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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FORT POINT PARTNERS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7373 77-0444124
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
111 SUTTER STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 395-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JAMES T. ROCHE AND MATTHEW J.N.C. ROCHE
CO-CHIEF EXECUTIVE OFFICERS
CO-PRESIDENTS
FORT POINT PARTNERS INC.
111 SUTTER STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 395-4400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
KENNETH R. LAMB, ESQ. CORI M. ALLEN, ESQ.
GREGORY J. CONKLIN, ESQ. GIL LIVNAH, ESQ.
JOHN B. STONE, ESQ. JINGMING CAI, ESQ.
GIBSON, DUNN & CRUTCHER LLP MORRISON & FOERSTER LLP
ONE MONTGOMERY STREET 755 PAGE MILL ROAD
TELESIS TOWER, SUITE 2600 PALO ALTO, CA 94304
SAN FRANCISCO, CA 94104
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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 of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _____________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE(2)
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Common Stock, $0.001 par value.............................. $ 69,000,000 $ 18,216
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Calculated pursuant to Rule 457(o) under the Securities Act of 1933.
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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.
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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 MAY 3, 2000
Shares
[FORT POINT PARTNERS LOGO]
Common Stock
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Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $ and $ per share. We will apply to have our common stock
approved for listing on The Nasdaq Stock Market's National Market under the
symbol "FTPT".
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
4.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO FORT
PUBLIC COMMISSIONS POINT PARTNERS
-------- ------------- ----------------
Per Share.......................................... $ $ $
Total.............................................. $ $ $
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON DEUTSCHE BANC ALEX. BROWN
WR HAMBRECHT + CO
The date of this prospectus is , 2000
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[DESCRIPTION OF INSIDE FRONT COVER]
Within the borders of a black box is a beige and white background depicting
a section of the Golden Gate Bridge. In black typeset centered over the
background is text stating, "Some of our past and present clients include:
BlueLight.com, Inc., Elizabeth Arden Company, a Unilever company, eve.com, Inc.,
J.Crew Group, Inc., Kaplan, Inc., Lids Corp., The North Face, Inc., Petstore.com
Inc., Smith and Hawken, Ltd. and Tavolo, Inc." Centered below that text is the
Fort Point Partners blue and gold logo and the bolded text, "Fort Point
Partners."
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 4
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 16
USE OF PROCEEDS....................... 17
DIVIDEND POLICY....................... 17
CAPITALIZATION........................ 18
DILUTION.............................. 19
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 21
BUSINESS.............................. 29
PAGE
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MANAGEMENT............................ 37
CERTAIN TRANSACTIONS.................. 46
PRINCIPAL STOCKHOLDERS................ 48
DESCRIPTION OF CAPITAL STOCK.......... 50
SHARES ELIGIBLE FOR FUTURE SALE....... 54
UNDERWRITING.......................... 56
NOTICE TO CANADIAN RESIDENTS.......... 58
LEGAL MATTERS......................... 59
EXPERTS............................... 59
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 59
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
Fort Point Partners(TM), Fort Point(TM), eSelling(TM), Fortified
Process(TM), EC Plan(TM), EC Build(TM), EC Grow(TM), Learning Infrastructure(TM)
and Selling Intelligence(TM) are our trademarks and are the subject of pending
trademark applications. This prospectus also makes reference to trademarks of
other companies.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
This summary highlights selected information contained in greater detail
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 carefully read this entire prospectus, including "Risk Factors" and the
financial statements and notes thereto, before you decide to buy our common
stock.
FORT POINT PARTNERS INC.
Fort Point Partners was formed specifically to provide eSelling solutions,
which we define as Internet services that enable companies to sell more
effectively. We are an Internet consulting firm that specializes in providing
strategy, technology and program management services to help companies combine
their existing capabilities with Web-based technologies to launch or expand an
e-business designed to maximize revenues and gain competitive advantage. Our
past and present clients include companies that are engaging in e-business, in
both business-to-business and business-to-consumer selling environments, such as
BlueLight.com, Elizabeth Arden, J.Crew and Kaplan. We provide our services
primarily on a fixed-price, fixed-timeframe basis.
Companies are increasingly launching e-businesses in response to the rapid
growth in the commercial use of the Internet. To do so, many companies require
the expertise of Internet services firms to better understand the Internet
opportunity and how to build e-businesses. International Data Corporation, or
IDC, estimates that the worldwide market for Internet services will grow from
$16.2 billion in 1999 to $99.1 billion in 2004.
We believe that the marketplace is entering the next phase of e-business,
characterized by a focus on maximizing profitable sales. To date, companies have
focused on developing a Web presence and Web-enabling enterprise applications.
However, as the number of e-businesses has grown, buyers have been empowered by
increased variety in product and service offerings, greater access to
information and real-time price and transaction capability. As buyers become
empowered, companies are seeking better ways to differentiate their products and
services to create competitive advantages and drive increased revenue and
profitability. Companies also face a growing number of options in the selection
of business plans, solution models and technologies.
We believe that we are well positioned to benefit from this next phase of
e-business because our eSelling solutions specifically focus on helping
companies maximize revenue. We distinguish ourselves by:
- working with our clients to design eSelling strategies built around
understanding every point of contact between our clients and their
customers such as sales, supply, fulfillment and customer service. We
then employ processes and technologies to remove barriers to buying and
to create additional revenue opportunities at each of these contact
points;
- our deep technology expertise and experience, which enables us to
architect and build scalable and flexible applications capable of
handling high transaction rates and large volumes of data and that can be
adapted to our clients' and their customers' changing needs,
technological innovation and business trends;
- employing a differentiated First-Stop Shop approach, which means that
clients engage us early in the strategic planning process to define and
assume responsibility for the entire eSelling solution. Our ecosystem of
relationships allows us to provide our clients with leading expertise in
all relevant areas necessary to implement high-quality eSelling solutions
as well as the flexibility to take advantage of the latest technologies;
- utilizing knowledge merchandising to identify, capture and reuse valuable
frameworks, tools and processes to achieve rapid time to market when
delivering our eSelling solutions; and
- having a disciplined methodology that ensures consistent delivery of high
quality eSelling solutions in a timely, cost-effective manner across all
client engagements.
