect to:
- the automatic conversion of all outstanding shares of preferred stock
into common stock upon consummation of this offering;
- the receipt of the estimated net proceeds from the sale of the
shares of common stock offered in this offering at an
assumed initial public offering price of $ per share and
after deducting underwriting discounts and commissions and estimated
offering expenses.
The outstanding share information excludes (a) 1,805,400 shares of common
stock issuable upon the exercise of options then outstanding with a weighted
average exercise price of $1.43 per share, (b) 47,340 shares of common stock
issuable upon exercise of options granted after December 31, 1998, with a
weighted average exercise price of $3.33 per share, (c) an aggregate of
additional shares to be reserved for issuance under our stock option plans and
(d) shares of common stock issuable upon the exercise of warrants
to be issued upon consummation of this offering.
This information is qualified by, and should be read in conjunction with,
our financial statements and the notes to those statements appearing at the end
of this prospectus.
DECEMBER 31, 1998
----------------------------
ACTUAL AS ADJUSTED
----------- -----------
Long-term debt.............................................. $ -- $ --
Mandatory redeemable convertible preferred stock:
Series A, no par value; 500,000 and no shares
authorized, respectively; 448,000 and no shares issued
and outstanding, respectively......................... 431,876 --
Series B, no par value; 2,250,000 and no shares
authorized, respectively; 2,016,000 and no shares
issued and outstanding, respectively.................. 4,011,935 --
Series C, no par value; 1,725,667 and no shares
authorized, respectively; 1,725,667 and no shares
issued and outstanding, respectively.................. 5,138,991 --
----------- -----------
9,582,802 --
Shareholders' equity:
Preferred stock, no par value; 5,524,333, 10,000,000
shares authorized, respectively; no shares issued and
outstanding........................................... -- --
Common stock, no par value; 50,000,000 shares
authorized; 907,200 and no shares issued and
outstanding, respectively............................. 8,001
Additional paid in capital.............................. 27,418
Accumulated deficit..................................... (5,345,456) (5,345,456)
----------- -----------
Total shareholders' equity (deficit)............. (5,310,037)
----------- -----------
Total capitalization............................. $4,272,765 $
=========== ===========
18
22
DILUTION
As of December 31, 1998, our pro forma net tangible book value after giving
effect to the conversion of our preferred stock was $3.9 million, or $0.46 per
share of common stock. Pro forma net tangible book value per share represents
the amount of our total tangible assets less total liabilities, divided by the
pro forma shares of common stock outstanding as of December 31, 1998. After
giving effect to the issuance and sale of the shares of common
stock offered in this offering, and the application of the estimated net
proceeds, our pro forma net tangible book value as of December 31, 1998 would
have been $ million, or $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
shareholders and an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution:
Assumed initial public offering price per share........... $
Pro forma net tangible book value per share at December
31, 1998............................................. $0.46
Increase in per share attributable to new investors....
-----
Pro forma net tangible book value per share after
offering...............................................
-----
Dilution per share to new investors....................... $
=====
The following table summarizes, on a pro forma basis, as of December 31,
1998, the differences between the number of shares of common stock purchased,
the total consideration paid and the average price per share paid by the
existing shareholders and the new investors purchasing shares of common stock in
this offering:
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ---------- ------- -------------
Existing
shareholders....... 4,689,667 % $9,657,001 % $2.06
New investors.........
---------- ----- ---------- -----
Total... 100.0% $ 100.0%
========== ===== ========== =====
The discussion and tables above assume no exercise of any stock options
outstanding as of December 31, 1998. As of December 31, 1998, there were options
outstanding to purchase a total of 1,805,400 shares of common stock with a
weighted average exercise price of $1.43 per share. If any of these options are
exercised, there will be further dilution to new investors. Please see
"Capitalization" and note 5 of the notes to our financial statements.
19
23
SELECTED FINANCIAL DATA
The selected statement of operations data presented below for the period
from our inception on May 29, 1996 to December 31, 1996 and for each of the
years in the two-year period ended December 31, 1998, and the selected balance
sheet data as of December 31, 1996, 1997 and 1998, are derived from our
financial statements that have been audited by Arthur Andersen, LLP, our
independent public accountants, and are included elsewhere in this prospectus.
You should read the following selected financial information in conjunction with
our financial statements and the notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
located elsewhere in this prospectus.
PERIOD FROM
MAY 29, 1996 YEAR ENDED
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, -------------------------------
1996 1997 1998
-------------- -------------- --------------
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ -- $ 422,401 $ 3,108,356
Costs and expenses:
Product costs................ 487,239 1,744,366 2,360,042
Selling and marketing........ -- 819,043 1,713,080
General and administrative... 190,766 753,299 1,084,698
--------- ----------- -----------
Total costs and
expenses............. 678,005 3,316,708 5,157,820
--------- ----------- -----------
Loss from operations.............. (678,005) (2,894,307) (2,049,464)
Interest income................... 17,367 80,368 191,804
--------- ----------- -----------
Net loss before income taxes...... (660,638) (2,813,939) (1,857,660)
Income tax provision.............. -- -- 13,219
--------- ----------- -----------
Net loss.......................... $(660,638) $(2,813,939) $(1,870,879)
========= =========== ===========
Basic and diluted loss per share
(1)............................. $ (0.73) $ (3.13) $ (2.07)
========= =========== ===========
Weighted average shares
outstanding..................... 900,000 900,000 901,993
========= =========== ===========
DECEMBER 31,
----------------------------------------
1996 1997 1998
---------- ----------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents.......... $1,608,370 $ 832,338 $ 3,682,576
Working capital.................... 1,511,997 726,217 3,716,071
Total assets....................... 1,625,616 1,559,175 6,026,481
Mandatory redeemable convertible
preferred stock.................. 2,189,097 4,443,811 9,582,802
Shareholders' equity (deficit)..... (660,637) (3,474,576) (5,310,037)
- -------------------------
(1) Please see note 2 of the notes to our financial statements for an
explanation of the number of shares used in per share computations. At the
time of our initial public offering, each share of our preferred stock will
convert into 1.8 shares of our common stock. On a pro forma basis, basic and
diluted loss per share, had each share of preferred stock been immediately
converted into common stock at the time of issuance, would have been $(0.31)
in our inception period, $(0.58) in 1997 and $(0.24) in 1998.
20
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our financial
statements and the notes to those statements appearing elsewhere in this
prospectus. The following discussion contains forward-looking statements that
involve known and unknown risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. Our actual results may differ
significantly from those projected in the forward-looking statements. Factors
that might cause future results to differ materially from those projected in the
forward-looking statements include, but are not limited to, those discussed in
"Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We are the leading provider of market research decision support and
planning systems specifically designed for Internet advertisers, advertising
agencies, and Web publishers, and we recently introduced a system for online
retailers and consumer brand marketers. These systems help enable our clients to
effectively harness the power of the Internet as an advertising, marketing and
retailing medium. Our proprietary systems, which our clients access over the
Internet, combine consumer lifestyle, product preference and demographic data
with powerful query, search and planning technologies.
We were founded in May 1996. During the period from May 1996 to December
31, 1996, our inception period, we had no revenues and were primarily engaged in
the development and planning of our software and survey research
infrastructures. In June 1997, we introduced our first product system, the @plan
Gutenberg Advertising System. Since 1997, subscribers to this system have
included Internet advertisers, advertising agencies and Web publishers and, to a
lesser extent, online retailers and consumer brand marketers. During 1997, we
generated revenues of approximately $422,000, and continued to build our sales
and operations staff. During 1998, our first full year of sales, we continued to
grow our client subscriber base and generated revenues of $3.1 million. Despite
our growth in revenues, we incurred operating losses for the year, as our focus
continued to be on expanding our client and user bases, product development and
the hiring of additional personnel. During 1998, we opened a satellite office in
San Francisco, California to service our existing West Coast clients and to
expand our client base in this market. In December 1998, we introduced the @plan
Kepler E-Business System specifically designed for online retailers and consumer
brand marketers.
We derive all of our revenues from the sale of subscriptions to our
systems. The subscription contracts are generally non-cancelable for a period of
one year and most automatically renew unless we receive notice of termination
from the client prior to the anniversary date. Clients typically pay contract
fees on an annual, quarterly or monthly basis which are recorded as deferred
revenue until the revenue is recognized. Revenue is recognized on a straight
line basis beginning over the non-cancelable contract period, generally 12
months. Upon renewal, many of the subscription rates increase automatically in
accordance with contract provisions. These automatic increases are generally
higher in the first two renewal years than in subsequent renewal years where the
rate adjustment is based on increases in the Consumer Price Index, or CPI. We
have experienced a contract renewal rate of 94%
21
25
from inception through December 31, 1998. The renewal rate is not necessarily
indicative of the rate of future retention of our revenue base.
One measure of the volume of our business is "contract value" which
represents the annualized value of all contracts in effect at a given point in
time, without regard to the duration of contracts then outstanding and without
deducting revenue already recognized under these contracts. Our contract value
was $1.6 million at December 31, 1997 and $4.6 million at December 31, 1998.
Our revenues and operating margins will fluctuate due, in part, to product
and customer mix. Annual subscriptions to the @plan Kepler E-Business System are
typically priced higher than annual subscriptions to the @plan Gutenberg
Advertising System. Moreover, annual subscription pricing and renewal pricing
are often negotiated and may vary based on the volume of subscriptions being
sold to the client. Variations in product or client mix could cause our revenue
and operating results to fluctuate on a quarterly or annual basis.
Product costs consist primarily of amounts paid to Gallup for quarterly
collection of data used in our market research systems. From time to time we
will engage Gallup on a case-by-case basis to collect additional data. In the
past, these additional engagements have caused our data collection costs to
fluctuate from quarter to quarter, and we expect quarterly data collection costs
to continue to fluctuate as we plan to continue to use Gallup for additional
data collection. Product costs will also increase as we collect data in
conjunction with the development of new products.
Also included in product costs are software development costs which consist
primarily of the amortization of capitalized software development costs and, to
a lesser extent, other non-capitalized technology expenses such as Web site
maintenance. Software development costs represent expenses incurred to improve
or enhance our systems, including increasing access speeds, designing new user
interfaces and developing new system modules. As of December 31, 1998, we had
approximately $375,000 in capitalized software development costs which will be
amortized and expensed as product costs over the next one to three years. See
note 2 of the notes to our financial statements for an explanation of the
accounting for our software development costs.
We have incurred significant losses since inception and as of December 31,
1998, we had an accumulated deficit of $5.3 million. Our net losses and
accumulated deficit resulted from our lack of substantial revenues and the
significant costs incurred in the development of our systems and in the
establishment of our operations infrastructure. We believe that our success will
depend largely on our ability to extend our leadership position as a source for
market research decision support and planning systems for the Internet.
Accordingly, we intend to invest in the development of new products, the
enhancement of our current systems and in the expansion of our sales force. As a
result, we expect to incur additional losses at least through December 31, 2000.
RESULTS OF OPERATIONS
INCEPTION PERIOD AND YEARS ENDED DECEMBER 1997 AND 1998
Revenues. Total revenues increased from approximately $422,000 in 1997 to
$3.1 million in 1998. We had no revenues during our inception period from May
29, 1996
22
26
through December 31, 1996. The increase in revenues during 1998 resulted
principally from the growth in subscription sales for the @plan Gutenberg
Advertising System during our first full year of sales efforts, as well as
recurring revenues from the retention of existing clients. We had nominal
revenues from subscription sales of the @plan Kepler E-Business System in 1998
as it was not introduced until December 1998.
Product Costs. Product costs consist primarily of amounts paid to Gallup
for quarterly collection of data used in our market research system and software
development costs. Product costs increased from approximately $487,000 in our
inception period to $1.7 million in 1997 due primarily to data collection costs
associated with the introduction of the @plan Gutenberg Advertising System in
June 1997. Product costs increased to $2.4 million in 1998 due primarily to
ongoing data collection costs associated with the @plan Gutenberg Advertising
System and additional data collection costs associated with the December 1998
launch of the @plan Kepler E-Business System. Data collection and software
development costs will increase as we introduce new products.
Selling and Marketing. Selling and marketing costs consist primarily of
the personnel expenses associated with the sale and service of our systems,
including commissions, public relations costs and, to a lesser extent, marketing
expenses. We had no selling and marketing costs during 1996 as the @plan
Gutenberg Advertising System was not introduced until 1997. Selling and
marketing costs increased from approximately $819,000 in 1997 to $1.7 million in
1998. The increase was due largely to the expansion of our sales force and
client service team and commissions associated with increased sales. Selling and
marketing costs will increase as we continue to expand our sales force and
introduce new products.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related costs for our administrative,
financial and information technology personnel, professional fees, occupancy
costs and general office expenses. General and administrative expenses were
approximately $191,000 in our inception period, approximately $753,000 in 1997
and $1.1 million in 1998. The increase in each period was primarily attributable
to the increase in staffing levels to manage and support our expanding
operations. We anticipate hiring additional personnel and we will incur
additional costs related to being a public company, including directors' and
officers' liability insurance, investor relations programs and professional
services fees. Accordingly, general and administrative expenses will increase in
future periods.
Interest Income. Interest income consists of interest on our cash and cash
equivalents. Interest income was approximately $17,000 in our inception period,
approximately $80,000 in 1997 and approximately $192,000 in 1998. The increase
in 1998 was primarily due to a higher investment balance as a result of net
proceeds of $5.1 million from our sale of preferred stock in 1998.
23
27
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth certain statement of operations data for the
four quarters ended December 31, 1998 both in absolute dollars and as a
percentage of total revenues. The information for each quarter has been prepared
on substantially the same basis as the audited statements included in other
parts of this prospectus and, in our opinion, includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the results of operations for these periods. You should read
this information in conjunction with our financial statements and the notes to
those statements included elsewhere in this prospectus. The operating results
for any quarter are not necessarily indicative of the results to be expected in
the future.
QUARTER ENDED
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
------------- ------------- ------------- -------------
(UNAUDITED)
Revenues........................ $ 469,168 $ 633,281 $ 899,026 $ 1,106,881
Costs and expenses:
Product costs............... 407,649 671,153 572,010 709,230
Selling and marketing....... 294,811 420,265 483,496 514,508
General and
administrative............ 181,915 189,675 345,345 367,763
----------- ----------- ----------- -----------
Total costs and
expenses............. 884,375 1,281,093 1,400,851 1,591,501
----------- ----------- ----------- -----------
Loss from operations............ (415,207) (647,812) (501,825) (484,620)
Interest Income................. 52,710 45,709 47,198 46,187
----------- ----------- ----------- -----------
Net loss before taxes........... (362,497) (602,103) (454,627) (438,433)
Income tax provision............ 4,921 -- -- 8,298
----------- ----------- ----------- -----------
Net loss........................ $ (367,418) $ (602,103) $ (454,627) $ (446,731)
=========== =========== =========== ===========
PERCENTAGE OF REVENUES
----------------------------------------------------------------
Revenues........................ 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Product costs............... 86.9 105.9 63.6 64.1
Selling and marketing....... 62.8 66.4 53.8 46.5
General and
administrative............ 38.8 30.0 38.4 33.2
----------- ----------- ----------- -----------
Total costs and
expenses............. 188.5 202.3 155.8 143.8
----------- ----------- ----------- -----------
Loss from operations............ (88.5) (102.3) (55.8) (43.8)
Interest income................. 11.2 7.2 5.2 4.2
----------- ----------- ----------- -----------
Net loss before taxes........... (77.3) (95.1) (50.6) (39.6)
Income tax provision............ 1.0 -- -- 0.8
----------- ----------- ----------- -----------
Net loss........................ (78.3)% (95.1)% (50.6)% (40.4)%
=========== =========== =========== ===========
FACTORS AFFECTING QUARTERLY OPERATING RESULTS
Our revenues increased during each quarter of 1998. Quarterly revenue
increased 35% from the first to the second quarter, 42% from the second to the
third quarter and 23% from the third to the fourth quarter. These increases were
due primarily to the growth in sales of subscriptions to the @plan Gutenberg
Advertising System as well as the effects of subscription renewals, which began
in the third quarter of 1998. These renewals reflect higher subscription rates
than those in place during the initial term of these contracts, in accordance
with contract provisions.