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Our objective is to become the leading provider of eSelling solutions. Our
strategy for accomplishing this objective includes:
- continuing to develop new and innovative eSelling solutions to increase
the value of our client engagements and target large companies in the
manufacturing, retail, financial services and telecommunications
industries;
- targeting strategic eSelling initiatives for established enterprises to
help those companies use the Internet to leverage their substantial
existing corporate advantages across multiple channels;
- cultivating a culture that attracts and retains skilled,
multidisciplinary professionals;
- building long-term relationships, which lead to additional business
opportunities, large-scale client engagements, recurring revenue streams
and a strong base of referenceable clients;
- leveraging the relationships in our ecosystem to provide high-quality
eSelling solutions;
- fostering an effective selling organization to scale our business, obtain
large engagements and develop long-term client relationships; and
- expanding our geographic presence throughout the United States and
internationally to meet clients' eSelling needs.
We were incorporated in California in October 1996 and will reincorporate
as a Delaware corporation prior to the completion of this offering. As of March
31, 2000, we had 84 billable professionals. Our principal executive offices are
located at 111 Sutter Street, San Francisco, California 94104, and our telephone
number is (415) 395-4400. We also have an office in New York and are
establishing offices in Chicago and Germany.
THE OFFERING
Common stock offered by Fort Point Partners............. shares
Common stock to be outstanding after this offering...... shares
Use of proceeds......................................... We intend to use the net proceeds of this
offering for working capital and general
corporate purposes.
Proposed Nasdaq symbol.................................. FTPT
The common stock to be outstanding upon completion of this offering is
based on the number of shares outstanding as of March 31, 2000.
The common stock outstanding after this offering assumes the conversion
into common stock of all of our outstanding preferred stock and excludes
3,754,350 shares of common stock that are reserved for issuance under our 1996
Stock Option/Stock Issuance Plan, of which 1,396,244 shares were subject to
outstanding options as of March 31, 2000 with a weighted average exercise price
of $0.18. See "Capitalization," "Management -- Employee Benefit Plans" and
"Description of Capital Stock."
Except as otherwise indicated, we have presented all information in this
prospectus assuming that:
- the underwriters will not exercise their over-allotment option;
- all outstanding shares of our preferred stock will be converted into
common stock upon completion of this offering (see "Description of
Capital Stock"); and
- we have reorganized Fort Point Partners Inc. into a Delaware corporation
(see "Certain Transactions -- Reorganization of Fort Point Partners").
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes the results of our operations. The
consolidated statement of operations data set forth below for the years ended
December 31, 1997, 1998 and 1999 are derived from our audited consolidated
financial statements. The consolidated statement of operations data for the
quarters ended March 31, 1999 and 2000 are derived from our unaudited interim
consolidated financial statements. The pro forma net loss per common share data
reflect the sale in April 2000 of 3,426,411 shares of our Series E convertible
preferred stock for aggregate proceeds of approximately $30.0 million and the
automatic conversion of all outstanding shares of our convertible preferred
stock into shares of our common stock upon completion of this offering.
YEARS ENDED DECEMBER 31, QUARTERS ENDED MARCH 31,
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1997 1998 1999 1999 2000
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(UNAUDITED)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue................................... $ 2,045 $ 2,489 $ 8,325 $ 1,224 $ 5,003
Operating expenses:
Professional services................... 620 1,037 4,875 584 2,527
Sales and marketing..................... 62 425 2,451 214 4,041
General and administrative.............. 1,021 1,768 6,150 500 4,386
Amortization of deferred stock-based
compensation.......................... 1 67 882 51 3,453
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Total operating expenses.................. 1,704 3,297 14,358 1,349 14,407
--------- --------- --------- --------- -----------
Operating income (loss)................... 341 (808) (6,033) (125) (9,404)
Interest income (expense), net............ 8 (1) 144 (3) 75
Income tax (expense) benefit.............. (139) 83 (1) -- (1)
--------- --------- --------- --------- -----------
Net income (loss)......................... $ 210 $ (726) $ (5,890) $ (128) $ (9,330)
========= ========= ========= ========= ===========
Net income (loss) per common share:
Basic................................... $ 0.05 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========= ========= ========= ========= ===========
Diluted................................. $ 0.04 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========= ========= ========= ========= ===========
Weighted average shares used in computing
net income (loss) per common share:
Basic................................... 4,160,000 4,162,181 4,693,086 4,642,790 4,905,134
Diluted................................. 5,461,682 4,162,181 4,693,086 4,642,790 4,905,134
Pro forma basic and diluted net loss per
common share (unaudited)................ $ (0.67)
===========
Weighted average shares used in
computing pro forma net loss per
common share.......................... 14,003,870
The following table is a summary of our consolidated balance sheet data. The
actual column is derived from our unaudited consolidated financial statements.
The pro forma column gives effect to the sale in April 2000 of 3,426,411 shares
of Series E convertible preferred stock for aggregate proceeds of approximately
$30.0 million. The pro forma as adjusted column reflects the sale in April 2000
of our Series E convertible preferred stock and the receipt of the net proceeds
from the sale of shares of common stock offered by us at assumed initial
public offering price of per share and the application of the net proceeds
from the offering, after deducting underwriting discounts and commissions and
estimated offering expenses.
MARCH 31, 2000
-----------------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ------------ --------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 5,709 $35,707 $
Working capital........................................ (809) 29,189
Total assets........................................... 14,371 44,369
Total long-term liabilities, including current
portion.............................................. 630 630 630
Total stockholders' equity............................. 4,658 34,656
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RISK FACTORS
Any investment in our common stock includes a high degree of risk. You
should consider carefully the risks and uncertainties described below and the
other information in this prospectus before deciding whether to invest in shares
of our common stock. The risks and uncertainties described below are not the
only ones facing us. Additional risk and uncertainties not presently known to us
or that we currently deem immaterial may also impair our business operations.
Any of these presently unknown or immaterial risks or any of the following risks
could materially and adversely affect our business, operating results and
financial condition and could result in a partial or complete loss of your
investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES, WE EXPECT TO INCUR LOSSES IN THE FUTURE AND WE MAY
NEVER BE PROFITABLE
We cannot assure you that we will ever achieve or sustain profitability. We
incurred net losses of $9.3 million in the quarter ended March 31, 2000, $5.9
million in 1999 and $0.7 million during 1998. As of March 31, 2000, we had an
accumulated deficit of $15.8 million. We anticipate that we will continue to
incur net losses for the foreseeable future. We also expect that our
professional services, sales and marketing and general and administrative
expenses will continue to increase as we attempt to expand our business. As a
result, we will need to generate significant revenue to achieve profitability.
If we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future.
OUR OPERATING HISTORY IS MORE LIMITED THAN THAT OF MANY OTHER COMPANIES, SO YOU
MAY FIND IT DIFFICULT TO EVALUATE OUR BUSINESS IN MAKING AN INVESTMENT DECISION
We have limited experience in providing our services and have completed
only a limited number of engagements. Our limited operating history makes an
evaluation of our business and prospects difficult. Companies in an early stage
of development frequently encounter enhanced risks and unexpected expenses and
difficulties. These risks, expenses and difficulties are particularly relevant
to us because the market for Internet services is new and rapidly evolving. In
addition, many members of our senior management team and other employees have
worked with us for only a short period of time. Consequently, we have not
demonstrated that our business can succeed.
WE MAY EXPERIENCE SIGNIFICANT PERIOD-TO-PERIOD QUARTERLY AND ANNUAL FLUCTUATIONS
IN OUR REVENUE AND OPERATING RESULTS THAT MAY CAUSE OUR STOCK PRICE TO FLUCTUATE
We may experience significant period-to-period quarterly and annual
fluctuations in our revenue and operating results in the future due to a number
of factors. We have no control over many of these factors, and these factors are
difficult or impossible to forecast. Although our revenue has increased in each
of the past three years, we cannot assure you that we will be able to sustain
our historical growth rates, or that we will be able to grow at all. You should
not rely on the results of any prior quarterly or annual periods as an
indication of our future performance. It is likely that in some future period
our operating results will be below the expectations of public market analysts
or investors. If our operating results are below the expectations of analysts or
investors, our stock price may drop, perhaps significantly.
Some factors that may cause fluctuations in our revenue and operating
results are:
- variability in the demand for Internet services;
- our ability to obtain new and follow-on client engagements;
- the loss of any major client;
- the amount and timing of projects, project modifications and project
cancellations by our clients;
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- our ability to attract, train and retain skilled professionals at various
levels of experience with a variety of technical and administrative
skills, including project management, strategy, engineering, systems
architecture, sales and marketing, and other disciplines;
- our employee utilization rate, including our ability to integrate new
employees and to transition employees from completed projects to new
projects;
- our ability to accurately estimate the resources we need to complete
projects;
- the introduction of new services by us or our competitors;
- changes in our pricing policies or those of our competitors;
- our ability to integrate any acquired businesses;
- our ability to manage costs, including personnel and support services
costs and the costs related to the expected opening of new offices; and
- general economic factors.
Our personnel costs constitute the substantial majority of our operating
expenses. Because we establish these expenses in advance of any particular
quarter, underutilization of our billable professionals may cause significant
reductions in our operating results for a particular quarter and could result in
losses for such quarter. In addition, we have hired and anticipate hiring a
large number of personnel in core support services, including technology
infrastructure, sales and marketing and finance and administration. As a result,
a significant portion of our operating expenses are fixed in the short term. Any
failure to generate revenue according to our expectations in a particular
quarter could result in losses for the quarter.
Although we have limited historical data, we have experienced and expect to
continue to experience seasonality in revenue, which may materially affect our
quarter-to-quarter operating results. Our revenue growth and operating results
in the quarter ended December 31 of each year typically are harmed by the
greater number of vacation days and holidays in that period. As we expand
internationally, we may encounter other seasonal trends, such as increased
vacation days during the summer in our planned European operations. These
seasonal trends slow the rate of completion of projects and, consequently, the
rate at which we recognize revenue for engagements.
OUR ABILITY TO ATTRACT, TRAIN AND RETAIN QUALIFIED EMPLOYEES IS CRUCIAL TO OUR
OPERATING RESULTS AND ANY FUTURE GROWTH
Our future success depends in large part on our ability to hire, train and
retain people at various levels of experience with a variety of technical and
administrative skills, including project management, strategy, engineering,
systems architecture, sales and marketing, and other disciplines. If we are
unable to hire, train and retain a sufficient number of qualified employees, we
will not be able to expand our business. Skilled personnel are in short supply,
and this shortage is likely to continue for some time. As a result, competition
for these people is intense, and the industry turnover rate is high. In
addition, we believe that prospective employees that we attempt to hire after
this offering, as well as existing employees, may perceive that the stock option
component of our compensation package is not as valuable as that component was
prior to this offering. Consequently, after this offering, we may have greater
difficulty hiring qualified employees that we are seeking.
Moreover, even if we are able to expand our employee base, we will be
required to expend significant financial and managerial resources in order to
attract and retain employees. We expect that the costs of training employees
will also increase as we grow. The increased costs of hiring, training and
retaining personnel will impact our ability to become profitable and, if we
become profitable, the level of profitability that we achieve. We also may be
unable to preserve our culture and the high quality of our employees as we grow,
which could harm our business, reputation and growth.
In addition, some companies have adopted a strategy of suing or threatening
to sue former employees and their new employers for alleged violations of
contractual or legal requirements regarding
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confidentiality, non-competition and similar matters. As we hire new employees
from our current or potential competitors, we are likely to become a party to
one or more lawsuits involving the former employment of one of our employees.
Any future litigation against us or our employees, regardless of the outcome,
may result in substantial costs and expenses to us and may divert management's
attention away from our business.
WE DEPEND ON OUR KEY PERSONNEL WITH WHOM WE DO NOT HAVE EMPLOYMENT AGREEMENTS,
AND THE LOSS OF ANY KEY PERSONNEL MAY ADVERSELY AFFECT OUR ABILITY TO OBTAIN,
MAINTAIN AND SERVICE CLIENTS
We believe that our success will depend on the continued employment of our
senior management team and other key personnel. This dependence is particularly
important to our business because personal relationships are a critical element
of obtaining and maintaining client engagements. If one or more members of our
senior management team or other key personnel were unable or unwilling to
continue in their present positions, such persons would be very difficult to
replace, and our business could be seriously harmed. To date, a majority of our
revenue has been generated by the selling efforts of our senior management.
Accordingly, the loss of one or more members of our senior management team could
have a direct adverse impact on our future sales. In particular, we depend on
the services of James T. Roche and Matthew J.N.C. Roche, our Co-Chief Executive
Officers and Co-Presidents.
In addition, if any of our key employees joins a competitor or forms a
competing company, some of our clients might choose to use the services of that
competitor or new company instead of our own. Furthermore, clients or other
companies may seek to develop in-house eSelling capabilities and may hire away
some of our key employees. This would not only result in the loss of key
employees but could also result in the loss of a client relationship or a new
business opportunity. Any losses of client relationships or inability to secure
new client relationships would seriously harm our business.