Operating costs and expenses increased 45% from the first to the second
quarter, 9.3% from the second to the third quarter and 14% from the third to the
fourth
24
28
quarter. These increases were due primarily to additions of sales and
administrative personnel to sustain our growth and new product development
costs. Operating costs and expenses in the second quarter were impacted by
product development costs associated with our U.S. population data collection,
which was included with the @plan Kepler E-Business System beginning in the
fourth quarter. Loss from operations, in absolute dollars and as a percent of
revenues, decreased during the year due to increasing revenues from new
contracts and renewals and the maintenance of fixed expenses such as data
collection costs.
Interest income remained relatively constant during the year but declined
as a percentage of revenues due to the growth in our revenues.
Our operating results have varied on a quarterly basis and are expected to
fluctuate significantly in the future as a result of a variety of factors, many
of which are outside our control. Factors that may affect our quarterly
operating results include:
- market acceptance of the Web as an advertising medium;
- the development of the electronic commerce market;
- market acceptance of our products and services;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business, including our planned development
of more detailed market research and planning systems;
- variations in product or client mix, as pricing may vary based on the
volume and type of subscription being sold to a client;
- our ability to expand our customer base and retain current clients;
- new competitors entering our market;
- general economic conditions as well as economic conditions specific to
the Internet;
- our ability to attract and retain qualified sales and other personnel;
- technical difficulties or service interruptions; and
- strategic pricing changes, marketing decisions or acquisitions.
Our limited operating history and the emerging nature of our markets make
prediction of future revenues difficult. Our expense levels are based, in part,
on our expectations with regard to future revenues, and to a large extent such
expenses are fixed, particularly in the short term. We cannot assure you that we
will be able to predict our future revenue accurately and we may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in our expectations could
cause significant declines in our quarterly operating results.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
private placement of preferred stock. Net proceeds from the sale of convertible
preferred stock from inception to December 31, 1998 have totaled $9.6 million.
As of December 31, 1998, we had $3.7 million in cash and cash equivalents.
Net cash used in operating activities was approximately $570,000 in our
inception period, $2.8 million in 1997 and $1.8 million in 1998. Cash used in
25
29
operating activities in each period was primarily attributable to net operating
losses and increases in accounts receivable which were partially offset by
increases in deferred revenue and accrued expenses.
Deferred revenue increased from approximately $367,000 at December 31, 1997
to $1.1 million at December 31, 1998. Deferred revenue represents amounts
invoiced under contract prior to our rendering of services to the client.
Unbilled accounts receivable, which increased from approximately $91,000 at
December 31, 1997 to approximately $245,000 at December 31, 1998, represents the
value of services provided prior to invoicing. Substantially all deferred
revenue will be earned and unbilled revenue will be billed within twelve months.
Net cash used in investing activities was approximately $11,000 in our
inception period, approximately $214,000 in 1997 and approximately $533,000 in
1998. Cash used in investing activities in each period was primarily
attributable to software development costs and purchases of property and
equipment.
Net cash provided by financing activities was $2.2 million in our inception
period, $2.3 million in 1997 and $5.1 million in 1998. Cash provided by
financing activities in each period was primarily attributable to the proceeds
from the sale of preferred stock, net of issuance costs.
We have no material commitments other than our lease for our corporate
headquarters and obligations under our agreement with Gallup. Our agreement with
Gallup provides us with certain initial baseline data and quarterly tracking
data collection. The agreement has a one-year term with nine successive one-year
renewals and is cancelable only by us upon 90-days' written notice. The annual
renewal provides for CPI increases to the associated fees. In addition, we
expect to enter into additional agreements for data collection efforts as we
develop new products.
We believe that the net proceeds from this offering, together with our
existing cash and cash equivalents, will be sufficient to meet our working
capital and capital expenditure requirements for at least the 18 months
following this offering. Thereafter, we may be required to raise additional
funds. If additional funds are raised through the issuance of equity securities,
our shareholders may experience significant dilution. There can be no assurance
that additional funding, if needed, will be available on attractive terms, or at
all. If financing is not available when required or is not available on
acceptable terms, we may be unable to develop or enhance our products or
services. The failure to raise capital when needed could harm our business,
operating results and financial condition.
YEAR 2000 COMPLIANCE
Overview. Many currently installed computer systems and software products
are coded to accept or recognize only two digit entries in the date code field.
These systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
State of Readiness. We have made a preliminary assessment of the Year 2000
readiness of all of our information technology systems, including the computer
hardware and software that support our systems and our financial and
administrative
26
30
systems as well as our non-information technology systems such as our office
facilities. Our plan for addressing Year 2000 has three phases:
- identification and evaluation of Year 2000 issues;
- development of plans for addressing the issues and prioritization of
those issues; and;
- implementation of plans and verification of the effectiveness of those
plans.
In relation to our information technology systems, we have reviewed the
software obtained from third parties that is incorporated into our products, and
are seeking assurances from our vendors that licensed software is Year 2000
compliant. In particular, we have received assurances from our relational
database provider, our operating system vendor and accounting systems vendor
that the programs are Year 2000 compliant. Further, we are in the process of
reviewing our internally developed software and are working with our third party
software developer to seek their assurance that their development and backup
systems are compliant. Additionally, we are in the process of reviewing our
Internet connectivity with UUNet as it relates to the delivery of our products
to our clients. We plan to have completed a full review of our information
technology systems by the end of the second quarter of 1999 and plan to complete
all testing by the end of the third quarter of 1999.
Our non-information technology systems are currently being evaluated.
Preliminary responses from our lessor have indicated that our Stamford,
Connecticut facilities are compliant with respect to electrical and climate
control systems. Beginning in the second quarter of 1999 we plan to further
focus on our telecommunications equipment and voicemail systems. We plan to
complete our verification and testing of all non-information technology systems
by the end of the third quarter of 1999.
We rely on Gallup for our data collection efforts. Gallup has advised us
that they are finalizing their Year 2000 compliance review of their systems and
are implementing any necessary hardware and software upgrades. Beginning in the
second quarter of 1999, we will reassess Gallup's compliance progress and
develop any necessary testing plans accordingly.
We have identified other vendors whose Year 2000 compliance may have an
impact on our business, such as our payroll processing company. We are currently
beginning to develop our plans to ensure the compliance of our other vendors.
Costs. To date, we have not incurred any incremental costs in connection
with identifying, evaluating or addressing Year 2000 compliance issues. Most of
our expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. At this time, we do not
possess the information necessary to estimate the potential costs of either
revisions to our systems, should revisions be required, or replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Although we do not anticipate that such expenses will be
material, these expenses, if higher than anticipated, could harm our financial
performance.
Worst-Case Scenario. We believe that our most reasonably possible worst
case scenario would exist if Gallup's systems were subject to unexpected Year
2000 complications. This could potentially affect our ability to release timely
data in the first quarter or second quarter of 2000 depending on the nature of
the affected
27
31
systems. If we determine that Gallup is unable to meet data delivery
requirements on a timely basis, we would ask Gallup to accelerate data
collection and data processing which may cause us to incur additional costs.
However, there can be no assurance that Gallup could collect and process data
under an accelerated schedule. We will continue to monitor this and any other
potential areas of exposure and develop contingency plans accordingly.
Risks. We are not currently aware of any Year 2000 compliance problems
relating to our systems that would harm our business, results of operations and
financial condition, other than those previously discussed. We can not assure
you that we will not discover Year 2000 compliance issues in our systems that
will require substantial revision. In addition, we can not assure you that
third-party software, hardware or services incorporated into our systems will
not need to be revised or replaced, all of which could be time consuming and
expensive.
Our failure to fix or replace our internally developed systems or
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of clients, or other business
interruptions, any of which could harm our business, results of operations and
financial condition. Moreover, the failure to adequately address Year 2000
compliance issues in our internally developed systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by such entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
such as prolonged Internet, telecommunications or electrical failure. This could
prevent our users from accessing our system, which could harm our business,
results of operations and financial condition. Our contingency plan in this
event would be to provide data to our clients on a manual basis until our Year
2000 issues could be corrected.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." Statement of Position 98-1 is effective
for financial statements for years beginning after December 15, 1998. Statement
of Position 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specific costs and amortization of such costs. We do not expect this standard to
have a material effect on our capitalization policy.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." Statement of Position 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the reporting of
start-up costs and organization costs. It requires costs of start up activities
and organization costs to be expensed as incurred. The adoption of this standard
is not expected to have a significant impact on our results of operations,
financial position or cash flows.
We do not believe that any other recent pronouncements will have a
significant impact on our results of operations, financial position or cash
flows.
28
32
BUSINESS
OVERVIEW
We are the leading provider of market research decision support and
planning systems specifically designed for Internet advertisers, advertising
agencies and Web publishers, and we recently introduced a system for online
retailers and consumer brand marketers. These systems help enable our clients to
effectively harness the power of the Internet as an advertising, marketing and
retailing medium. Our proprietary systems, which our clients access through our
Web site, combine our databases of consumer lifestyle, product preference and
demographic data with powerful query, search and planning technologies. Our
syndicated Internet consumer research data is collected, on an exclusive basis,
by Gallup from a statistically representative group of approximately 40,000
active adult Web users. We believe that our systems are a critical component in
facilitating the purchase and sale of advertising on the Internet and are
becoming a key information tool in enabling the increase in consumer electronic
commerce.
We introduced the @plan Gutenberg Advertising System in June 1997 and as of
February 28, 1999 we had contracts representing a total of over 250 Internet
advertisers, advertising agency offices, Web sites, online retailers and
consumer brand marketers. We currently have subscription contracts for our
systems with all of the top 20 Web publishers as measured by advertising
revenues, 65% of the top 20 U.S. advertising agencies primarily focused on the
Web as measured by billings and 60% of the top 20 "traditional" U.S. advertising
agencies as measured by billings. We introduced the @plan Kepler E-Business
System in December 1998 and as of February 28, 1999 we already had contracts
with five online retailers and consumer brand marketers.
A representative list of our clients includes Buy.com, CBS MarketWatch,
Grey Interactive, Modem Media.Poppe Tyson, Starcom IP (Leo Burnett),
TicketMaster Online, Time Inc. New Media and US Web/CKS. We believe that our
systems have been accepted as a necessary tool by our clients as evidenced by
our 95% subscription contract renewal rate from our inception through February
28, 1999.
INDUSTRY BACKGROUND
Growth of the Internet, Web Advertising and Online Commerce
The Internet is rapidly emerging as a mass communications and commerce
medium enabling millions of people worldwide to share information, be
entertained, communicate and research or make consumer purchases electronically.
International Data Corporation, or IDC, projects that worldwide Internet usage
will grow from approximately 97 million users at the end of 1998 to 320 million
in 2002. This growth is driven by a number of factors, including an expanding
base of personal computers and other devices, more convenient, faster and
inexpensive access to the Internet and the increasing importance of the Internet
as a sales, marketing and distribution channel, communications medium and
information resource.
The Internet is evolving into an important medium for advertisers due to
its interactive nature, its potential for highly targeted advertising and its
ability to reach a workplace audience. These unique characteristics, combined
with the growth in the number of Internet users and the compelling demographics
of these users, have led to a significant increase in Internet advertising. The
Internet Advertising Bureau
29
33
estimates that expenditures on Internet advertising will grow from $1.9 billion
in 1998 to $7.7 billion in 2002.
The Internet is increasingly affecting the methods by which businesses are
selling goods and services and developing relationships with their current and
potential customers. The Internet provides businesses with the ability to reach
a global audience, achieve greater economies of scale, and operate with minimal
infrastructure while providing consumers with a broad selection of goods and
services, increased pricing power and unparalleled convenience. In addition,
businesses that are not actively selling goods and services online are
integrating the Internet into their marketing strategy to acquire and retain
customers and enhance their marketing capabilities. IDC estimates that the value
of goods and services purchased on the Internet will increase from approximately
$32 billion in 1998 to over $400 billion in 2002.
Need for Market Research Decision Support and Planning Tools
As the Internet advertising, marketing and retailing environment continues
to rapidly evolve, online market participants are continually challenged to
define and reach their target audiences, develop cost-efficient customer
acquisition and retention strategies and develop their business strategies and
tactics. Market research decision support and planning tools enable advertisers,
marketers, and retailers in many industries to optimize their competitive
strategies by providing them with highly detailed consumer behavior information.
The characteristics of the Internet as both a unique medium for advertising
and a distinct marketing and sales channel plus the substantial potential size
of the Internet market have heightened the need among online market participants
for these tools. The rapid growth in the number of users as well as in the
number of content and electronic commerce sites on the Internet requires online
market participants to recognize and adapt to changing conditions more quickly
than in many traditional media, marketing and retailing environments. The
diversity of these users and sites requires online market participants to
process vast amounts of information to achieve an understanding of both their
target market and the online market as a whole. In addition, the competitive
environment on the Internet for a particular retailing category may be wholly
different than that in the traditional marketplace requiring online market
participants to develop new understandings of different and evolving competitive
factors.
As a result, online market participants are seeking trusted, third-party
neutral market research decision support and planning tools that will enable
them to navigate the volatile and dynamic online marketplace. Each of these
online market participants has particular needs to successfully implement their
online strategy, including the following:
Internet Advertisers and Advertising Agencies. The Internet's unique
capability to provide advertisers with the ability to target users with specific
interests and characteristics, and in particular, hard to reach workplace users,
creates a need for market research decision support and planning tools to inform
and support those targeting decisions. In addition, Internet advertisers and
advertising agencies are continually trying to define the role of the Internet
in the total mix of media to efficiently reach their target audience. In order
to most effectively incorporate Internet advertising into their overall
marketing plans, advertisers must have access
30
34
to tools that enable them to understand the particular strengths and weaknesses
of the Internet in reaching their target audience.
Web Publishers. The market among sellers of Internet advertising is
becoming increasingly competitive as new advertiser-supported Web sites are
launched every day and existing advertiser supported Web sites seek to continue
their growth. New and existing Web publishers need market research decision
support and planning tools to allow them to better understand their audiences in
order to differentiate themselves from competing Web sites. To maximize their
advertising revenues, Web publishers must be able to optimize their sales
efforts by identifying those potential advertisers who would be interested in
the audience their Web site can deliver. Once these potential advertisers have
been identified, Web publishers need to be able to provide convincing,
third-party neutral information to show that they can deliver a specific
advertiser's target audience and show how their site differs from competitor
sites as it relates to the specific needs of the advertiser.
Online Retailers and Consumer Brand Marketers. As the number of retailers
and consumer brand marketers conducting business and marketing products and
services to consumers online continues to increase, the Internet has become a
highly competitive retail and marketing environment. Established businesses in
industries such as retailing and financial services must compete with online
companies in a dramatically different environment. In order to compete in this
environment, online retailers need market research decision support and planning
tools that will enable them to develop cost-effective, highly targeted customer
acquisition and retention strategies. Both online retailers and consumer brand
marketers need market research decision support and planning tools that will
enable them leverage the Internet to target marketing relationships and
promotional opportunities with their current and potential customers.
Challenges of Providing Online Market Research Decision Support and
Planning Systems
To meet the needs of online market participants and help enable the
increase in advertising and consumer electronic commerce on the Web, a provider
of market research decision support and planning systems must be able to
overcome certain challenges, including:
- amassing and maintaining a large, statistically representative consumer
research database in order to capture the complexity of the online space,
the diversity of the online audience and the fragmentation of
advertising, marketing and retailing competitors;
- developing a sophisticated yet user-friendly, Web-based software
interface that enables the user to efficiently process and analyze large
amounts of discrete information to meet its own unique decision support
and planning needs;
- establishing rigorous, third-party neutral methodological and data
collection procedures to ensure the accuracy and integrity of the
information; and
- identifying, researching and reporting emerging consumer electronic
commerce trends.
We believe that a significant opportunity exists for a company to provide
online market research decision support and planning tools that provide the type
of
31
35
detailed, third-party neutral marketing research information that online market
participants require. By integrating a comprehensive and reliable database with
sophisticated workstation and decision support software, a Web-based system can
enable online market participants to make informed Internet advertising,
marketing and retailing decisions.
THE @PLAN SOLUTION
We are the leading provider of market research decision support and
planning systems specifically designed for Internet advertisers, advertising
agencies and Web publishers, and we recently introduced a system for online
retailers and consumer brand marketers. These systems help enable our clients to
effectively harness the power of the Internet as an advertising, marketing and
retailing medium. Our proprietary systems, which our clients access through our
Web site, combine databases of consumer lifestyle, product preference and
demographic data with powerful query, search and planning technologies. Our
syndicated Internet consumer research data is collected, on an exclusive basis,
by Gallup from a statistically representative group of approximately 40,000
active adult Web users. We believe that our systems are a critical component in
facilitating the purchase and sale of advertising on the Internet and are
becoming a key information tool in enabling the rise of consumer electronic
commerce. We currently have subscription contracts for the delivery of our
services to all of the top 20 Web publishers as measured by advertising
revenues, 65% of the top 20 U.S. advertising agencies primarily focused on the
Web as measured by billings and 60% of the top 20 "traditional" U.S. advertising
agencies as measured by billings.