WE COULD LOSE MONEY OR INCUR PENALTIES ON OUR CONTRACTS BECAUSE THEY GENERALLY
HAVE A FIXED PRICE AND MUST BE COMPLETED IN SPECIFIED TIMEFRAMES
An important element of our strategy is to enter into fixed-price,
fixed-timeframe contracts, rather than contracts in which payment to us is
determined on a time and materials basis. Because we work with complex
technologies in compressed timeframes, it is difficult to judge the time and
resources necessary to complete a project, and there is a significant risk that
we will not be able to do so. If we fail to accurately estimate the resources
required for a project, we would likely incur larger than expected costs to
complete it. We may be unable to negotiate any increased payment from a client
in those circumstances, in which case the project may be less profitable than we
projected or the project may be completed at a loss. We have been required in
the past to commit unanticipated additional resources to complete some projects,
which has resulted in losses on contracts. We are likely to face similar
situations in the future.
In addition, although our contracts generally do not provide for penalties
for failure to meet agreed-upon timeframes, we may enter into agreements that do
include penalty provisions in the future. If we enter into contracts that
provide penalties for delay, our operating results may be seriously harmed.
IF WE ARE UNABLE TO TIME THE HIRING OF ADDITIONAL PEOPLE TO COINCIDE WITH NEW
ENGAGEMENTS, OUR PROFITABILITY WILL BE HARMED
We are currently hiring additional billable professionals to expand our
operations, which will increase our operating expenses. If we are unable to
obtain new engagements or if the timing of those new engagements does not
coincide with our hiring of additional billable professionals, we may be unable
to generate sufficient revenue to offset those additional operating expenses.
Consequently, the failure to correctly time the hiring of additional billable
professionals to match our new engagements will harm our profitability.
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OUR FAILURE TO MANAGE GROWTH MAY ADVERSELY AFFECT OUR BUSINESS
We have grown rapidly and expect to continue to grow rapidly both by hiring
new employees and serving new business and geographic markets. The size of our
workforce has grown from 34 as of December 31, 1998 to 177 as of March 31, 2000,
and several members of our senior management team have only recently joined Fort
Point Partners. We do not believe this growth rate is sustainable in the long
term. Our growth has placed, and will continue to place, a significant strain on
our management and our operating and financial systems.
Our personnel, systems, procedures and controls may be inadequate to
support our future operations. In order to accommodate the increased number of
engagements, number of clients and the increased size of our operations and
engagements, we will need to hire, train and retain the appropriate personnel to
manage our operations. We will also need to improve our financial and management
controls, reporting systems and operating systems. We are currently implementing
a new enterprise resource planning software system for some human resource and
financial functions. We may encounter difficulties in transitioning to the new
enterprise resource planning software system or in developing and implementing
other new systems. All of these endeavors will require substantial management
effort. After implementing new systems, our processes, systems, procedures and
controls may be inadequate to support our future operations. If we are unable to
effectively manage our expanding operations, our business will be harmed.
IF WE ARE NOT SUCCESSFUL IN OPENING AND GROWING NEW OFFICES, WE MAY BE UNABLE TO
CONTINUE TO GROW OR WE MAY GROW MUCH MORE SLOWLY THAN WE CURRENTLY ANTICIPATE
A key component of our growth strategy is to open offices in new geographic
locations. We began operations in San Francisco in late 1996, and added our New
York office in 1998. We anticipate opening additional offices. We are currently
in the process of establishing offices in Chicago and Germany. We have limited
experience in launching offices in new locations, and we may not be successful
in any new locations. Once we select locations for expansion, we anticipate
devoting substantial financial and management resources to launch and grow those
offices. These efforts may detract from the development and operation of our
existing offices. In addition, we cannot assure you that we will select
appropriate markets to enter, open new offices efficiently or manage new offices
profitably. Even if we successfully develop new offices, they may not grow as
fast as our existing offices. Our failure to accurately assess and manage these
risks could negatively impact our rate of revenue growth and ability to be
profitable and increase our capital requirements.
WE ARE DEPENDENT ON A SMALL NUMBER OF CLIENTS
We derive a significant portion of our revenue from large projects for a
limited number of clients. In 1999, our five largest clients accounted for
approximately 48% of our revenue. During that period, Petstore.com accounted for
approximately 11%, Kaplan accounted for approximately 10% and seven other
clients each accounted for more than 5% of our revenue. Because the size of our
engagements has been increasing, the level of client concentration is likely to
increase. For the quarter ended March 31, 2000, our five largest clients
represented approximately 81% of our revenue. During that period, IdeaForest.com
represented approximately 22%, BlueLight.com represented approximately 19%,
Kaplan represented approximately 17% and Tavolo represented approximately 15% of
our revenue. The loss of any client that has retained us for a significant
project or the reduction in scope of a significant project would reduce our
revenue and adversely affect our profitability. In the past, we have had
significant clients elect to defer additional phases of a project.
OUR ABILITY TO GROW WILL BE DEPENDENT ON OUR ABILITY TO ENTER INTO NEW
ENGAGEMENTS WITH NEW CLIENTS AS WE COMPLETE ENGAGEMENTS
The volume of work performed for specific clients will vary from year to
year. We do not expect that a client who generates a significant amount of
revenue for us in one year will typically generate significant revenue in
subsequent years. Consequently, to be successful, we must enter into agreements
with new clients to maintain and increase our revenue.
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WE DO NOT ENTER INTO LONG-TERM CONTRACTS WITH OUR CLIENTS, WHICH REDUCES THE
PREDICTABILITY OF OUR REVENUE
Our clients retain us on an engagement-by-engagement basis, rather than
under long-term contracts. As a result, our revenue is difficult to predict.
Because we incur a large portion of our costs in advance based on our
expectations of future revenue, our failure to predict our revenue accurately
would harm our profitability and cash flow. Since large projects typically
involve multiple phases or stages, a client may choose not to retain us for
additional phases of a project. The client may also cancel or delay additional
planned projects. In the past, we have had significant clients elect to defer
additional phases of a project. Cancellations or delays could result from
factors unrelated to our work product or the progress of the project, such as
general business or financial conditions of the client. Our operating expenses
are relatively fixed and cannot be reduced on short notice to compensate for
unanticipated variations in the number or scope of engagements. If a client
defers, modifies or cancels an engagement or chooses not to retain us for
additional phases of a project, we may be unable to rapidly redeploy our
employees to other engagements in order to minimize underutilization of
employees, which would harm our operating results.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR TO DELIVER ERROR-FREE SERVICES COULD
RESULT IN LOSSES AND UNFAVORABLE PUBLICITY
Our client engagements involve the development of strategies in new and
rapidly changing markets and the creation, implementation and improvement of
highly complex systems that are often critical to our clients' businesses. Any
defects or errors in these applications or failure to meet clients' expectations
could result in:
- delayed or lost revenue due to adverse client reaction;
- requirements to provide additional services to a client at no charge;
- penalties for failure to complete engagements in contractually-required
timeframes or to meet other agreed-upon criteria;
- unfavorable publicity regarding us and our services that could adversely
affect our ability to attract or retain clients and employees; and
- claims for substantial damages against us, regardless of our
responsibility for such failure.