We currently provide two market research decision support and planning
systems: the @plan Gutenberg Advertising System for Internet advertisers,
advertising agencies and Web publishers and the @plan Kepler E-Business System
for online retailers and consumer brand marketers. Each of our systems provides
reliable, third-party neutral information.
To Internet advertisers and advertising agencies, the @plan Gutenberg
Advertising System delivers online market research decision support and planning
tools that help enable an advertiser or advertising agency to:
- assess the role the Web should play in achieving a client's specific
advertising objectives;
- determine the most efficient way to reach client defined audiences on the
Web; and
- make meaningful comparisons of the relative cost of reaching target
audiences across a large number of advertiser supported Web sites;
To Web publishers, the @plan Gutenberg Advertising System delivers online
market research decision support and planning tools that help enable a Web
publisher to:
- target its sales efforts by identifying its best brand and category
prospects for advertising and sponsorship revenue;
- access and compare the demographic lifestyle and product preference
profiling information for other major advertiser-supported Web sites; and
- obtain a comprehensive understanding of its users' interests and
lifestyles to develop better positioning and content development
strategies.
32
36
To online retailers and consumer brand marketers, the @plan Kepler
E-Business System delivers online market research decision support and planning
tools that help enable a retailer or marketer to:
- create sophisticated online retailing strategies by better understanding
how shopping and purchase behaviors differ between the online and
traditional retail environments for a variety of consumer product and
service categories;
- identify and assess the consumer lifestyle, product preference and
demographic profiles of consumers shopping on competitors' Web sites;
- develop cost-effective, highly-targeted customer acquisition and
retention strategies; and
- target marketing relationships and promotional opportunities with current
and potential customers.
STRATEGY
Our objective is to be the leading provider of market research decision
support and planning systems for online market participants including Internet
advertisers, advertising agencies, Web publishers, online retailers and consumer
brand marketers. The following are the key elements of our strategy:
Increase Market Penetration of the @plan Kepler E-Business System. We
intend to increase the market penetration of the @plan Kepler E-Business System
by continuing to target our sales and marketing efforts toward online retailers
and consumer brand marketers. We introduced the @plan Kepler E-Business System
in December 1998 and as of February 28, 1999 we had already entered into
contracts with five online retailers and consumer brand marketers. We intend to
establish the @plan Kepler E-Business System as the recognized leader in its
market to capitalize on the projected growth of electronic commerce.
Enhance and Expand the @plan Gutenberg Advertising System. We intend to
expand our sales and marketing efforts of the @plan Gutenberg Advertising
System. Further, we intend to leverage our proprietary information and
technology to further enhance the @plan Gutenberg Advertising System and
facilitate the development of additional features. We believe that our
proprietary information and software interface and the experience and knowledge
gained through the delivery of our systems provide us with a significant
competitive advantage.
Develop Additional Revenue Sources. We intend to leverage our database of
information, our technology, our expertise and our existing client base to
develop new sources of revenue. As the Internet continues to grow and evolve, we
believe the demand for more detailed market research decision support and
planning tools will increase. We intend to meet this demand by continually
developing new information products that are of interest to our clients. In
addition, we intend to leverage our relationships with existing clients by
expanding existing contracts to include additional client offices and Web
properties.
Expand Sales Efforts and Maximize Sales Effectiveness. We believe that a
strong sales organization is essential to effectively sell our systems. Our
current sales team consists of highly qualified, experienced individuals who are
able to effectively sell our sophisticated systems. To increase our market
penetration, particularly in the growing electronic commerce segment, we intend
to continue to expand our sales efforts by rapidly expanding our sales team.
33
37
Continue to Provide the Highest Level of Client Service. We emphasize high
quality service for our clients and take a proactive approach to ensure that our
clients are satisfied. We believe client satisfaction is the key to ensuring
high rates of contract renewal, and, accordingly, we maintain a dedicated client
service team that provides service, training and client support. We compensate
our client service managers in part based on targeted levels of renewal rates.
In addition, as our client base increases we intend to continue to build our
client service team to offer a high level of service, training and support.
Leverage Our Market Research to Identify Key Trends. We believe that a
significant source of value to our clients is our ability to track trends in the
online marketplace. We continually update our data collection process to capture
relevant information to define these trends. We intend to continue to use and
refine these tracking techniques to provide the information that our clients
need and to identify appropriate areas of expansion for our products.
OUR SYSTEMS
We provide two market research decision support and planning systems: the
@plan Gutenberg Advertising System for advertisers, advertising agencies and Web
publishers and the @plan Kepler E-Business System for online retailers and
consumer brand marketers. These systems are accessed through our Web site by
entering a password combination that allows our clients access to our
sophisticated software interfaces through which they can query various datasets
in our proprietary databases. The datasets and databases that new clients can
access generally depends on the system to which they subscribe as set forth
below:
@PLAN GUTENBERG ADVERTISING SYSTEM
- ------------------------------------------------
- - Advertiser-supported Web site specific profiling data
- - Web site advertising rate card, site description and contact information data,
which we call our B.R.E.W. database
- - Web adult consumer lifestyle and product preference data
@PLAN KEPLER E-BUSINESS SYSTEM
- ------------------------------------------------
- - Electronic commerce/retailing Web site specific profiling data
- - Adult U.S. population lifestyle and product preference database
- - Web adult consumer lifestyle and product preference data
- - Advertiser-supported Web site-specific profiling data
@plan Gutenberg Advertising System
The @plan Gutenberg Advertising is a comprehensive advertising decision
support and planning system providing lifestyle, product preference and
demographic profile information across a large number of advertiser-supported
Web sites.
Internet advertisers and advertising agencies can query the system on an
interactive basis to better understand the role the Internet should play in
attaining specific advertising objectives. Clients can conduct queries on
various client defined targets, such as Web audiences, advertiser-supported Web
sites, or particular products or services. By combining the results of those
queries with current rate card information from our B.R.E.W. database, clients
can develop comprehensive and sophisticated media plans and marketing campaigns
for reaching a specific target audience in the most efficient and cost-effective
manner.
Web publishers utilize the system to develop specific strategies for
optimizing their sales efforts toward those advertisers who would be most
interested in reaching the audience that the publisher's Web site can deliver.
The system provides the
34
38
support for these optimization strategies and sales efforts in the form of
highly detailed, third-party neutral and comparable lifestyle, product
preference, shopping behavior and demographic profiling data across a large
number of advertiser supported Web sites. Web publishers can also use the system
to assess the strengths and weaknesses of their competitors as well as to help
differentiate the competitive position of their sites.
@plan Kepler E-Business System
The @plan Kepler E-Business System is a comprehensive consumer market
research decision support and planning system providing lifestyle, product
preference, shopping behavior and demographic profiling data across a large
number of advertiser-supported Web sites and consumer electronic commerce retail
sites and categories. Online retailers and consumer brand marketers utilize the
system to understand and track their competitive strengths and weaknesses in
order to assess their strategy in both traditional and online markets. The
system provides support for these assessments in the form of highly detailed and
comparable information across a large number of consumer electronic commerce
retail Web sites. Online retailers can also use this information to develop more
effective and cost-efficient customer acquisition and retention strategies. The
system also provides access to a database reflecting select lifestyle, product
preference and demographic profiling data for the total U.S. adult population.
Online retailers and consumer brand marketers utilize the system to access this
data to track differences in retailing trends between traditional and online
markets to better understand how the online market differs from the traditional
market in their particular retail category. Online retailers and consumer brand
marketers can also utilize the system to combine this profile information with
content site information to arrive at statistical estimates of the market
penetration for various products and services sold on the Internet.
CLIENTS
Of the over 250 clients that we currently have under contract, a
representative list within each category is as follows:
[CAPTION]
WEB ONLINE RETAILERS AND
ADVERTISING AGENCIES PUBLISHERS CONSUMER BRAND MARKETERS
- ------------------------------------- ------------------- ------------------------
INTERACTIVE
- -------------------------------------
i-traffic broadcast.com Buy.com
Modem Media.Poppe Tyson CBS MarketWatch IBM Enterprise Web
Quantum Leap Discovery Channel Management Group
Strategic Interactive Group/Bronner Online Preview Travel
Slosberg Humphrey Excite realtor.com
THINK New Ideas The Mining Company T. Rowe Price
US Interactive Time Inc. New Media TicketMaster Online
US Web/CKS Women.Com Virtual Vineyards
TRADITIONAL
- -------------------------------------
Euro RSCG Dahlin Smith White
Fallon McElligott
Grey Interactive
Publicis & Hal Riney
Saatchi & Saatchi
Starcom IP (Leo Burnett)
Western International
35
39
CLIENT CASE STUDIES
Advertising Agency.
Starcom IP
Starcom IP, a division of Leo Burnett Company, Inc., is dedicated to
developing media strategies that build their clients' brands. To develop these
strategies effectively, they invest heavily in a variety of media planning,
buying and research resources, all designed to provide them with the most
current knowledge and insights available. Starcom IP subscribes to the @plan
Gutenberg Advertising System to access the third-party neutral information
needed to develop effective, efficient Web media plans for their clients.
Recently, a major U.S. packaged goods company asked Starcom IP to help
create a targeted Web media plan for them. The client's target audience was men
age 21 and older who are active sports enthusiasts. Starcom IP used the @plan
Gutenberg Advertising System to calculate which advertiser-supported Web sites
would most efficiently deliver this target audience. Starcom IP then used the
@plan system to sort through the possible Web sites to be considered, arriving
at a list of Web sites for their recommended media plan. Once they completed the
site selection, Starcom IP used the @plan Gutenberg Advertising System to
profile the selected Web sites to ensure that the strengths of those sites fit
the client's specific needs. As a result of using the information provided by
the @plan Gutenberg Advertising System, an efficient media plan was developed
and executed against the desired target audience.
Web Publisher.
The Mining Company
The Mining Company is a network of more than 600 branded Web sites, each of
which is managed by a Company-trained subject expert who offers visitors to
their Web site experienced guidance, altogether comprising more than 12,000
topics. The Mining Company subscribed to the @plan Gutenberg Advertising System
to understand what distinguishes their audience from the audiences of other
portals and community sites.
When The Mining Company began conducting business on the Internet, they
faced a number of competitors for the advertising revenue they needed to support
their business. They needed to quickly identify the key areas of strength for
their product and develop a credible sales story that allowed them to position
their audience to the advertising buying community. The @plan Gutenberg
Advertising System provided The Mining Company's sales team with the important
consumer lifestyle, product preference and demographic information that
advertisers demand. Based on the information generated by the @plan Gutenberg
Advertising System, The Mining Company positioned their audience as people who
actively shop and purchase online. This positioning provided the key point of
differentiation for their resulting sales and marketing effort.
The Mining Company also used these powerful profiling tools to further
identify the relative strengths and weaknesses of their audience. From this
analysis, The Mining Company was able to develop a strategy to deploy their
sales force more productively towards the areas with the strongest advertising
sales potential. Information on the strengths of their audience was combined
with data on Web
36
40
advertising expenditures to establish immediate priorities for the sales team to
pursue.
The Mining Company views the @plan Gutenberg Advertising System as an
important asset in driving advertising revenue. The Mining Company believes that
the @plan Gutenberg Advertising System has been key to securing many ad sales
because it provided the neutral third-party information necessary to verify that
their audience fits the buyer's specific needs.
DATA COLLECTION AND RESULTING DATABASES
We maintain statistically representative market research information
databases collected from approximately 40,000 active adult Web users. In
addition, information is collected from approximately 8,100 adult non-Web users
for use in our U.S. population database. The methodology, sampling and data
collection for all of our databases is controlled and conducted by Gallup, which
uses a random scientific sample telephone dialing process to generate an initial
pool of potential survey participants. Data is collected from the participants
first on the phone and, for the Web user database, by means of an extensive
interactive online survey software program. The survey software employs a
"decision tree" methodology that automatically poses specific questions based on
a respondent's prior pattern of replies. The online survey software can collect
a wide variety of data while maintaining the interest of the respondent because
it automatically adjusts to the specific behavior and interests of the
respondent. For a subset of non-Web users, consumer lifestyle, product
preference and demographic data is collected by means of an extensive phone
interview. This data is used to create our U.S. population database. The data
collected is then incorporated into a number of distinct datasets. These
datasets include a U.S. consumer lifestyle and product preference dataset, an
electronic commerce/retailing Web site profile dataset, an advertiser-supported
Web site profiling dataset and a Web consumer lifestyle and product preference
dataset.
We employ stringent controls to ensure the integrity of our consumer market
research data. Before any data point can be considered for reporting, it must
first pass rigorous statistical tests to ensure its representativeness and
stability. In addition, we update the database every three months by adding
information collected from approximately 10,000 new representative, active adult
Web users while retiring the information collected from the approximately 10,000
Web users that has been in our database the longest. Our sample size of
approximately 40,000 active adult Web users exceeds that which is necessary to
provide a statistically reliable representation of Web behavior.
SALES AND MARKETING
We sell our systems through a sales team located in Stamford, Connecticut
and San Francisco, California. Our current sales team consists of highly
qualified, experienced individuals who are able to effectively sell our
sophisticated systems. We intend to expand our sales team by adding additional
experienced individuals. Our sales team has a number of selling protocols and
systems in place to maximize prospecting and closing of subscription contracts.
Our systems are generally sold on an annual subscription basis. As of December
31, 1998, approximately 97% of our contracts provide for automatic one year
renewals unless the client provides written notice of termination prior to the
anniversary date of the contract.
37
41
We take a highly selective approach to our marketing. To help build brand
awareness with our prospective customers, we largely rely on one-to-one live
product demonstrations of our systems. In addition, we seek speaking engagements
at very select events where current and prospective clients are concentrated. We
also produce marketing materials, including media kits and presentations, in
support of sales to prospective customers.
CLIENT SERVICE
We believe that our ability to establish and maintain long-term client
relationships and high contract renewal rates in part depends upon the strength
of our client service operations and team. Our client service team consists of
client service managers located in Stamford, Connecticut and San Francisco,
California. We motivate our client service managers to provide the highest
quality service by basing a portion of their compensation on both the renewal
rates of the clients they support and the overall client renewal rate. In
addition to providing training and client support, this group works proactively
with our clients to help them maximize the value they derive from our systems.
Each client service manager supports and is responsible for approximately 25-30
dedicated clients. The assignments vary in relation to specific client needs but
are generally defined geographically to enhance opportunities for personal
contact. The client service managers are responsible for training their clients
in how to use the system and the research information that our systems provide,
resolving any problems their clients have with our systems, and providing
strategic insight and technical support. The client service managers also obtain
feedback from their clients to assist us in anticipating client needs and
developing new systems. We monitor our clients' use of the systems on a
continual basis to gauge client satisfaction. We intend to continue to build our
client service team as our client base increases to offer a high level of client
service, training and support.
TECHNOLOGY AND INFRASTRUCTURE
One of our principal strengths is our internally developed technology,
which has been designed specifically for our Internet-based systems. Our
technology architecture features specially adapted capabilities to enhance
performance and reliability.
Our systems run on a network of high-speed computers. The data is stored on
a redundant disk array which provides continuous service in the event of disk
failures. Current backup copies of the complete system are stored off site to
provide for data recovery in the event of disaster. Real-time monitors alert our
system administrators to software and hardware failures and performance
degradation 24 hours a day.
Clients access our systems over the Web via a secure gateway to our Web
servers in Stamford, Connecticut. Our servers are linked to the Internet via a
digital circuit, which provides a scalable high bandwidth connection. We have in
place a temporary backup circuit which can be used in the event of failure of
our primary connection.
Our databases are implemented atop a multi-tiered software architecture.
This architecture consists of relational database software, a Web server and our
proprietary applications. Our proprietary applications employ special purpose
data access methods and algorithms to implement the analytic research
methodologies we developed in partnership with Gallup. Our software design is
the result of extensive
38
42
research in relational database modeling, statistical analysis and graphical
user interfaces. All aspects of the software architecture are designed to
accommodate substantial growth of our client base.
We believe that our future success will depend in part on our ability to
continue to maintain and enhance our systems and applications. To this end, we
intend to leverage the modular nature of our systems' architecture to enable us
to develop new applications rapidly. We expect that most enhancements to
existing and new systems and applications will be developed internally and
implemented using our outside suppliers of coding services. We believe that
timely development of new and enhanced applications and technology is necessary
to remain competitive in the marketplace. Accordingly, we intend to continue to
make investments in development and engineering.
PRODUCT DEVELOPMENT
We believe that our future success depends on our ability to enhance our
current systems and continually develop new systems and products. Our executive
management takes an active role in the development of these enhancements and new
products. In December 1998, we introduced the @plan Kepler E-Business System.
Gallup assisted us in the development of methodology for the collection of
additional data for this system. We are internally developing more detailed
market research and planning systems for specific client groups. We intend to
capitalize on our relationship with Gallup to gather the data necessary for
these new systems. For this additional data collection we will incur substantial
expenses.
We also intend to leverage our database of information, our technology, our
expertise and our existing client base to develop new information products of
interest to our clients. We continually track trends in the online marketplace
during our data collection efforts. We rely on our tracking techniques to assist
us in identifying appropriate areas of expansion for our products.
COMPETITION
The market for market research decision support and planning tools for
Internet advertisers, advertising agencies, Web publishers, online retailers and
consumer brand marketers is new and rapidly evolving. While we believe that no
direct competition exists in our particular market, we face indirect and
potential competition from a number of companies who provide services to a
similar base of clients and who could develop systems that directly compete with
our systems. In some cases our services are complimentary to services provided
by other companies and in some cases our services are considered to be a
substitute.
Our indirect and potential competitors include:
- Web "ratings" companies, including Media Metrix, that rely on a sampling
approach where software is installed on a respondent's computer and
passively monitors Web behavior;
- "auditing" companies, including I/PRO, that audit viewers in terms of
page views, site impressions and navigation on a subject Web site;
- advertisement targeting providers, including DoubleClick, 24/7 Media and
NetGravity, that place advertisements on networks of Web sites and
collect data on viewer response;
39
43
- advertisement performance measurement companies, including MatchLogic;
- Web advertising management services, including AdKnowledge;
- online research and consulting providers, including Jupiter
Communications; and
- syndicated market research providers in traditional publishing, including
MRI and Simmons.
Most of these companies have greater financial, technical, product
development, marketing and other resources than we have. These companies may be
better known and have longer operating histories than we have. We believe that
our ability to compete depends on many factors both within and beyond our
control, including the following:
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us or our competitors;
- customer service and support efforts;
- sales and marketing efforts; and
- the ease of use, performance, price and reliability of solutions
developed by us or our competitors.
PROPRIETARY RIGHTS
Proprietary rights are important to our success and our competitive
position. To protect our proprietary rights, we rely generally on copyright,
trademark, and trade secret laws, confidentiality agreements with third parties,
and license agreements with consultants, vendors and customers. Despite such
protection, a third party could, without authorization, copy or otherwise
appropriate information from our database. Our agreements with employees,
consultants and others who participate in development activities could be
breached. We may not have adequate remedies for any breach, and our trade
secrets may otherwise become known or independently developed by competitors. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States, and effective
copyright, trademark and trade secret protection may not be available in those
jurisdictions.
We have applied for registration of several trademarks in the United
States. None of these applications have been approved to date, and there can be
no assurance that the applications will be approved in the future. Even if these
applications are approved, the trademarks may be successfully challenged by
others or invalidated. If the applications are not approved because third
parties own the trademarks, the use of the trademarks will be restricted unless
we enter into arrangements with the third parties which may be unavailable on
commercially reasonable terms.
There have been substantial amounts of litigation in the computer and
online industries regarding intellectual property assets. Third parties may
claim infringement by us with respect to current and future products,
trademarks, or other proprietary rights, or we may counterclaim against these
parties. Any such claims or counterclaims could be time-consuming, result in
costly litigation, divert management's attention, cause product release delays,
require us to redesign our products or require us to enter into royalty or
licensing agreement, any of which could harm our
40
44
business, financial condition and operating results. Such royalty and licensing
agreements, if required, may not be available in terms acceptable to us, if at
all.
EMPLOYEES
As of February 28, 1999, we employed 19 persons. We also contract with
independent contractors to develop our proprietary software systems and to
support our information services personnel. We are not subject to any collective
bargaining agreements and we believe that our relationship with our employees is
good.
FACILITIES
Our principal executive offices are located in Stamford, Connecticut. Our
lease for approximately 6,400 square feet at this location expires in February
2001. We also lease space for our sales and client service efforts in San
Francisco, California.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
41
45
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table presents information about our executive officers and
directors as of February 28, 1999:
NAME AGE POSITION
- ---- --- --------
Mark K. Wright...................... 43 Chairman and Chief Executive Officer
Karl A. Spangenberg................. 52 President and Chief Operating
Officer
Susan C. Russo...................... 46 Executive Vice President
Nancy A. Lazaros.................... 34 Senior Vice President and Chief
Financial Officer
Gary R. Haynes(1)................... 53 Director
Donald M. Johnston(2)............... 49 Director
Calvin A. Martin.................... 52 Director
W. Patrick Ortale, III(1)........... 45 Director
Roger J. Thomson(2)................. 43 Director
John H. Wyant(1)(2)................. 52 Director
- -------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Mark K. Wright has served as our Chief Executive Officer and Chairman of
our Board of Directors since May 1996. Prior to becoming our Chief Executive
Officer, Mr. Wright served as the Executive Vice President of Ericson Marketing
Communications, Inc., an advertising and marketing communications agency. Prior
to that, he served as Senior Vice President of Ericson in charge of marketing
and media services. Mr. Wright has a BA from Northwestern University and a MBA
from Vanderbilt University.
Karl A. Spangenberg has served as our President and Chief Operating Officer
since April 1997. Before joining us, Mr. Spangenberg served as Vice President
Worldwide Advertising Sales for Infoseek, an Internet navigation company, from
December 1995 to February 1997. From March 1994 to November 1995, he served as
Publisher, Datamation Magazine for Cahner's Publishing, a publishing company.
From February 1993 to February 1994, he served as Senior Vice President of the
Construction Information Group of McGraw Hill. From March 1991 to February 1993,
Mr. Spangenberg served as Senior Vice President, Advertising for Business Week,
a publishing company.
Susan C. Russo has served as our Executive Vice President since January
1997. From June 1996 to January 1997, Ms. Russo served as General Manager,
Rodale Interactive for Rodale Press, a publishing company. From May 1994 to June
1996, Ms. Russo served as Vice President, Ad Sales and Strategy, for Hearst New
Media, a Web publishing company. From January 1992 to May 1994, Ms. Russo served
as Executive Director, Sales Operations, for the New York Times, a publishing
company.
Nancy A. Lazaros has served as our Senior Vice President and Chief
Financial Officer since May 1997. Prior to joining us, Ms. Lazaros served as
Senior Vice
42
46
President, Finance of Popcorn Channel, LP, a cable channel, from January 1995 to
February 1997; as a consultant to various publishing companies from January 1994
to January 1995; and as Controller of RHI Entertainment, a television movie
production company, from January 1991 to November 1993.
Gary R. Haynes has served as one of our directors since 1996. Since 1985,
Mr. Haynes has been President, and since 1991 he has been Chief Executive
Officer, of Ericson Marketing Communications, Inc. an advertising and marketing
communications agency. Mr. Haynes has been associated with Ericson since 1975
and served as Ericson's Chief Operating Officer from 1982 until he became
President in 1985.
Donald M. Johnston has served as one of our directors since 1996. Since
1994, Mr. Johnston has served as President of Massey Burch Capital Corporation
and General Partner of SV Partners II, L.P. Massey Burch Capital Corporation and
SV Partners II are manager and General Partner, respectively, of the Southern
Venture Fund II, L.P., one of our principal shareholders. Mr. Johnston also
serves on the Board of Directors of ODS Networks, Inc. Mr. Johnston was elected
as one of our directors under our Amended and Restated Shareholders' Agreement.
Calvin A. Martin has served as one of our directors since 1997. Mr. Martin
has served as a Senior Vice President of The Gallup Organization, Inc., a
marketing research company, since 1996. He joined Gallup in 1987 as a Division
Manager and also serves as Gallup's contract agent.
W. Patrick Ortale, III has served as one of our directors since 1996. Since
1994 and 1996, respectively, Mr. Ortale has been a General Partner of Richland
Partners, L.P. and Richland Partners II, L.P., the general partners,
respectively, of Richland Ventures, L.P. and Richland Ventures II, L.P., which
are principal shareholders of ours. Since 1985 and 1990, respectively, Mr.
Ortale has been a general partner of the general partnerships which control
Lawrence, Tyrrell, Ortale & Smith and Lawrence, Tyrrell, Ortale and Smith II,
L.P. Mr. Ortale was elected as one of our directors under our Amended and
Restated Shareholders' Agreement.
Roger J. Thomson has served as one of our directors since 1999. Mr. Thomson
is a Managing Director of Donaldson, Lufkin & Jenrette Securities Corporation,
an investment banking firm, where he has worked since 1994. From 1986 to 1994,
Mr. Thomson was Senior Vice President of Lehman Brothers, Inc., an investment
banking firm.
John H. Wyant has served as one of our directors since 1998. Mr. Wyant is a
Managing Partner and President of Blue Chip Venture Company. Mr. Wyant is
currently a director of Delicious Brands, Inc., a food product company, Regent
Communications, Inc., a radio station operator, Zaring Homes, Inc. a
manufactured housing company, and several private companies. Mr. Wyant was
elected as one of our directors under our Amended and Restated Shareholders'
Agreement.
CLASSES OF DIRECTORS
Under the terms of our Third Amended and Restated Charter, which will
become effective immediately prior to this offering, the board of directors has
been divided into three classes: Class I, Class II and Class III. Members of
each class hold office for staggered three-year terms. At each annual meeting of
shareholders, the shareholders will elect the successors to the directors whose
terms expire at the meeting. These newly elected directors will serve from the
time of their election and
43
47
qualification until the third annual meeting of shareholders following their
election or until a successor has been duly elected and qualified. Gary R.
Haynes and Roger J. Thomson are Class I directors whose terms expire at the 2000
annual meeting of shareholders. Cal Martin and John H. Wyant are Class II
directors whose terms expire at the 2001 annual meeting of shareholders. Donald
M. Johnston, W. Patrick Ortale, III and Mark K. Wright are Class III directors
whose terms expire at the 2002 annual meeting of shareholders.
BOARD COMMITTEES
The board of directors recently created an audit committee and a
compensation committee. The audit committee will review the accounting practices
and procedures, the scope of the audit and will recommend the appointment of the
independent auditors. The members of the audit committee are Donald M. Johnston,
who will serve as chairman, Roger J. Thomson and John H. Wyant. The compensation
committee will evaluate and approve the compensation policies for the executive
officers and will administer our employee benefit plans. The members of the
compensation committee are Patrick W. Ortale, III, who will serve as chairman,
Gary R. Haynes and John H. Wyant.
DIRECTOR COMPENSATION
Directors who are not our employees will receive an annual directors' fee
of $6,000 and directors' fees of $1,000 for each board meeting attended and $500
for each committee meeting attended. We will also reimburse directors for their
expenses incurred in connection with their activities as our directors.
Directors who are also our employees will receive no compensation for serving on
the board of directors.
On March 11, 1999, we adopted our 1999 Stock Incentive Plan to attract and
retain the services of our key employees, consultants and non-employee members
of our board of directors. Each member of the board of directors who is not an
employee of ours, is not a former employee still receiving compensation for
prior services, other than benefits under a tax-qualified plan, and is not
currently receiving remuneration from us in any capacity other than as a
director will be eligible for the grant of stock options under the 1999 Plan.
Currently, all directors other than Mr. Wright are eligible to participate in
the 1999 Plan.
Contingent upon the effectiveness of the registration statement relating to
this offering six directors will be granted options to purchase 25,000 shares of
our common stock at the initial offering price. These options vest immediately
upon grant. Additionally, upon the election of any new member of the board of
directors, that member will be granted an option to purchase 25,000 shares of
common stock at the fair market value at the date of grant, vesting in five
equal annual installments beginning on the first anniversary of the date of
grant. Each year immediately following the date of our annual meeting, beginning
with the next annual meeting of our shareholders and provided that a sufficient
number of shares remain available under the 1999 Plan, there automatically will
be granted to each non-employee director who is then serving on the board an
option to purchase 3,000 shares of our common stock, which options will be
immediately vested. The options to be granted under the 1999 Plan will be
nonqualified stock options. Nonqualified stock options
44
48
are stock options which do not constitute "incentive stock options" within the
meaning of Section 422A of the Internal Revenue Code.
Mark K. Wright, Gary R. Haynes and Roger J. Thomson, three of our
directors, are also holders of shares of our preferred stock. All holders of our
preferred stock, including these three directors, will be issued warrants to
purchase shares of our common stock upon consummation of this offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before this offering, we did not have a compensation committee, and
compensation decisions were made by the full board of directors. Upon completion
of this offering, the compensation committee will make compensation
recommendations to the board of directors. No interlocking relationship exists
between the board of directors or compensation committee and the board of
directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation we paid for services rendered to us during 1996, 1997 and 1998, by
our Chief Executive Officer and our other three most highly compensated
executive officers who were serving as executive officers at the end of 1998 and
whose salaries were more than $100,000 in 1998.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
- --------------------------- ----------- --------- -------- --------------- ------------
Mark K. Wright............... 1998 $197,917 $ 60,000 $ -- --
Chief Executive Officer 1997 167,708 50,000 -- 90,000
1996(1) -- -- -- 270,000
Karl A. Spangenberg.......... 1998 225,000 50,000 -- --
President and Chief 1997 168,750 125,000 12,522(2) 405,000
Operating Officer 1996 -- -- -- --
Joined April 1997
Susan C. Russo............... 1998 175,000 40,000 -- --
Executive Vice President 1997 169,728 5,000 -- 396,000
Joined January 1997 1996 -- -- -- --
Nancy A. Lazaros............. 1998 105,292 40,000 -- 27,000
Senior Vice President and 1997 53,779 5,000 -- 63,000
Chief Financial Officer 1996 -- -- -- --
Joined May 1997
- -------------------------
(1) Represents the period from our inception on May 26, 1996 through December
31, 1996.
(2) This amount represents reimbursement of relocation expenses.
45
49
OPTION GRANTS IN FISCAL YEAR 1988
The following table sets forth information regarding stock options granted
during 1998 to the executive officers named in the Summary Compensation Table
above, including the potential realizable value over the 10 year term of the
options based on assumed rates of stock appreciation of 5% and 10%, compounded
annually. These assumed rates of appreciation comply with the rules of the SEC
and do not represent our estimate of future stock price. Actual gains, if any,
on stock option exercises will be dependent on the future performance of our
common stock. In 1998, we granted options to acquire up to an aggregate of
349,200 shares to employees, consultants, directors and other persons having a
business relationship with us, all under the 1996 Plan and all at an exercise
price equal to not less than the fair market value of our common stock on the
date of grant as determined in good faith by the board of directors. Optionees
may pay the exercise price by check, note, delivery of already-owned shares of
our common stock or any other instrument the board will accept. Options under
the 1996 Plan will fully vest upon the completion of this offering.
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
PERCENT VALUE AT
OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES PRICE FOR OPTION TERM
OPTIONS IN FISCAL PER EXPIRATION ---------------------
NAME GRANTED(#) YEAR(%) SHARE DATE 5% 10%
- ---- ---------- ---------- -------- ---------- --------- ---------
Mark K. Wright......... -- -- -- -- -- --
Karl A. Spangenberg.... -- -- -- -- -- --
Susan C. Russo......... -- -- -- -- -- --
Nancy A. Lazaros....... 27,000 8.6% $1.67 7/28/08 $ 28,300 $ 71,718
46
50
OPTIONS EXERCISED DURING THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
No options were exercised during 1998 by our Chief Executive Officer or any
other of our executive officers. The following table sets forth information
about the number and year-end value of exercisable and unexercisable options
held by the executive officers named in the Summary Compensation Table for the
year ended December 31, 1998. The "Value of Unexercised In-the-Money Options at
December 31, 1998" is based on an assumed initial public offering price of
$ per share, minus the exercise price, multiplied by the number of shares
underlying the option. The value of the options set forth below is based on an
assumed initial public offering price of $ per share, minus the exercise
price, multiplied by the number of shares underlying the option. Under the terms
of the 1996 Stock Option Plan, all of these options become exercisable
immediately upon the consummation of this offering
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Mark K. Wright........... 292,500 67,500 $ $
Karl A. Spangenberg...... 168,628 236,372
Susan C. Russo........... 185,557 210,443
Nancy A. Lazaros......... 25,727 64,273
- -------------------------
STOCK PLANS
1996 Stock Option Plan. We adopted the 1996 Stock Option Plan in July
1996, and it was amended and restated in August 1997 and January 1998. The
purpose of the plan is to attract, retain and reward directors, officers, key
employees and consultants by offering equity interests in our company. The plan
provides for grants of incentive stock options, within the meaning of Section
422A of the Internal Revenue Code of 1986, and non-qualified stock options. Our
board of directors and shareholders authorized a total of 1,980,000 shares of
common stock for issuance under this plan.