Our contracts with clients generally contain provisions that limit our
liability for errors or omissions, unless those errors or omissions relate
specifically to tasks we have agreed to perform under our contracts. In
addition, our client contracts typically state that we will not be held liable
for indirect or consequential damages. However, we cannot be sure that these
contractual provisions will protect us from liability for damages in the event
we are sued. Our general liability insurance coverage may not continue to be
available on reasonable terms or in sufficient amounts to cover one or more
large claims, or the insurer may disclaim coverage as to any future claim. The
successful assertion of a large claim against us could seriously harm our
reputation, liquidity and operating results.
OUR BUSINESS WILL BE HARMED IF WE DO NOT KEEP UP WITH THE RAPID PACE OF
TECHNOLOGICAL CHANGE, EVOLVING INDUSTRY STANDARDS AND CHANGING CLIENT
REQUIREMENTS
The Internet services market is characterized by rapidly changing
technology, evolving industry standards and changing client needs. Our future
success will depend, in part, on our ability to:
- effectively use leading technologies;
- continue to develop our strategic and technical expertise;
- influence and respond to emerging industry standards and other
technological changes;
- hire, train and retain professionals who are apprised of technological
advances and developments;
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- enhance our current services; and
- develop new services that meet changing client needs.
All of these challenges must be met in a timely and cost-effective manner.
The risk that we may not be able to keep up with these challenges is
significantly greater for us than it is for some other companies, because the
provision of our services requires that we understand and respond to changes
across a broad range of complex technologies. We cannot assure you that we will
succeed in effectively meeting these challenges, and our failure to do so would
seriously harm our business.
THE INTENSE COMPETITION IN THE MARKET FOR INTERNET SERVICES FROM ESTABLISHED
COMPETITORS AND NEW ENTRANTS FACING LOW BARRIERS TO ENTRY COULD DECREASE OUR
REVENUE, REDUCE OUR PROFITABILITY AND DECREASE OUR MARKET SHARE
The Internet services market is rapidly changing and intensely competitive.
We expect competition to intensify even further as this market evolves. Many of
our competitors have longer operating histories, more clients, longer
relationships with their clients, greater brand or name recognition and
significantly greater financial, technical, marketing and public relations
resources than we have. As a result, our competitors may be in a stronger
position to respond quickly to new or emerging technologies and changes in
client requirements and to engage in larger, more complex projects. They may
also develop and promote their products and services more effectively than we
do.
The Internet services market has relatively low barriers to entry. In
addition, we do not own any patented technology that inhibits competitors from
providing services similar to ours. As a result, new and unknown market entrants
pose a threat to our business. Current or future competitors may develop
services that are superior to ours or offer their services at a lower price,
which could significantly decrease our revenue and ability to become profitable.
Current or potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of these competitive alliances may
develop services that are superior to, or have greater market acceptance than,
the services that we offer.
THE SIZE OF OUR ENGAGEMENTS MAY DECREASE, WHICH WOULD HURT OUR ABILITY TO GROW
AND BECOME PROFITABLE
We plan to continue to target large engagements. If we do not obtain large
engagements or if the size of our engagements decreases, our revenue may not
increase, may increase more slowly than we anticipate or may decrease. Since our
operating expenses are relatively fixed and cannot be reduced on short notice to
compensate for unanticipated variations in the size of engagements, any effect
on our revenue will likely harm our profitability.
WE MAY BE UNABLE TO MEET THE CHALLENGES ASSOCIATED WITH THE INCREASING SIZE AND
COMPLEXITY OF OUR ENGAGEMENTS, WHICH WOULD HARM OUR GROWTH AND OPERATING RESULTS
The size and complexity of our engagements have increased and may continue
to do so. Any increase in the size and complexity of our engagements increases
the risk that we may be unable to provide high-quality eSelling solutions to our
clients. We may be unable to scale our operations to provide the necessary
resources to complete larger, more complex engagements. In addition, the
experience we have gained and the skills we have developed on our earlier
engagements may be inapplicable to larger, more complex engagements. Any failure
to adequately meet the challenges presented by the increasing size and
complexity of our engagements would harm our growth and operating results.
WE SOMETIMES AGREE NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS, WHICH
MAY DECREASE OUR REVENUE
We sometimes agree not to perform services for our clients' competitors.
These agreements may limit our opportunities to be retained by some potential
new clients. In addition, these agreements increase the
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significance of our client selection process because many of our clients compete
in markets where only a limited number of players will gain meaningful market
share. If we agree not to perform services for a particular client's competitors
and our client fails to capture a significant portion of its market, we are
unlikely to receive new engagements, and therefore new revenue, in that market.
OUR EFFORTS TO DEVELOP BRAND AWARENESS MAY NOT BE SUCCESSFUL
An important element of our business strategy is to develop and maintain
widespread awareness of the Fort Point Partners brand. To promote our brand, we
anticipate that our marketing expenses will be significant for the foreseeable
future. Moreover, our brand may be closely associated with the business success
or failure of some of our high-profile client engagements, many of which involve
unproven business models in competitive markets. As a result, the failure or
difficulties of any high-profile client may damage our brand. If we fail to
successfully promote and maintain our brand name or incur significant related
expenses, our revenue, operating margins and growth would suffer.