All options granted under this plan shall become immediately exercisable
and vested upon the closing of this offering. As of February 28, 1999, we have
granted options for the purchase of 1,852,740 shares of common stock to
employees, consultants, directors and other persons having a business
relationship with us.
1999 Stock Incentive Plan. Our board of directors adopted the 1999 Stock
Incentive Plan in March 1999 and it was approved by our shareholders in March
1999. The purpose of the plan is to attract, retain and reward key employees,
consultants and non-employee directors. This plan allows flexibility in the
award of stock based incentive compensation to these people. The plan provides
for grants of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, and other stock-based awards.
47
51
The plan authorizes up to shares of common stock for
issuance under the plan plus an annual increase to be added on each anniversary
date of the adoption of this plan equal to the lesser of shares or two
percent of the outstanding shares of our common stock on that anniversary date.
However, no individual may receive options to purchase more than 100,000 shares
of common stock in any fiscal year. Whenever a share of common stock underlying
a stock option is no longer subject to that option, that share of common stock
shall again be available for distribution under the plan.
This plan will be administered by the compensation committee of the board
of directors. The compensation committee will have the authority to:
- select the individuals who may receive the grant for the options;
- determine the number of shares to be covered by each option or other
awards to be granted; and
- determine the terms and conditions of the option, including the share
price, vesting schedule and any restrictions or limitations on the
options.
Grants under the plan may consist of options intended to qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, non-qualified stock options that are not
intended to qualify, stock appreciation rights, restricted stock or other
stock-based awards. Grants can be made to any key employee, consultant and
non-employee director. Incentive stock options may only be granted to our
employees.
The option price for each share of common stock underlying an incentive
stock option shall be at least 100% of the fair market value of the stock at the
date of grant. The option price for non-qualified stock options shall be at
least 85% of the fair market value of the underlying stock at the date of grant.
No incentive stock option shall be exercisable after 10 years from the date of
grant. Options are not transferrable except to members of the optionees'
immediate family or by will or the laws of descent and distribution.
If an optionee's employment terminates because of death, any option held by
the optionee may be exercised to the extent the option was exercisable at the
time of death. This exercise must occur within one year from the date of death
or until the term of the option expires, whichever is shorter.
If an optionee's employment is terminated because of disability, any option
held by the optionee may be exercised to the extent the option was exercisable
at the time of the disability, unless accelerated by the committee. This
exercise must occur within three years from the date of the disability or until
the term of the option expires for non-qualified options and one year from the
date of disability or until the term of the option expires for incentive stock
options, whichever is shorter.
If an optionee's employment terminates because of retirement, any option
held by the optionee may be exercised to the extent the option was exercisable
at the time of the retirement, unless accelerated by the committee. This
exercise must occur within three years from the date of the retirement or until
the term of the option expires for non-qualified options and three months from
the date of the retirement or until the term of the option expires for
investment stock options, whichever is shorter.
48
52
If an optionee's employment is involuntarily terminated without cause, as
that term is defined in the plan, any option held by the optionee may be
exercised to the extent the option was exercisable at the time of termination.
This exercise must occur before the earlier of three months from the date of
termination or the expiration of the option. The compensation committee may
extend the exercise period for six months or until the term of the option
expires whichever is shorter. However, any option that is not exercised within
three months will be treated as a non-qualified stock option.
If an optionee voluntarily terminates employment, any option held by the
optionee may be exercised to the extent the option was exercisable at the time
of termination. This exercise must occur within three months from the date of
termination or until the term of the option expires, whichever is shorter. The
compensation committee may extend the exercise period for six months or until
the term of the option expires, whichever is shorter. However, any option that
is not exercised within three months will be treated as a non-qualified stock
option.
Stock appreciation rights can be granted in connection with all or part of
any stock option granted. They will terminate and no longer be exercisable when
the related stock option terminates. They are only exercisable at the time and
to the extent that the stock options to which they relate are exercisable.
Shares of restricted stock can be issued alone, in addition to or with other
awards granted under the plan. The committee can place limitations on the sale
or transfer of the restricted stock. Other stock-based awards can be granted by
the committee in its discretion. For a description of awards to non-employee
directors, please see "Management -- Compensation of Directors."
The compensation committee can adjust the number of shares reserved for
issuance under the plan if there is a merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock split or
other change in corporate structure. If there is a change in control, any
awarded option shall become fully exercisable and vested. This change of control
can occur if any person or entity acquires more than 50% of the voting power of
our capital stock or if our existing shareholders hold less than 50% of our
outstanding securities after a cash tender or exchange offer, merger or other
business combination, sale of assets or contested election.
SEVERANCE AGREEMENTS
We will enter into severance agreements with our executive officers. These
agreements provide for a severance payment to the executive officer if the
executive officer's employment is terminated or job function is changed within
six months of a change in control of our business. This payment will be an
amount equal to six months of the executive's current base salary.
49
53
TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
We are party to an agreement with Gallup under which Gallup provides us
with market research data for the @plan Gutenberg Advertising System and the
@plan Kepler E-Business System. Cal Martin, one of our directors, is a Senior
Vice President of Gallup. This agreement is in effect for one year, commencing
September 6, 1996 and automatically renews for nine successive one-year periods
unless we provide notice of termination within 90 days of any anniversary date.
We also entered into an agreement with Gallup in May 1998, pursuant to which
Gallup provided us with a model of the U.S. population based on census data. We
have paid Gallup a total of $4.0 million from our inception through December 31,
1998 under these agreements. We expect that we will pay to Gallup an additional
$1.8 million under the September 6, 1996 agreement in 1999. There are no further
amounts due under the May 1998 agreement.
Mark K. Wright, our Chief Executive Officer and Chairman of our Board of
Directors, and Gary R. Haynes, one of our directors, were involved in the
founding of our company. On May 31, 1996 we issued 450,000 shares of our common
stock to Mr. Wright and 450,000 shares to Mr. Haynes. As consideration for these
shares, Mr. Wright and Mr. Haynes contributed all of their right, title and
interest in all data, business plans, processes, ideas, trade secrets, software
and other intellectual property concerning the @plan concept and all associated
goodwill.
On July 24, 1996 and March 20, 1997, we sold shares of our Series A
convertible preferred stock in private placement transactions at $1.00 per share
to the following shareholders:
- 200,000 shares to the Southern Venture Fund II, L.P. Donald M. Johnston,
one of our directors, is a general partner of SV Partners II, L.P., its
general partner;
- 200,000 shares to Richland Ventures, L.P. W. Patrick Ortale III, one of
our directors, is a general partner of Richland Partners, its general
partner;
- 5,000 shares to Mark K. Wright, our Chief Executive Officer and Chairman
of our Board of Directors;
- 20,000 shares to Gary R. Haynes, one of our directors;
- 10,000 shares to Roger J. Thomson, one of our directors;
- 2,500 shares to Susan C. Russo, one of our executive officers; and
- 500 shares to Karl A. Spangenberg, one of our executive officers.
On October 4, 1996 and March 20, 1997, we sold shares of our Series B
convertible preferred stock in private placement transactions at $2.00 per share
to the following shareholders:
- 900,000 shares to the Southern Venture Fund II, L.P. Donald M. Johnston,
one of our directors, is a general partner of SV Partners II, L.P., its
general partner;
- 900,000 shares to Richland Ventures, L.P. W. Patrick Ortale III, one of
our directors, is a general partner of Richland Partners, its general
partner;
- 22,500 shares to Mark K. Wright, our Chief Executive Officer and Chairman
of our Board of Directors;
- 40,000 shares to Gary R. Haynes, one of our directors;
- 50,000 shares to the Gary R. Haynes 1994 Charitable Remainder Unitrust,
of which Gary R. Haynes, one of our directors, is trustee;
50
54
- 45,000 shares to Roger J. Thomson, one of our directors;
- 11,250 shares to Susan C. Russo, one of our executive officers; and
- 2,250 shares to Karl A. Spangenberg, one of our executive officers.
On January 6, 1998 and August 7, 1998, we sold shares of our Series C
convertible preferred stock in private placement transactions at $3.00 per share
to the following shareholders:
- 166,667 shares to the Southern Venture Fund II, L.P. Donald M. Johnston,
one of our directors, is a general partner of SV Partners II, L.P., its
general partner;
- 1,000,000 to Richland Ventures II, L.P. W. Patrick Ortale, III, one of
our directors, is a general partner of Richland Partners, its general
partner;
- 425,000 shares to Blue Chip Capital Fund II Limited Partnership. John
Wyant, one of our directors, is a manager of Blue Chip Venture, Ltd., its
general partner;
- 75,000 shares to Miami Valley Venture Fund, L.P. John Wyant, one of our
directors, is a manager of Blue Chip Venture Company of Dayton, Ltd., its
special limited partner;
- 3,000 shares to Mark K. Wright, our Chief Executive Officer and Chairman
of our Board of Directors;
- 30,000 shares to Gary R. Haynes, one of our directors;
- 14,000 shares to Roger J. Thomson, one of our directors; and
- 2,000 shares to Karl A. Spangenberg, one of our executive officers.
Each share of preferred stock will convert into 1.8 shares of common stock
upon consummation of this offering. In addition, upon consummation of this
offering, Mark K. Wright, Gary R. Haynes and the holders of our preferred stock
will receive warrants to purchase shares of common stock equal to 8% of the
number of shares sold in this offering, including any shares sold in the
over-allotment. The price to exercise these warrants will be equal to the
initial offering price per share set forth on the cover page of this prospectus.
Mark K. Wright and Gary R. Haynes will each receive 12.5% of the warrants for
their involvement in founding our company. The preferred shareholders, including
Mark K. Wright and Gary R. Haynes, shall receive their pro rata portion of the
remaining 75% of the warrants. These warrants are exercisable for seven years.
The warrants and the shares of each series of preferred stock are entitled to
registration rights following this offering. For a complete description of these
registration rights, please see "Description of Capital Stock -- Registration
Rights."
In June 1997, we made an unsecured loan in the amount of $160,000 to Karl
A. Spangenberg, our President and Chief Operating Officer. The loan accrued
interest of approximately $1,250 and was repaid in full in August 1997.
We believe that all of these transactions were made on terms as favorable
to us as we would have received from unaffiliated third parties. Any future
transactions between us and our officers, directors and principal shareholders
and their affiliates will be approved by a majority of the board of directors,
including a majority of the independent and non-interested directors. These
future transactions will be on terms as favorable to us as we could receive from
unaffiliated third parties.
51
55
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 28, 1999, and as adjusted to
reflect the sale of the shares of common stock offered in this offering, by: (1)
each person who owns beneficially more than 5% of our common stock; (2) each of
our executive officers and directors; and (3) all of our executive officers and
directors as a group. The address of all the beneficial owners, unless otherwise
noted, is Three Landmark Square, Suite 400, Stamford, Connecticut 06901.
SHARES BENEFICIALLY OWNED(1)
----------------------------------------
PRIOR TO OFFERING AFTER OFFERING
-------------------- -----------------
NAME OF BENEFICIAL OWNER NUMBER(2) PERCENT PERCENT
- ------------------------ --------- ------- -----------------
Entities associated with Richland
Ventures................................. 3,780,000(4) 44.7%
W. Patrick Ortale, III................... 3,805,000(5) 44.9
Southern Venture Fund II, L.P.............. 2,305,000(6) 27.2
Donald M. Johnston....................... 2,305,000(6) 27.2
Entities associated with Blue Chip Venture
Company.................................. 900,000(7) 10.7
John H. Wyant............................ 925,000(8) 10.9
Mark K. Wright............................. 864,900(9) 9.8
Karl A. Spangenberg........................ 413,550(10) 4.7
Susan C. Russo............................. 420,750(11) 4.8
Nancy A. Lazaros........................... 90,000(12) 1.1
Gary R. Haynes............................. 727,000(13) 8.6
Calvin A. Martin........................... 79,000(14) *
Roger J. Thomson........................... 149,200(15) 1.8
All executive officers and directors as a
group (10 persons)....................... 9,779,400(16) 93.6
- -------------------------
* Less than one percent
(1) Percentage ownership is based on 8,448,600 shares outstanding as of
February 28, 1999. Shares of common stock subject to options currently
exercisable or exercisable within 60 days of February 28, 1999 are deemed
outstanding for the purpose of computing the percentage ownership of the
person holding the options but are not deemed outstanding for computing the
percentage ownership of any other person. Unless otherwise indicated below,
the persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned.
(2) Includes 7,541,400 shares of common stock issuable upon conversion of our
convertible preferred stock upon consummation of this offering. The
convertible preferred stock converts at a ratio of 1.8 for 1.
(3) Assumes the underwriters' over-allotment is not exercised.
(4) Represents 1,980,000 shares that are held by Richland Ventures, L.P. and
1,800,000 shares that are held by Richland Ventures II, L.P. The address of
the shareholder is 200 31st Avenue North, Suite 200, Nashville, Tennessee
37203-1205.
52
56
(5) Represents 1,980,000 shares that are held by Richland Ventures, L.P. and
1,800,000 shares that are held by Richland Ventures II, L.P. Mr. Ortale is
a general partner of Richland Partners and Richland Partners II, their
general partners. Mr. Ortale disclaims beneficial ownership of the shares
held by these entities except to the extent of his pecuniary interest
therein. Also represents 25,000 shares subject to options to be granted to
Mr. Ortale upon consummation of this offering which will be immediately
exercisable and vested upon grant.
(6) All of these shares are held by Southern Venture Fund II, L.P. Mr. Johnston
is a general partner of SV Partners II, L.P., its general partner. Also
represents 25,000 shares subject to options to be granted to Mr. Johnston
upon consummation of this offering which will be immediately exercisable
and vested upon grant and which will be transferred to Southern Venture
Fund II, L.P. Mr. Johnston disclaims beneficial ownership of the shares
held by Southern Venture Fund II, L.P. except to the extent of his
pecuniary interest therein. The address of the shareholder is 310 25th
Avenue North, Suite 105, Nashville, Tennessee 37203.
(7) Represents 765,000 shares that are held by Blue Chip Capital Fund II
Limited Partnership and 135,000 shares that are held by Miami Valley
Venture Fund, L.P. The address of the shareholder is 2000 PNC Center, 201
E. 5th Street, Cincinnati, Ohio 45202.
(8) Represents 765,000 shares that are held by Blue Chip Capital Fund II
Limited Partnership and 135,000 shares that are held by Miami Valley
Venture Fund, L.P. Mr. Wyant is a manager of their general partner and
special limited partner, respectively. Mr. Wyant disclaims beneficial
ownership of the shares held by these entities except to the extent of his
pecuniary interest therein. Also represents 25,000 shares subject to
options to be granted to Mr. Wyant upon consummation of this offering which
will be immediately exercisable and vested upon grant.
(9) Includes options for 360,000 shares of common stock which will be
immediately exercisable and vested upon consummation of this offering.
(10) Includes options for 405,000 shares of common stock which will be
immediately exercisable and vested upon consummation of this offering.
(11) Includes options for 396,000 shares of common stock which will be
immediately exercisable and vested upon consummation of this offering.
(12) Includes options for 90,000 shares of common stock which will be
immediately exercisable and vested upon consummation of this offering.
(13) Includes 90,000 shares held by the Gary R. Haynes 1994 Charitable Remainder
Unitrust, of which Mr. Haynes is trustee, and 25,000 shares subject to
options to be granted to Mr. Haynes upon consummation of this offering
which will be immediately exercisable and vested upon grant.
(14) Includes options for 54,000 shares of common stock which will be
immediately exercisable and vested upon consummation of this offering and
25,000 shares subject to options to be granted to Mr. Martin upon
consummation of this offering which will be immediately exercisable and
vested upon grant.
(15) Includes 25,000 shares subject to options to be granted upon consummation
of this offering which will be immediately exercisable and vested upon
grant.
(16) Includes 1,455,000 shares subject to options that will be immediately
exercisable and vested upon consummation of this offering.
53
57
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and certain provisions of
our charter and bylaws are only summaries and are qualified by reference to our
charter and bylaws filed as exhibits to the registration statement of which this
prospectus is a part. Our authorized capital stock consists of 50,000,000 shares
of common stock, no par value per share, and 10,000,000 shares of preferred
stock, no par value per share. As of February 28, 1999, there were 907,200
shares of common stock outstanding held of record by three shareholders, 448,000
shares of Series A convertible preferred stock outstanding held of record by
eight shareholders, 2,016,000 shares of Series B convertible preferred stock
outstanding held of record by nine shareholders and 1,725,667 shares of Series C
convertible preferred stock outstanding held of record by nine shareholders.
Each of the shares of preferred stock outstanding prior to this offering will
automatically convert into 1.8 shares of common stock upon consummation of this
offering.
COMMON STOCK
Holders of the common stock are entitled to receive, when and if declared
by the board of directors, dividends and other distributions in cash, stock or
property from our assets or funds legally available for those purposes subject
to any dividend preferences that may be attributable to preferred stock. Holders
of common stock are entitled to one vote for each share held of record on all
matters on which shareholders may vote. Holders of common stock are not entitled
to cumulative voting for the election of directors.
There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and non-assessable. In the event of our liquidation, dissolution or winding
up, holders of common stock are entitled to share ratably in the assets
available for distribution.
After this offering there will be shares of common stock
outstanding. This number includes 907,200 shares of common stock currently
outstanding, shares to be issued in this offering and 7,541,400 shares
issuable upon conversion of our preferred stock.
PREFERRED STOCK
Before this offering, there were 4,189,667 shares of preferred stock
outstanding. Each of these shares will be converted into 1.8 shares of common
stock upon consummation of the offering. After this conversion, our board of
directors, without further action by the shareholders, is authorized to issue an
aggregate of 10,000,000 shares of preferred stock. Currently, we have no plans
to issue a new series of preferred stock. Our board of directors may, without
shareholder approval, issue preferred stock with dividend rates, redemption
prices, preferences on liquidation or dissolution, conversion rights, voting
rights and any other preferences, which rights and preferences could adversely
affect the voting power of the holders of common stock. Issuance of preferred
stock could make it harder for a third party to acquire, or could discourage or
delay a third party from acquiring, a majority of our outstanding stock.
54
58
The 4,189,667 shares of preferred stock currently outstanding have
preemptive rights. These preemptive rights will continue following the
conversion of the preferred shares into 7,541,400 shares of common stock.
REGISTRATION RIGHTS
After the consummation of the offering, the holders of warrants to purchase
shares of common stock or their transferees, and holders of
7,541,400 shares of common stock issuable upon conversion of the preferred stock
will have registration rights with respect to those securities. These rights are
described in a shareholders agreement between us and the holders of those
securities. The agreement provides for registration rights upon the demand of
the holders of at least 51% of the outstanding shares of our preferred stock. In
addition, pursuant to that agreement, the holders are entitled, subject to some
limitations, to require us to include their securities in future registration
statements we file under the Securities Act of 1933, referred to as piggyback
registration rights. The holders of those securities also are entitled, subject
to some limitations, to require us to register their securities on a
registration statement on Form S-3 once we are eligible to use a Form S-3 in
connection with registrations. However, holders of these shares will be
restricted from exercising these rights until 180 days after the date of this
prospectus. Registration of shares of common stock by the exercise of these
demand registration rights, piggyback registration rights or S-3 registration
rights under the Securities Act of 1933 would result in these shares becoming
freely tradable without restriction under the Securities Act of 1933 immediately
upon the effectiveness of such registration. Please see "Risk
Factors -- Substantial sales of our common stock may depress our stock price"
and "Shares Eligible for Future Sale."
CLASSIFIED BOARD OF DIRECTORS
Immediately prior to the effectiveness of this offering, our board of
directors will be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the board of directors
will be elected each year. This provision, along with the provision authorizing
the board of directors to fill vacant directorships or increase the size of the
board of directors, may deter a shareholder from removing incumbent directors
and gaining control of the board of directors by filling vacancies created by
the removal with its own nominees.
SHAREHOLDER ACTION; SPECIAL MEETING OF SHAREHOLDERS
The charter that will become effective immediately prior to the
effectiveness of this offering states that shareholders may not take action by
written consent, but only at duly called annual or special meetings of
shareholders. The charter also provides that special meetings of shareholders
may be called only by the chairman of the board of directors or by a majority of
the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The bylaws provide that shareholders must provide timely notice in writing
to bring business before an annual meeting of shareholders or to nominate
candidates for election as directors at an annual meeting of shareholders. To be
timely notice for an annual meeting, a shareholders's notice must be delivered
to or mailed and received at our principal executive officers at least 120 days
before the first anniversary of the date our notice of annual meeting was
provided for the previous
55
59
year's annual meeting of shareholders. If no annual meeting of shareholders was
held in the previous year or the date of the annual meeting of shareholders has
been changed to be more than 30 calendar days earlier than or 60 calendar days
after that anniversary, notice by the shareholder, to be timely, must be
received at least 60 days but no more than 90 days before the annual meeting of
shareholders or the close of business on the 10th day following the date on
which notice of the date of the meeting is given to shareholders or made public,
whichever first occurs. To be timely notice for a special meeting, a
shareholder's notice must be delivered to us by the close of business 10 days
after notice of the meeting is given to shareholders. The bylaws also specify
requirements as to the form and content of a shareholders' notice. These
provisions may keep shareholders from bringing matters before an annual meeting
of shareholders or from making nominations for directors at an annual meeting of
shareholders.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without shareholder approval. These additional
shares may be used for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could make it harder or discourage an attempt to obtain
control of us by a proxy contest, tender offer, merger or otherwise.
TENNESSEE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS THAT MAY HAVE AN
ANTI-TAKEOVER EFFECT
Provisions in our charter, bylaws and Tennessee law could make it harder
for someone to acquire us through a tender offer, proxy contest or otherwise.
The Tennessee Business Combination Act (the "Combination Act") provides
that a party owning 10% or more of the stock in a "resident domestic
corporation" is an "interested shareholder." An interested shareholder cannot
engage in a business combination with the resident domestic corporation unless
the combination:
- takes place at least five years after the interested shareholder first
acquired 10% or more of the resident domestic corporation; and
- either is approved by at least two-thirds of the non-interested voting
shares of the resident domestic corporation or satisfies certain fairness
conditions specified in the Combination Act.
These provisions apply unless one of two events occurs:
- a business combination with an entity can proceed without delay when
approved by the target corporation's board of directors before that
entity becomes an interested shareholder, or
- the resident corporation may enact a charter amendment or bylaw to remove
itself entirely from the Combination Act. This charter or bylaw amendment
must be approved by a majority of the shareholders who have held shares
for more than one year before the vote. In addition, the charter
amendment or bylaw cannot become operative until two years after the
vote. An interested shareholder, for purposes of the Combination Act, is
any person who is an
56
60
affiliate or associate of the corporation, or the beneficial owner,
directly or indirectly, of 10% or more of the outstanding voting shares
of the corporation.
The Tennessee Greenmail Act prohibits us from purchasing or agreeing to
purchase any of our securities, at a price higher than fair market value, from a
holder of 3% or more of any class of our securities who has beneficially owned
the securities for less than two years. We can make this purchase if the
majority of the outstanding shares of each class of voting stock issued by us
approves the purchase or we make an offer of at least equal value per share to
all holders of shares of that class.
The effect of the above may make a change of control of our business harder
by delaying, deferring or preventing a tender offer or takeover attempt that you
might consider to be in your best interest. This includes those attempts that
might result in the payment of a premium over the market price for your shares.
They may also promote the continuity of our management by making it harder for
you to remove or change the incumbent members of the board of directors.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our charter provides that, to the fullest extent permitted by the Tennessee
Business Corporation Act (the "TBCA"), a director will not be liable to us or
our shareholders for monetary damages for breach of his or her fiduciary duty as
a director. Under the TBCA, directors have a fiduciary duty which is not
eliminated by this provision in our charter. In some circumstances, equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available. In addition, each director will continue to be subject to liability
under the TBCA for:
- breach of the director's duty of loyalty;
- acts or omissions which are found by a court of competent jurisdiction to
be not in good faith or knowing violations of law;
- actions leading to improper personal benefit to the director; and
- payment of dividends that are prohibited by the TBCA.
This charter provision does not affect the directors' responsibilities under any
other laws, such as the Federal securities laws or state or Federal
environmental laws.
The TBCA provides that a corporation may indemnify any director or officer
against liability incurred in connection with a proceeding if the director or
officer acted in good faith or reasonably believed, in the case of conduct in
his or her official capacity with the corporation, that the conduct was in the
corporation's best interest. In all other civil cases, a corporation may
indemnify a director or officer who reasonably believed that his or her conduct
was not opposed to the best interest of the corporation. In connection with any
criminal proceeding, a corporation may indemnify any director or officer who had
no reasonable cause to believe that his or her conduct was unlawful.
In actions brought by or in the right of the corporation, however, the TBCA
does not allow indemnification if the director or officer is adjudged to be
liable to the corporation. Similarly, the TBCA prohibits indemnification of a
director or officer if the director or officer is adjudged liable in a
proceeding because a personal benefit was improperly received.
57
61
In cases when the director or officer is wholly successful, on the merits
or otherwise, in the defense of any proceeding brought because of his or her
status as a director or officer of a corporation, the corporation must indemnify
the director or officer against reasonable expenses incurred in the proceeding.
Notwithstanding the foregoing, the TBCA provides that a court may order a
corporation to indemnify a director or officer for reasonable expense if, in
consideration of all relevant circumstances, the court determines that the
individual is fairly and reasonably entitled to indemnification, whether or not
the standard of conduct set forth above was met.
Our bylaws provide that we shall indemnify and advance expenses to our
directors and officers to the fullest extent permitted by the TBCA. We also
intend to maintain insurance to protect any director or officer against any
liability and to enter into indemnification agreements to create a contractual
obligation to indemnify our directors and officers. These agreements, among
other things, indemnify our directors and officers for some expenses, including
attorneys' fees and associated legal expenses, judgments and fines and amounts
paid in settlement, actually and reasonably incurred by any of these persons in
any action, suit or proceeding arising out the person's services as our director
or officer. We believe that these provisions and agreements are necessary to
attract and retain qualified directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is First Union
National Bank. Its address is 1525 West WT Harris Blvd., 3C3, Charlotte, North
Carolina 28288-1153, and its telephone number at this location is (800)
829-8432.
58
62
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
the offering could adversely affect the market price of our common stock and our
ability to raise equity capital in the future on terms favorable to us.
After the offering, shares of our common stock will be
outstanding, assuming that the underwriters do not exercise the over-allotment
option. Of these shares, all of the shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. The remaining shares of common
stock held by existing shareholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act, which rules are
summarized below.
The following table shows approximately when the shares of our
common stock that are not being sold in this offering but which will be
outstanding when this offering is complete will be eligible for sale in the
public market:
ELIGIBILITY OF RESTRICTED SHARES
FOR SALE IN THE PUBLIC MARKET
- ---------------------------------------------------------------
At effective date 0
- ---------------------------------------------------------------
180 days after the effective date
Most of the restricted shares that will become available for sale in the
public market starting 180 days after the effective date will be subject to
volume and other resale restrictions under Rule 144 because the holders are our
affiliates.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell, within any three-month
period, a number of shares that is not more than the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this
offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days before a sale, and who has
beneficially owned the restricted shares for at least two years, is entitled to
sell the shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
59
63
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchase shares from us under
a stock option plan or other written agreement can resell those shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
complying with certain restrictions, including the holding period, contained in
Rule 144. All of the options issued under our 1996 Stock Option Plan will become
immediately vested and exercisable upon consummation of this offering and will
be able to be resold after the 90 day period, subject to any lock-up agreements.
LOCK-UP AGREEMENTS
All of our executive officers, directors, shareholders and optionees who
will hold an aggregate of shares of our common stock after this
offering will sign lock-up agreements under which they will agree not to
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock, for a period of 180 days after the date of this prospectus.
Transfers or dispositions can be made sooner with the prior written consent of
Hambrecht & Quist.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 7,541,400 shares of our
common stock and warrants to purchase shares of our common stock
will be entitled to rights with respect to the registration of their shares
under the Securities Act. Please see "Description of Capital
Stock -- Registration Rights" for a more detailed description of these
registration rights. After registration, these shares will become freely
tradeable without restriction under the Securities Act. Any sales of securities
by these shareholders could have a material adverse effect on the trading price
of our common stock.
STOCK OPTIONS
Immediately after this offering we intend to file a registration statement
under the Securities Act covering shares of common stock reserved
for issuance under our stock option plans. Each year as the number of shares
reserved for issuance under our 1999 Stock Incentive Plan increases, we will
file an amendment to the registration statement covering the additional shares.
As of February 28, 1999, options to purchase 1,852,740 shares of common stock
were issued and outstanding. When the lock-up agreements described above expire,
all 1,852,740 shares of common stock will be subject to vested options (based on
options outstanding as of February 28, 1999). This registration statement is
expected to be filed and become effective as soon as practicable after the
effective date of this offering. Accordingly, shares registered under that
registration statement will, subject to vesting provisions and Rule 144 volume
limitations applicable to our affiliates, be available for sale in the open
market immediately after the 180 day lock-up agreements expire.
WARRANTS
Upon consummation of the initial public offering, Mark K. Wright, Gary R.
Haynes and all of the holders of our preferred stock will receive warrants to
60
64
purchase a number of shares of common stock equal to 8% of the number of shares
sold in this offering, including any shares sold in the over-allotment. The
price to exercise these warrants will be equal to the initial offering price per
share set forth on the cover page of this prospectus. Mark K. Wright and Gary R.
Haynes will each receive 12.5% of the warrants. Preferred shareholders,
including Mark K. Wright and Gary R. Haynes, will receive their pro rata portion
of the remaining 75% of the warrants. These warrants are exercisable for seven
years and are entitled to registration rights.
61
65
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, through their representatives, Hambrecht & Quist, LLC,
Bear, Stearns & Co. Inc. and First Union Capital Markets Corp., have severally
agreed to purchase from us the following respective numbers of shares of common
stock:
NUMBER OF
NAME SHARES
---- ---------
Hambrecht & Quist LLC......................................
Bear, Stearns & Co. Inc....................................
First Union Capital Markets Corp...........................
--------
Total.................................................
========
The Underwriting Agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in our business and the receipt of certain
certificates, opinions and letters from us, our counsel and the independent
auditors. The nature of the underwriters' obligation is such that they are
committed to purchase all shares of common stock offered hereby if any shares
are purchased.
The following tables show the per share and total underwriting discounts
and commissions we will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option to purchase additional shares.
UNDERWRITING DISCOUNTS AND COMMISSIONS PAYABLE BY US
WITH WITHOUT
OVER-ALLOTMENT EXERCISE OVER-ALLOTMENT EXERCISE
----------------------- -----------------------
Per Share......................... $ $
Total............................. $ $
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $ .
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The underwriters may allow and the dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the underwriters. The representatives have
informed us that the underwriters do not intend to confirm discretionary sales
of more than 5% of the shares of common stock offered in this offering.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to
additional
62
66
shares of common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares of common stock offered hereby.
We will be obligated, pursuant to the option, to sell shares to the underwriters
to the extent the option is exercised. The underwriters may exercise this option
only to cover over-allotments made in connection with the sale of shares of
common stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the underwriters may be required to make in respect thereof.