WE MAY BE UNABLE TO MAINTAIN OR EXPAND OUR ECOSYSTEM OF RELATIONSHIPS, WHICH
COULD HARM OUR ABILITY TO PROVIDE ESELLING SOLUTIONS THAT INCORPORATE THE LATEST
TECHNOLOGY OR INVOLVE PREFERRED SERVICE PROVIDERS
We have established an ecosystem of relationships with creative design and
marketing agencies, software vendors and application service providers in order
to help provide our clients with high-quality eSelling solutions. Parties with
whom we have existing relationships could decide to no longer participate in our
engagements. In addition, parties whom we would like to involve in our
engagements may decline to join our ecosystem of relationships. If we are unable
to involve desired parties in our engagements, our business and growth could be
harmed.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
If we fail to protect our proprietary rights, competitors could use our
proprietary information to deliver services in ways that could harm our
competitive position and decrease our revenue. We rely on a combination of
copyright, trademark and trade secret laws, as well as nondisclosure agreements
and other methods to protect our proprietary rights. We cannot guarantee that
the steps we have taken to protect our proprietary rights will be adequate to
deter misappropriation of our intellectual property. In addition, we may not be
able to detect unauthorized use of our intellectual property or take appropriate
steps to enforce our rights. If third parties infringe or misappropriate our
copyrights, trade secrets, trademarks or other proprietary information, our
business would be seriously harmed. In addition, protection of intellectual
property in many foreign countries is weaker and less reliable than in the
United States, so if our business expands into foreign countries, risks
associated with protecting our intellectual property will increase.
SIGNIFICANT LITIGATION OVER INTELLECTUAL PROPERTY MAY CAUSE US TO BECOME
INVOLVED IN COSTLY AND LENGTHY LITIGATION, WHICH COULD SUBJECT US TO LIABILITY
OR REQUIRE US TO CHANGE THE WAY WE PROVIDE OUR SERVICES
We may become a party to litigation in the future either to protect our
intellectual property or as a result of alleged infringement of others'
intellectual property. These lawsuits, regardless of their outcome, would likely
be time-consuming and expensive to resolve and would divert management time and
attention. These lawsuits could:
- subject us to significant liability for damages;
- require us to change the manner in which we provide our services or to
stop using the allegedly infringing proprietary information or
intellectual property;
- invalidate our proprietary rights; and
- require us to attempt to obtain and pay for a license to relevant
intellectual property, which license may not be available on reasonable
terms or at all.
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In addition, our business involves, in part, the development of software
applications for our clients. Ownership of such software is often a subject of
negotiation and is sometimes assigned to the client. When the rights are
assigned to the client, we may retain a license for specific uses. If we do not
receive a license, our profitability may be harmed as a result of our need to
create new software that does not violate our client's rights. Issues relating
to the ownership of and rights to use software applications and frameworks can
be complicated, and there can be no assurance that disputes will not arise with
our clients that affect our ability to resell or reuse such applications and
frameworks or our client relationships.
CERTAIN OF OUR DIRECTORS, OFFICERS AND STOCKHOLDERS OWN A LARGE PERCENTAGE OF
OUR VOTING STOCK, WHICH MAY LIMIT YOUR ABILITY TO INFLUENCE CORPORATE MATTERS
Immediately following this offering, the officers, directors and
significant stockholders set forth below collectively will own approximately
% of the outstanding shares of our common stock and will own
individually the percentage set forth opposite their respective names:
OFFICERS, DIRECTORS AND/OR SIGNIFICANT STOCKHOLDERS OWNERSHIP PERCENTAGE
- --------------------------------------------------- --------------------
Baker Communications Fund, L.P..............................
Entities Affiliated with Accel Partners.....................
Entities Affiliated with Meritech Capital Partners..........
James T. Roche..............................................
Matthew J.N.C. Roche........................................
N. D'Arcy and Marilyn Roche.................................
----------
Total.............................................
If the stockholders listed above choose to act or vote together, they will
have the power to control the election of a majority of our directors, and to
approve any other action requiring stockholder approval, including any
amendments to our certificate of incorporation and mergers or sales of all or
substantially all of our assets. Also, third parties could be discouraged from
making a tender offer or bid to acquire our company at a price per share that is
above the then-current market price.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN OUR CONTROL
Provisions of our certificate of incorporation and bylaws and the
provisions of Delaware law could have the effect of discouraging, delaying or
preventing our acquisition by a third party, despite the possible benefit to our
stockholders. The provisions of our certificate of incorporation and bylaws:
- stagger the election of our directors;
- prevent our stockholders from taking action by written consent;
- limit the ability of our stockholders to make proposals at stockholder
meetings;
- prohibit the removal of our directors except for cause or upon the
affirmative vote of at least 80% of our outstanding voting shares; and
- require supermajority voting for the amendment of the above provisions.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that the stockholder
became an interested stockholder. If Delaware law or the measures described
above discourage, delay or prevent our acquisition by a third party, the price
of our common stock could be harmed. See "Description of Capital Stock."
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WE MAY NEED TO RAISE ADDITIONAL CAPITAL FOR OUR OPERATIONS AND GROWTH, AND WE
MAY NOT BE ABLE TO DO SO ON ACCEPTABLE TERMS
To date, our cash flow from operations has not been sufficient to cover
expenses and capital needs, and we do not anticipate that it will be for the
foreseeable future. We may need to raise additional funds after this offering,
and we cannot be certain that we will be able to obtain additional financing on
favorable terms, if at all. If we raise additional capital through the issuance
of equity securities, the percentage ownership of our existing stockholders
would be reduced. Any equity securities that we issue may have rights,
preferences or privileges senior to those of our common stock. If we issue debt
securities, we may incur significant interest expense, which would harm our
profitability. The issuance of debt securities may also require us to agree to
various restrictions typical of debt securities, including limitations on
further borrowing and our right to pay dividends.
If we need additional capital and cannot raise it on acceptable terms, we
may be forced to curtail or cease operations.
OUR PLANNED INTERNATIONAL OPERATIONS MAY NOT SUCCEED
We anticipate opening offices and working with clients outside of the
United States, including in Germany where we are currently seeking to open an
office. We have no experience in marketing, selling and supporting our services
in foreign countries. Development of skills to do so may be more difficult or
take longer than we anticipate, especially due to language barriers, currency
exchange risks and the fact that the Internet infrastructure in foreign
countries may be less advanced than that existing in the United States.
International expansion will also require that we hire people outside of the
United States at various levels of experience with a variety of technical and
administrative skills, including project management, strategy, engineering,
systems architecture, sales and marketing and other disciplines. Competition for
such people is intense, and we may be unsuccessful in recruiting or retaining
sufficient qualified personnel to develop and expand our proposed international
operations.
Additionally, our current professional services delivery methodology and
business processes may not be profitable when used to deliver services in other
geographic regions. Moreover, international operations are subject to a variety
of additional risks, including the following:
- difficulties in obtaining government approvals and permits and complying
with foreign laws and regulations;
- political and economic instability;
- potentially adverse tax consequences;
- fluctuations in currency exchange rates;
- restrictions on the import and export of certain sensitive technologies,
including data security and encryption technologies that we may use;
- weaker protection for intellectual property rights in some countries; and
- seasonal reductions in business activity in certain parts of the world,
such as during the summer months in Europe.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND SEVERELY HARM OUR
FINANCIAL CONDITION
While we have no current agreements to do so, we may invest in or acquire
other businesses, technologies or assets. In the event of future acquisitions,
we could:
- issue stock that would dilute our then-current stockholders' percentage
ownership;
- incur debt;
- assume liabilities;
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- incur amortization expenses related to goodwill and other intangible
assets; or
- incur large and immediate write-offs.