Our shareholders, including executive officers and directors, and optionees
who will own in the aggregate shares of common stock after the
offering, have agreed not to, without the prior written consent of Hambrecht &
Quist LLC, offer, sell or otherwise dispose of any shares of common stock,
options or warrants to acquire shares of common stock or securities exchangeable
for or convertible into shares of common stock owned by them during the 180-day
period following the date of this prospectus. We have agreed that we will not,
without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of common stock, options or warrants to acquire
shares of common stock or securities exchangeable for or convertible into shares
of common stock during the 180-day period following the date of this prospectus,
except that we may issue shares upon the exercise of options granted prior to
the date hereof, and may grant additional options under our stock option plans,
provided that, without the prior written consent of Hambrecht & Quist LLC, the
additional options shall not be exercisable during that period.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiation among us and the representatives of the underwriters. Among the
factors to be considered in determining the initial public offering price are
prevailing market and economic conditions, our revenues and earnings, market
valuations of other companies engaged in activities similar to ours, estimates
of our business potential and our prospects, the present state of our business
operations, our management and other factors deemed relevant.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position
63
67
created in connection with the offering. A penalty bid means an arrangement that
permits the underwriters to reclaim a selling concession from a syndicate member
in connection with the offering when shares of common stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market, or otherwise. This stabilizing, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Bass, Berry & Sims PLC, Nashville, Tennessee. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The audited financial statements and schedules included in this prospectus
and elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
CHANGE IN INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Our board of directors has selected Arthur Andersen LLP to serve as
independent auditors for the current fiscal year. Arthur Andersen LLP has served
as our independent auditors since November 11, 1998. On November 11, 1998, we
replaced Kraft Bros, Esstman Patton & Harrell, PLLC as our independent
accountants. Kraft Bros' reports on the financial statements for the years ended
December 31, 1996 and 1997 did not contain any adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle. The decision to change independent accountants was
approved by the board of directors. During the years ended December 31, 1996 and
1997 and through November 11, 1998 there were no reportable events, as defined
in regulations of the Securities and Exchange Commission, or disagreements with
Kraft Bros on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. Prior to retraining Arthur
Andersen LLP, we had not consulted with Arthur Andersen LLP regarding accounting
principles.
WHERE YOU CAN FIND MORE INFORMATION
We filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 under the Securities Act of 1933, that registers the
shares of common stock offered hereby. This prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedule filed with the Registration Statement. For more information about us
and the common stock offered hereby, you should review the Registration
Statement and the exhibits and schedule filed with the Registration Statement.
Statements contained in this prospectus regarding the contents of any contract
or any other document to which reference is made are not necessarily complete,
and, in each instance, you should review the copy of such contract or other
document filed as an exhibit to the Registration Statement. A copy of the
Registration Statement and the exhibits and
64
68
schedule filed with the Registration Statement may be inspected and copied at
the following location of the Securities and Exchange Commission:
PUBLIC REFERENCE ROOM
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
You may also obtain copies of all or any part of the Registration Statement from
that office at prescribed rates. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference room. The Securities and Exchange Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of the site is http://www.sec.gov.
65
69
INDEX TO FINANCIAL STATEMENTS
PAGE
----
@PLAN.INC
Report of Independent Public Accountants.................. F-2
Balance Sheets as of December 31, 1997 and 1998........... F-3
Statements of Operations for the period from inception
(May 29, 1996) to December 31, 1996 and for the years
ended December 31, 1997 and 1998....................... F-4
Statements of Shareholders' Equity (Deficit) for the
period from inception (May 29, 1996) to December 31,
1996 and for the years ended December 31, 1997 and
1998................................................... F-5
Statements of Cash Flows for the period from inception
(May 29, 1996) to December 31, 1996 and for the years
ended December 31, 1997 and 1998....................... F-6
Notes to Financial Statements............................. F-7
F-1
70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of @plan.inc:
We have audited the accompanying balance sheets of @plan.inc (a Tennessee
corporation) as of December 31, 1998 and 1997, and the related statements of
operations, shareholders' equity (deficit) and cash flows for the years then
ended and for the period from inception (May 29, 1996) to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of @plan.inc as of December 31,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended and for the period from inception to December 31, 1996, in
conformity with generally accepted principles.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 11, 1999
F-2
71
@PLAN.INC
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
1997 1998
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 832,338 $ 3,682,576
Accounts receivable, net of allowance of $0 and
$80,000, respectively:
Billed........................................ 354,626 1,440,693
Unbilled...................................... 91,355 245,310
Prepaid expenses................................... 37,838 101,208
----------- -----------
Total current assets....................... 1,316,157 5,469,787
Property and equipment, net.......................... 109,618 117,641
Software development costs, net...................... 66,634 375,278
Other assets......................................... 66,766 63,775
----------- -----------
Total assets.................................... $ 1,559,175 $ 6,026,481
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable................................... $ 82,974 $ 254,223
Accrued liabilities................................ 140,013 375,411
Deferred revenue................................... 366,953 1,124,082
----------- -----------
Total current liabilities....................... 589,940 1,753,716
Mandatory redeemable convertible preferred stock:
Series A, no par value, 500,000 shares authorized:
448,000 shares issued and outstanding........... 431,876 431,876
Series B, no par value, 2,250,000 shares
authorized: 2,016,000 shares issued and
outstanding..................................... 4,011,935 4,011,935
Series C, no par value, 1,725,667 shares
authorized: no and 1,725,667 shares issued and
outstanding, respectively....................... -- 5,138,991
----------- -----------
Total mandatory redeemable convertible preferred
stock......................................... 4,443,811 9,582,802
Shareholders' equity (deficit):
Preferred Stock, no par value, 5,524,333 shares
authorized; no shares issued and outstanding.... -- --
Common stock, no par value, 50,000,000 shares
authorized; 900,000 and 907,200 shares issued
and outstanding, respectively................... 1 8,001
Additional paid-in capital......................... -- 27,418
Accumulated deficit................................ (3,474,577) (5,345,456)
----------- -----------
Total shareholders' equity (deficit)............ (3,474,576) (5,310,037)
=========== ===========
Total liabilities and shareholders' equity
(deficit)..................................... $ 1,559,175 $ 6,026,481
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
72
@PLAN.INC
STATEMENTS OF OPERATIONS
PERIOD FROM
INCEPTION YEAR ENDED
(MAY 29, 1996) TO DECEMBER 31,
DECEMBER 31, -------------------------
1996 1997 1998
----------------- ----------- -----------
Revenues............................ $ -- $ 422,401 $ 3,108,356
Costs and expenses:
Product costs..................... 487,239 1,744,366 2,360,042
Selling and marketing............. -- 819,043 1,713,080
General and administrative........ 190,766 753,299 1,084,698
--------- ----------- -----------
Total costs and expenses.......... 678,005 3,316,708 5,157,820
--------- ----------- -----------
Loss from operations................ (678,005) (2,894,307) (2,049,464)
Interest income..................... 17,367 80,368 191,804
--------- ----------- -----------
Net loss before income taxes...... (660,638) (2,813,939) (1,857,660)
Income tax provision................ -- -- 13,219
--------- ----------- -----------
Net loss.......................... $(660,638) $(2,813,939) $(1,870,879)
========= =========== ===========
Basic and diluted loss per share.... $ (0.73) $ (3.13) $ (2.07)
========= =========== ===========
Weighted average shares
outstanding....................... 900,000 900,000 901,993
========= =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
73
@PLAN.INC
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
PERIOD FROM INCEPTION (MAY 29, 1996) TO DECEMBER 31, 1998
COMMON STOCK ADDITIONAL
---------------- PAID-IN ACCUMULATED TOTAL SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
------- ------ ---------- ----------- -------------------
Balances, May 29, 1996
(Inception).......... -- $ -- $ -- $ -- $ --
Issuance of common
stock to founders.... 900,000 1 -- -- 1
Net loss for the
period............... -- -- -- (660,638) (660,638)
------- ------ ------- ----------- -----------
Balances, December 31,
1996................. 900,000 1 -- (660,638) (660,637)
Net loss............... -- -- -- (2,813,939) (2,813,939)
------- ------ ------- ----------- -----------
Balances, December 31,
1997................. 900,000 1 -- (3,474,577) (3,474,576)
Exercise of stock
options.............. 7,200 8,000 -- -- 8,000
Options granted to
non-employees........ -- -- 27,418 -- 27,418
Net loss............... -- -- -- (1,870,879) (1,870,879)
------- ------ ------- ----------- -----------
Balances, December 31,
1998................. 907,200 $8,001 $27,418 $(5,345,456) $(5,310,037)
======= ====== ======= =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
74
@PLAN.INC
STATEMENTS OF CASH FLOWS
PERIOD
FROM INCEPTION YEAR ENDED DECEMBER 31,
(MAY 29, 1996) TO ---------------------------
DECEMBER 31, 1996 1997 1998
----------------- ------------ ------------
Cash flows from operating activities:
Net loss....................................... $ (660,638) $(2,813,939) $(1,870,879)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 1,171 48,648 218,878
Provision for doubtful accounts............. -- -- 80,000
Non cash charges............................ -- -- 27,418
Changes in operating assets and liabilities:
Increase in accounts receivable........... -- (445,981) (1,320,023)
Increase in prepaid expenses.............. (783) (37,055) (63,370)
(Increase) decrease in other assets....... (6,696) (61,289) 360
Increase (decrease) in accounts payable... 97,156 (14,182) 171,248
Increase in accrued liabilities........... -- 140,013 235,398
Increase in deferred revenue.............. -- 366,953 757,130
---------- ----------- -----------
Net cash used in operating
activities.......................... (569,790) (2,816,832) (1,763,840)
Cash flows from investing activities:
Purchases of equipment......................... (10,938) (143,419) (74,327)
Software development costs..................... -- (70,495) (458,586)
---------- ----------- -----------
Net cash used in investing
activities.......................... (10,938) (213,914) (532,913)
Cash flows from financing activities:
Proceeds from issuance of common stock......... 1 -- 8,000
Proceeds from issuance of preferred stock,
net......................................... 2,189,097 2,254,714 5,138,991
---------- ----------- -----------
Net cash provided by financing
activities.......................... 2,189,098 2,254,714 5,146,991
---------- ----------- -----------
Net change in cash and cash equivalents.......... 1,608,370 (776,032) 2,850,238
Cash and cash equivalents at beginning of
period......................................... -- 1,608,370 832,338
---------- ----------- -----------
Cash and cash equivalents at end of year......... $1,608,370 $ 832,338 $ 3,682,576
========== =========== ===========
Supplemental information:
Cash paid for income taxes..................... $ -- $ -- $ 4,921
The accompanying notes are an integral part of these financial statements.
F-6
75
@PLAN.INC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
1. GENERAL:
@plan.inc was incorporated in the State of Tennessee in May 1996. We are
based in Stamford, Connecticut, and are a provider of market research decision
support and planning systems for Internet advertisers, advertising agencies, Web
publisher, online retailers and consumer brand marketers.
2. SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
We provide market research decision support and planning systems to our
clients on a renewable subscription basis. We recognize revenue ratably over the
contract period, which is generally twelve months. We bill our clients for our
services based on terms of the contracts, which may not coincide with criteria
required for revenue recognition.
On the accompanying balance sheets, deferred revenue represents amounts
invoiced prior to rendering our services while unbilled receivables represents
the value of services rendered prior to being invoiced. Substantially all of the
deferred and unbilled revenue will be earned and billed, respectively, within
twelve months of the respective period ends.
Upon signing a contract, our sales representatives become eligible for a
commission. These commissions are paid at the time of the contract signing. For
financial reporting purposes, we capitalize these commissions as a component of
prepaid expenses and amortize these amounts over the lives of the related
contracts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all investments in
highly liquid instruments purchased with original maturities of three months or
less. Funds in excess of operating cash needs are maintained in a money market
fund, which may exceed the amount insured by the Federal Deposit Insurance
Corporation.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful lives of the assets, ranging from
three to five years.
SOFTWARE DEVELOPMENT COSTS
We capitalize our computer software development costs upon the
establishment of technological feasibility. Until our products reach
technological feasibility, all costs related to development efforts are expensed
as a component of product costs. Software development costs, subsequent to
technological feasibility and prior to general release, have been capitalized
and are reported at the lower of unamortized cost or net realizable value. We
amortize
F-7
76
@PLAN.INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
capitalized software development costs on a straight-line basis for periods
ranging from one to three years. As of December 31, 1997 and 1998, software
development costs are as follows:
DECEMBER 31,
--------------------
1997 1998
------- ---------
Software development costs................................ $70,495 $ 529,081
Less: Accumulated depreciation............................ (3,861) (153,803)
------- ---------
$66,634 $ 375,278
======= =========
We periodically review our software development costs and property and
equipment for any potential impairments. We consider undiscounted cash flows,
future operating results, trends or other relevant information in assessing
whether the carrying value of our assets is recoverable. At December 31, 1998,
we do not believe that any of our assets are impaired.
INCOME TAXES
We recognize deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
LOSS PER SHARE
Basic loss per share amounts are computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during the period.
Diluted loss per share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period plus the
effects of any potentially dilutive securities. In the accompanying statements
of operations, diluted loss per share does not include the effects of
potentially dilutive securities for all periods presented as they would have
been anti-dilutive in years in which a loss is reported.
The following summarizes potentially dilutive securities excluded from the
diluted loss per share calculation. Preferred Stock is reflected on an
"if-converted" basis. See note 4.
1996 1997 1998
--------- --------- ---------
Series A preferred stock....................... 798,300 806,400 806,400
Series B preferred stock....................... 1,596,600 3,628,800 3,628,800
Series C preferred stock....................... -- -- 3,106,200
Stock options.................................. 343,800 1,506,600 1,805,400
--------- --------- ---------
Total.......................................... 2,738,700 5,941,800 9,346,800
========= ========= =========
F-8
77
@PLAN.INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
We account for our stock-based compensation to our employees by recognizing
compensation expense for the difference between the estimated fair value of our
stock at the date of grant and the exercise price of the granted stock.
Stock-based grants issued to non-employees are recorded at either the fair value
of the services provided at the fair value of the stock issued, as determined
using the Black-Scholes model.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. These assumptions also affect the reported amounts of
revenue and expenses during the reporting periods. Actual results could differ
from those estimates and assumptions.
CONCENTRATION OF CREDIT RISK
We invest the majority of our cash balances in short-term, high quality
marketable securities. Our accounts receivable balances are domestic. No single
client represents a significant credit risk to us.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of all of our cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to the short-term
nature of these accounts.
STOCK-SPLIT
The accompanying financial statements give retroactive effect to a 2,500
for 1 stock-split of our common stock which occurred on July 23, 1996 and a 1.8
for 1 stock-split that was approved by our Board of Directors on March 10, 1999.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31,
---------------------
1997 1998
-------- ---------
Computer equipment and software.......................... $138,781 $ 211,999
Furniture and fixtures................................... 7,503 8,613
Leasehold improvements................................... 8,073 8,073
-------- ---------
154,357 228,685
Less: Accumulated depreciation........................... (44,739) (111,044)
-------- ---------
$109,618 $ 117,641
======== =========
F-9
78
@PLAN.INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PREFERRED STOCK:
Since our inception, we have issued three series of mandatory redeemable
convertible preferred stock. The following is a discussion of each of these
issuances.
In 1996 and 1997, we issued a total of 448,000 shares of Series A preferred
stock and 2,016,000 shares of Series B preferred stock at a purchase price of
$1.00 and $2.00 per share, respectively. In 1998, we issued 1,725,667 shares of
Series C preferred stock at a purchase price of $3.00 per share. Each share of
preferred stock is convertible into 1.8 shares of common stock at any time, at
the option of the holder, or automatically upon successful completion of an
initial public offering yielding gross proceeds of at least $12.0 million and at
an initial public offering price of not less than $6.00 per share.
We have reserved 4,189,667 shares of common stock for issuance upon
conversion of these convertible preferred shares.
The preferred shareholders are not entitled to receive any preferential
dividends until the respective sixth anniversaries of the initial issuance dates
of the shares (Series A -- July 2002; Series B -- October 2002; Series
C -- January 2004). Thereafter, the preferred shareholders will be entitled to
receive dividends at the annual rate of $0.10, $0.20 and $0.30 per share,
respectively, on a cumulative basis from and after the sixth anniversary. Under
our Preferred Stock agreements, dividends on our common stock are restricted to
stock dividends through July 2002.
We will redeem the preferred stock, if not previously converted, of each
preferred shareholder in 48 equal monthly installments beginning on the sixth
anniversary of the respective original issue dates. In the event of any
consolidation, merger, statutory share exchange, liquidation, dissolution or
winding up of our business, the holders of preferred stock will be paid first
out of any distribution of holders of our common and preferred stock at an
amount per share equal to $1.00, $2.00 and $3.00, respectively, plus any
cumulative and unpaid dividends thereon.