We have no experience in integrating acquired businesses with our existing
business. Our operation of any acquired businesses will involve numerous risks,
including:
- problems combining any purchased operations with our own operations;
- unanticipated costs;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with customers;
- adverse effects on our culture;
- risks associated with entering markets in which we have limited or no
prior experience; and
- the potential loss of key employees, particularly those of the acquired
organization.
If we are unable to successfully integrate any acquired business, our
business and financial condition may be seriously harmed.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY, OR WE MAY FACE LIABILITY FOR, YEAR
2000 ISSUES
Some information technology and other systems that we designed, built or
implemented for our clients, or that we currently use in our operations, may not
be able to recognize date-related data arising from the use of two digits rather
than four digits to define the years after the year 1999. As of the date of this
prospectus, our systems have functioned properly with respect to dates starting
in the year 2000, and our clients have not informed us of any year 2000 problems
associated with the solutions we developed for them. However, year 2000 problems
may still affect us or our clients. If we or our clients experience year 2000
problems, we may incur material financial losses, liability to our clients or
damage to our reputation.
RISKS RELATED TO OUR INDUSTRY
OUR SUCCESS WILL DEPEND ON RAPID GROWTH IN THE DEMAND FOR INTERNET SERVICES AND
eSELLING SOLUTIONS
We cannot be certain that a viable market for the types of Internet
services that we provide will be sustainable. If the market for our services is
not sustained or does not grow rapidly, we will fail. Even if such a market
develops, we may not be able to differentiate our eSelling services from
services provided by other Internet services firms. If we are unable to
differentiate our services from those of our competitors, our revenue growth and
operating margins may decline.
OUR SUCCESS DEPENDS ON INCREASED ADOPTION OF THE INTERNET AS A MEANS FOR
COMMERCE
Our future success depends heavily on the acceptance and use of the
Internet as a means for commerce. The widespread acceptance and adoption of the
Internet for conducting business is likely only in the event that the Internet
provides increased profitability to businesses. If commerce on the Internet does
not continue to grow, or grows more slowly than expected, our growth would
decline, and our business would be seriously harmed. Consumers and businesses
may reject the Internet as a viable commercial medium for a number of reasons,
including:
- unreliable or inadequate network infrastructure;
- delays in the development of Internet-enabling technologies and
performance improvements;
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
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- delays in the development of security and authentication technology
necessary to effect secure transmission of confidential information;
- changes in, or insufficient availability of, telecommunications services
to support the Internet; and
- the failure of companies to meet their clients' expectations in
delivering goods and services over the Internet.
U.S. OR FOREIGN GOVERNMENTAL LAWS AND REGULATIONS COULD HARM THE DEVELOPMENT OF
THE INTERNET, DECREASING DEMAND FOR INTERNET SERVICES
To date, governmental laws and regulations applicable to commerce on the
Internet have not materially harmed the development of the Internet. Although
there are currently few such laws and regulations, state, federal and foreign
governments may adopt new laws and regulations or enforce existing laws and
regulations, including those governing:
- privacy;
- the pricing and taxation of goods and services offered over the Internet;
- the content of Websites;
- copyrights;
- consumer protection; and
- the characteristics and quality of products and services offered over the
Internet.
For example, our planned international operations could be affected by a
directive by the European Union that imposes restrictions on the collection and
use of personal data. Other countries have adopted or may adopt similar
legislation. This directive and any other law or regulation related to the
Internet could dampen the growth of the Internet and decrease its acceptance as
a communications and commercial medium. If such a decline occurs, companies may
decide in the future not to use our services, which would seriously harm our
business and operating results.
RISKS RELATED TO THIS OFFERING
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION, WHICH
MEANS THAT THEY ARE GIVING UP VALUE THAT MAY NEVER BE RETURNED
The initial public offering price of our common stock will be substantially
higher than the book value per share of our common stock. As a result, if we
were liquidated for book value immediately following this offering, stockholders
purchasing in this offering would receive less than the price they paid for
their common stock. In addition, because our success depends so heavily on our
ability to attract and retain talented personnel, we expect to offer a
significant number of stock options to employees in the future. Such issuances
will likely cause further dilution to investors. See "Dilution."
OUR STOCK HAS NOT BEEN PUBLICLY TRADED PRIOR TO THIS OFFERING, AND WE EXPECT
THAT THE PRICE OF OUR STOCK MAY FLUCTUATE SUBSTANTIALLY
Prior to this offering, our common stock has not traded publicly. The
initial public offering price of our common stock will be determined by
negotiation among us and representatives of the underwriters and may not be
indicative of the price that will prevail in the open market after this
offering. In addition, the market price of our common stock may be highly
volatile and could be subject to wide fluctuations. Accordingly, we cannot
assure you that an active public trading market for our common stock will
develop or be sustained, or that the price of our common stock will not decline
after this offering. The market
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price after this offering may vary significantly from the initial offering price
in response to any of the following factors, some of which are beyond our
control:
- variations in our operating results;
- changes in financial estimates or investment recommendations by
securities analysts relating to us or our competitors;
- changes in market valuations of other Internet services firms;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major client;
- additions or departures of key personnel; and
- fluctuations in the stock market price and volume of traded shares
generally, especially fluctuations in the volatile technology sector.
WE ARE AT INCREASED RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR
EXPECTED STOCK PRICE VOLATILITY
In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. Due to the potential volatility of our stock price, we may be the
target of similar litigation in the future. Securities litigation could result
in substantial costs and divert management's attention and resources, which
could seriously harm our financial condition and operating results.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK
PRICE
After this offering, we will have shares of common stock
outstanding. Sales of a substantial number of shares of our common stock in the
public market following this offering could cause our stock price to decline.
All the shares sold in this offering will be freely tradable. Of the remaining
shares of common stock outstanding after this offering, approximately
shares will be subject to lock-up agreements with the underwriters
ending 180 days after the date of this prospectus, but will then be eligible for
sale in the public market. The remaining shares will become freely
tradable at various times after the date of this prospectus. Credit Suisse First
Boston may waive the restrictions of the lock up agreements at an earlier time
without prior notice or announcement and allow shareholders to sell their
shares. As restrictions on resale end, the market price of our stock could drop
significantly if the holders of restricted shares sell them or are perceived by
the market as intending to sell them. In addition, the sale of these shares
could impair our ability to raise capital through the sale of additional stock.