Simultaneous with the closing of an initial public offering, a director and
an officer and all of the preferred shareholders will receive warrants to
purchase shares of common stock equal to 8% of the number of shares sold in the
offering at a price equal to the initial price to the public. Of these warrants,
12.5% will be granted to each of the director and officer. The preferred
shareholders, including the director and officer, will receive a pro rata
portion of the remaining 75% of the warrants. These warrants are exercisable for
seven years.
5. STOCK OPTION PLAN:
In 1996, we created the 1996 Stock Option Plan. This plan, as amended,
provides for stock option grants to employees, members of our board of
directors, our consultants and other persons having a business relationship with
us. Under this plan, the option price as determined by the board of directors
cannot be less than 100% of the fair market value of our common stock, at grant,
in the case of incentive stock options, and not less than 50% of the fair market
value of our common stock, at grant, in the case of non-qualified stock options.
Exceptions exist under certain conditions. No options will be exercisable more
than ten years after the date the option is granted. Options that we have
granted under our plan generally vest ratably over a four year period, beginning
at the date of grant. All unvested options will immediately vest upon an initial
public offering of our common stock.
F-10
79
@PLAN.INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
We currently have 1,980,000 shares reserved under our option plan. At
December 31, 1996, 1997 and 1998, the following options had been granted under
our plan and were outstanding:
1996 1997 1998
------------------ -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- --------- -------- --------- --------
Outstanding at beginning of
period....................... -- -- 343,800 $0.94 1,506,600 $1.14
Granted........................ 343,800 $0.94 1,162,800 1.20 349,200 2.91
Exercised...................... -- -- -- -- (7,200) 1.11
Forfeited...................... -- -- -- -- (43,200) 1.39
------- ----- --------- ----- --------- -----
Outstanding at end of period... 343,800 $0.94 1,506,600 $1.14 1,805,400 $1.43
======= ========= =========
Options exercisable at end of
period....................... 279,065 $0.89 505,399 $0.99 874,420 $1.20
======= ========= =========
Weighted average fair value of
options granted during
year......................... $0.31 $0.38 $0.66
The following table summarizes information about stock options outstanding
at December 31, 1998:
WEIGHTED-
OPTIONS AVERAGE OPTIONS
OUTSTANDING AT REMAINING WEIGHTED- EXERCISABLE AT WEIGHTED-
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1998 LIFE EXERCISE PRICE 1998 EXERCISE PRICE
- --------------- -------------- ----------- -------------- -------------- --------------
$.89 - $1.11........... 1,288,800 8.04 years $1.07 758,749 $1.03
$1.67.................. 343,800 9.19 years 1.67 70,172 1.67
$3.33.................. 172,800 9.75 years 3.33 45,499 3.33
--------- -------
1,805,400 874,420
========= =======
The fair value of each option grant is estimated on the date of grant using
The Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996, 1997 and 1998:
- risk free interest rates of 6.7%, 6.5% and 5.3%, respectively,
- expected dividend yields of 0%,
- expected lives of 6.0 years and
- expected volatility of 0%.
Except for certain option grants discussed below, no compensation cost has
been recognized for any option grants in the accompanying statements of
operations. Had compensation costs been recorded, our net loss and basic and
diluted loss per share would
F-11
80
@PLAN.INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
have been reduced from the following as reported amounts to the following pro
forma amounts:
1996 1997 1998
--------- ----------- -----------
Net loss:
As reported....................................... $(660,638) $(2,813,939) $(1,870,879)
Pro forma......................................... $(746,262) $(2,938,567) $(2,037,361)
Basic and diluted loss per share:
As reported....................................... $(0.73) $(3.13) $(2.07)
Pro forma......................................... $(0.83) $(3.27) $(2.26)
During 1998, we granted 36,000 stock options at an exercise price of $3.33
to non-employees. We recognized expense in the amount of $27,418 in connection
with these grants, which was calculated using the Black-Scholes model and the
following assumptions:
- risk free interest rate of 5.3%,
- expected dividend yield at 0%,
- expected life of 5.0 years and
- expected volatility of 0%
6. INCOME TAXES:
The accompanying statement of operations for the year ended December 31,
1998 includes a provision for current state capital taxes of approximately
$13,200. No taxes were provided for the periods ended December 31, 1996 and
1997, as taxes were not due during these years.
A reconciliation of the tax provision at the United States statutory rate
to the actual income tax expense reported is as follows:
1996 1997 1998
--------- --------- ---------
Tax benefit at the United States statutory
rate......................................... $(224,617) $(956,739) $(631,635)
State taxes, net of federal tax benefit........ -- -- 8,725
Losses not benefited........................... 222,917 954,695 632,034
Other.......................................... 1,700 2,044 4,095
--------- --------- ---------
Total income tax provision................ $ -- $ -- $ 13,219
========= ========= =========
Since inception, we have generated losses for both book and tax purposes.
We have not recorded potential income tax benefits that we may receive from our
ability to apply current losses to future years in which we have taxable income.
Under accounting rules, these benefits can only be recorded when it is more
likely than not that these benefits will be realized. Due to our limited
operating history, we currently cannot make this assessment.
At December 31, 1998, we have net operating loss carryforwards for federal
and state income tax purposes totaling approximately $4,900,000, which will
expire from 2011 through 2013.
F-12
81
@PLAN.INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Our net deferred tax asset consists of the following amounts of deferred
tax assets and liabilities as of December 31, 1997 and 1998:
1997 1998
---------- ----------
Deferred tax asset:
Net operating loss carryforwards..................... $1,094,546 $1,949,007
Start-up costs....................................... 226,859 184,731
Reserves............................................. 1,520 50,668
---------- ----------
Deferred tax asset..................................... 1,322,925 2,184,406
Less valuation allowance for deferred tax assets....... (1,319,415) (2,129,943)
---------- ----------
3,510 54,463
Deferred tax liability:
Prepaid commissions.................................. -- (37,263)
Excess of depreciation for tax purposes over book.... (3,510) (17,200)
---------- ----------
Deferred tax liability................................. (3,510) (54,463)
---------- ----------
Net deferred tax asset................................. $ -- $ --
========== ==========
7. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
We lease office facilities under operating leases. Future minimum lease
payments related to these agreements are as follows:
Year ending December 31,
1999...................................................... $148,290
2000...................................................... 142,249
2001...................................................... 23,708
Rent expense was approximately $0, $110,000 and $156,000, for the years
ended December 31, 1996, 1997 and 1998, respectively.
CONTRACTUAL COMMITMENTS
We have a Letter of Agreement with The Gallup Organization, Inc. which was
entered into on September 6, 1996. This agreement was amended on January 5,
1998, August 20, 1998 and February 19, 1999. Under this agreement Gallup
provides us with initial baseline data and quarterly tracking survey research.
The agreement has a one-year term with nine successive one-year renewals, and is
cancelable only by us upon 90-days' written notice prior to an anniversary date.
8. SUBSEQUENT EVENT:
We are currently pursing an initial public offering of our common stock. We
expect to offer approximately shares of our common stock at an
initial offering price of approximately $ per share.
F-13
82
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[@PLAN LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
HAMBRECHT & QUIST
BEAR, STEARNS & CO. INC.
FIRST UNION CAPITAL MARKETS CORP.
, 1999
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND
THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount payable by us in connection with the sale of the common
stock being registered. All amounts are estimates except the SEC registration
fee and the NASD filing fees.
AMOUNT
TO BE PAID
----------
SEC registration fee........................................ $ 9,591
NASD filing fee............................................. 3,950
Nasdaq National Market listing fee..........................
Printing and engraving......................................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses (including legal fees)...........
Transfer agent fees.........................................
Miscellaneous...............................................
--------
Total.................................................. $
========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Tennessee Business Corporation Act (the "TBCA"), there is no
specific provision either expressly permitting or prohibiting a corporation from
limiting the liability of its directors for monetary damages. Our charter
provides that, to the fullest extent permitted by the TBCA, a director will not
be liable to the corporation or its shareholders for monetary damages for breach
of his or her fiduciary duty as a director.
The TBCA provides that a corporation may indemnify any director or officer
against liability incurred in connection with a proceeding if the director or
officer acted in good faith or reasonably believed, in the case of conduct in
his or her official capacity with the corporation, that the conduct was in the
corporation's best interest. In all other civil cases, a corporation may
indemnify a director or officer who reasonably believed that his or her conduct
was not opposed to the best interest of the corporation. In connection with any
criminal proceeding, a corporation may indemnify any director or officer who had
no reasonable cause to believe that his or her conduct was unlawful.
In actions brought by or in the right of the corporation, however, the TBCA
does not allow indemnification if the director or officer is adjudged to be
liable to the corporation. Similarly, the TBCA prohibits indemnification in
connection with any proceeding charging improper personal benefit to a director
or officer if the director or officer is adjudged liable because a personal
benefit was improperly received.
II-1
84
In cases when the director or officer is wholly successful, on the merits
or otherwise, in the defense of any proceeding instigated because of his or her
status as a director or officer of a corporation, the TBCA mandates that the
corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. Notwithstanding the foregoing, the TBCA provides
that a court may order a corporation to indemnify a director or officer for
reasonable expense if, in consideration of all relevant circumstances, the court
determines that the individual is fairly and reasonably entitled to
indemnification, whether or not the standard of conduct set forth above was met.
Our bylaws provide that we shall indemnify and advance expenses to our
directors and officers to the fullest extent permitted by the TBCA. We also
maintain insurance to protect any director or officer against any liability and
have entered into indemnification agreements with each of our directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under our charter. We are not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following unregistered securities
since May 29, 1996 (inception):
- On May 31, 1996, 450,000 shares of our common stock to each of Mark K.
Wright and Gary R. Haynes in connection with founding our organization in
consideration for their right, title and interest in certain data,
business plans, processes, ideas, trade secrets, software and other
intellectual property concerning the @plan concept and all associated
goodwill;
- On July 24, 1996 and March 20, 1997, an aggregate of 448,000 shares of
our Series A convertible preferred stock in a private placement
transaction under Rule 506 of the Securities Act at $1.00 per share for
an aggregate purchase price of $448,000;
- On October 4, 1996 and March 20, 1997, 2,016,000 shares of our Series B
convertible preferred stock in a private placement transaction under Rule
506 of the Securities Act at $2.00 per share for an aggregate purchase
price of $4,032,000; and
- On January 6, 1998 and August 7, 1998, 1,725,667 shares of Series C
convertible preferred stock in a private placement transaction under Rule
506 of the Securities Act at $3.00 per share for an aggregate purchase
price of $5,177,001.
- In September 1998, Bethany Joseph, a former employee, exercised options
for 7,200 shares of our common stock under Rule 701 of the Securities Act
at $1.11 per share for an aggregate purchase price of $8,000.
II-2
85
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
NUMBER DESCRIPTION
- ------ -----------
1* Form of the Underwriting Agreement among @plan.inc and the
underwriters
3.1 Form of Third Amended and Restated Charter of @plan.inc
3.2 Form of Second Amended and Restated Bylaws of @plan.inc
4.1* Form of certificate representing the common stock, no par
value per share of @plan.inc
4.2 @plan.inc Amended and Restated Shareholders' Agreement dated
January 6, 1998, as amended
4.3 Form of Stock Purchase Warrant
4.4 Article 7 of the Third Amended and Restated Charter
(included in Charter filed as Exhibit 3.1)
4.5 Article II of the Second Amended and Restated Bylaws
(included in Bylaws filed as Exhibit 3.2)
5* Opinion of Bass, Berry & Sims PLC as to the legality of the
common stock being offered
10.1* Gallup Agreement dated September 6, 1996, as amended.
10.2* Gallup Agreement dated July 29, 1998.
10.3 Series A and Series B Convertible Preferred Stock Securities
Purchase Agreement dated July 24, 1996
10.4 Series C Convertible Preferred Stock Securities Purchase
Agreement dated December 31, 1997
10.5 Second Amended and Restated 1996 Stock Option Plan,
effective as of July 22, 1996
10.6 1999 Stock Incentive Plan
10.7 Form of Indemnification Agreement
10.8* Form of Severance Agreement
10.9* Promissory note dated June 10, 1997 between us and Karl
Spangenberg
11 Computation of Loss per Share
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Bass, Berry & Sims PLC (included in opinion filed
as Exhibit 5)
24 Power of Attorney (included on page II-5)
27 Financial Data Schedule
- ---------------
* To be filed by amendment
(b) Schedules.
Schedule II -- Valuation and Qualifying Accounts
II-3
86
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; (ii) for the purpose of determining any liability under the
Securities Act of 1933, 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-4
87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut, on March 16, 1999.
@PLAN.INC
By: /s/ MARK K. WRIGHT
-----------------------------------
Mark K. Wright
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Mark K. Wright and Nancy Lazaros, and each of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name,
place, and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and any
registration statement relating to the same offering as this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing,
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE(S) DATE
--------- -------- ----
/s/ MARK K. WRIGHT Chairman and Chief March 16, 1999
- ------------------------------------------ Executive Officer (principal
Mark K. Wright executive officer)
/s/ NANCY A. LAZAROS Senior Vice President and March 16, 1999
- ------------------------------------------ Chief Financial Officer
Nancy A. Lazaros (principal financial and
accounting officer)
/s/ GARY R. HAYNES Director March 16, 1999
- ------------------------------------------
Gary R. Haynes
/s/ DONALD M. JOHNSTON Director March 16, 1999
- ------------------------------------------
Donald M. Johnston
II-5
88
SIGNATURE TITLE(S) DATE
--------- -------- ----
/s/ CALVIN A. MARTIN Director March 16, 1999
- ------------------------------------------
Calvin A. Martin
/s/ W. PATRICK ORTALE, III Director March 16, 1999
- ------------------------------------------
W. Patrick Ortale, III
/s/ ROGER J. THOMSON Director March 16, 1999
- ------------------------------------------
Roger J. Thomson
/s/ JOHN H. WYANT Director March 16, 1999
- ------------------------------------------
John H. Wyant
II-6
89
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To @plan.inc:
We have audited in accordance with generally accepted auditing standards,
the financial statements of @plan.inc included in this registration statement
and have issued our report thereon dated March 11, 1999. Our audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule of Valuation and Qualifying Accounts is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 11, 1999
S-1
90
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM INCEPTION (MAY 29, 1996) TO DECEMBER 31, 1996
AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ----------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Period from Inception (May 29, 1996) to
December 31, 1996.................... $ -- $ -- $ -- $ --
Year Ended December 31, 1997........... -- -- -- --
Year Ended December 31, 1998........... -- 80,000 -- 80,000
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
Period from Inception (May 29, 1996) to
December 31, 1996.................... $ -- $ 251,098 $ -- $ 251,098
Year Ended December 31, 1997........... 251,098 1,068,317 -- 1,319,415
Year Ended December 31, 1998........... 1,319,415 810,528 -- 2,129,943
S-2
91
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------
1* Form of the Underwriting Agreement among @plan.inc and the
underwriters
3.1 Form of Third Amended and Restated Charter of @plan.inc
3.2 Form of Second Amended and Restated Bylaws of @plan.inc
4.1* Form of certificate representing the common stock, no par
value per share of @plan.inc
4.2 @plan.inc Amended and Restated Shareholders' Agreement dated
January 6, 1998, as amended
4.3 Form of Stock Purchase Warrant
4.4 Article 7 of the Third Amended and Restated Charter
(included in Charter filed as Exhibit 3.1)
4.5 Article II of the Second Amended and Restated Bylaws
(included in Bylaws filed as Exhibit 3.2)
5* Opinion of Bass, Berry & Sims PLC as to the legality of the
common stock being offered
10.1* Gallup Agreement dated September 6, 1996, as amended.
10.2* Gallup Agreement dated July 29, 1998.
10.3 Series A and Series B Convertible Preferred Stock Securities
Purchase Agreement dated July 24, 1996
10.4 Series C Convertible Preferred Stock Securities Purchase
Agreement dated December 31, 1997
10.5 Second Amended and Restated 1996 Stock Option Plan,
effective as of July 22, 1996
10.6 1999 Stock Incentive Plan
10.7 Form of Indemnification Agreement
10.8* Form of Severance Agreement
10.9* Promissory note dated June 10, 1997 between us and Karl
Spangenberg
11 Computation of Loss per Share
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Bass, Berry & Sims PLC (included in opinion filed
as Exhibit 5)
24 Power of Attorney (included on page II-5)
27 Financial Data Schedule
- ---------------
* To be filed by amendment