BECAUSE WE HAVE BROAD DISCRETION TO USE THE NET OFFERING PROCEEDS, HOW WE INVEST
THESE PROCEEDS MAY NOT INCREASE OUR PROFITS OR MARKET VALUE
As of the date of this prospectus, we have not yet quantified the amount of
the net proceeds of this offering that will be used for the various purposes
described under "Use of Proceeds." Accordingly our management will have
considerable discretion in the application of the net proceeds, and may apply
the net proceeds in ways that may not increase our profitability or our market
value. You will not have the opportunity, as part of your investment decision,
to assess whether the proceeds of this offering are being used appropriately.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this prospectus, we have made statements under the headings "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and in other sections that are
forward-looking statements. In some cases, you can identify these statements by
forward-looking words such as "may," "will," "should," "predicts," "projects,"
"potential," "continue," "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and variations of these words and similar
expressions. These forward-looking statements are not historical facts, but
rather are based on current expectations, estimates and projections about our
industry, our beliefs and our assumptions. These statements may include, among
other things, projections of future financial performance, our anticipated
growth strategies and plans, our ability to compete effectively in the Internet
services market and anticipated trends in our industry. These statements are
only predictions, are not guarantees of future performance and are subject to
risks, uncertainties and other factors, some of which are beyond our control and
difficult to predict, and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks and
uncertainties include those described in "Risk Factors" and elsewhere in this
prospectus. You should specifically consider the risks described under the
heading "Risk Factors." Except as required by law, we undertake no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
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USE OF PROCEEDS
The net proceeds to us from the sale of the shares being
offered by us at an assumed initial public offering price of $ per share,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $ million, or
approximately $ million if the underwriters' over-allotment option is
exercised in full.
We expect to use the net proceeds for working capital and general corporate
purposes, including increased spending on the hiring of additional employees,
the leasing of additional facilities, the development of new offices, the
expansion of our operational and administrative infrastructure and sales and
marketing. In addition, we may use a portion of the net proceeds to acquire or
invest in complementary businesses or technologies. However, we have no current
plans, agreements or commitments with respect to any such acquisition or
investment and we are not currently engaged in any negotiations with respect to
any such transaction.
We do not have specific uses committed for the net proceeds of this
offering. The size of the offering has been determined primarily based upon our
desire to raise a sufficient amount of capital to afford us significant business
flexibility in the future.
The principal purposes of this offering are to:
- obtain additional working capital;
- create a public market for our common stock;
- facilitate future access by us to public equity markets; and
- enhance our ability to use our stock to make future acquisitions due to
the fact that our shares will be publicly traded.
Pending use of the net proceeds, we intend to invest these proceeds in
short-term, investment grade, interest-bearing securities, certificates of
deposit or guaranteed obligations of the United States.
DIVIDEND POLICY
The payment of dividends is within the discretion of our board of
directors. However, our revolving line of credit currently prohibits the payment
of dividends. Our ability to pay any future dividends will depend on our
operating results and financial condition, projected capital requirements and
restrictions under our existing and future credit facilities. We have never
declared or paid any cash dividends on shares of our capital stock and do not
intend to do so at any time in the foreseeable future.
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CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of March 31, 2000;
- our pro forma capitalization as of that date after giving effect to the
sale in April 2000 of 3,426,411 shares of our Series E convertible
preferred stock for aggregate proceeds of approximately $30.0 million,
the reorganization of Fort Point Partners and the automatic conversion of
all outstanding shares of convertible preferred stock into shares of
common stock on a one-for-one basis upon completion of this offering; and
- our pro forma capitalization as adjusted to reflect the receipt of the
net proceeds from our sale of shares of common stock at an
assumed initial public offering price of $ per share in this
offering, less underwriting discounts and commissions and estimated
offering expenses payable by us.
MARCH 31, 2000 (UNAUDITED)
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------- ---------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Long-term debt, including current portion................. $ 630 $ 630 $ 630
-------- -------- --------
Stockholders' equity (deficit):
Convertible preferred stock, no par value, 20,000,000
shares authorized, 9,098,736 shares issued and
outstanding actual; $0.001 par value per share
20,000,000 shares authorized, no shares issued and
outstanding pro forma; and no shares issued and
outstanding pro forma as adjusted.................... 15,698 --
Common stock; no par value, 60,000,000 shares
authorized, 9,429,650 shares issued and outstanding
actual; $0.001 par value, 21,954,797 shares issued
and outstanding pro forma and shares
issued and outstanding pro forma as adjusted......... 9 22
Additional paid-in capital.............................. 21,932 67,615
Deferred stock-based compensation....................... (16,876) (16,876) (16,876)
Receivables from stockholders........................... (321) (321)
Accumulated deficit..................................... (15,784) (15,784) (15,784)
-------- -------- --------
Total stockholders' equity........................... 4,658 34,656
-------- -------- --------
Total capitalization.................................... $ 5,288 $ 35,286 $
======== ======== ========
This table does not include: (a) 1,396,244 shares of common stock issuable
upon exercise of options outstanding as of March 31, 2000 at a weighted average
exercise price of $0.18; and (b) 2,358,106 additional shares available for grant
as of March 31, 2000 under our 1996 Stock Option/Stock Issuance Plan.
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DILUTION
Our pro forma net tangible book value as of March 31, 2000, after giving
effect to the automatic conversion of our preferred stock upon the closing of
this offering, was $ million, or $ per share of common stock. Net
tangible book value per share is determined by dividing our tangible book value
(total tangible assets less total liabilities) by the number of outstanding
shares of common stock at that date. After giving effect to the sale of the
shares of our common stock offered hereby at an assumed initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses, our net
tangible book value at March 31, 2000 would have been $ million, or
$ per share. The effect of the offering represents an immediate increase in
net tangible book value to existing stockholders of $ per share and an
immediate dilution to new investors of $ per share. The following table
illustrates the per share dilution:
PER SHARE
---------
Assumed initial public offering price per share............. $
--------
Pro forma net tangible book value per share as of March
31, 2000............................................... $
--------
Increase in pro forma net tangible book value per share
attributable to new investors..........................
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Net tangible book value dilution per share to new
investors................................................. $
--------
The following table summarizes, on a pro forma basis as of March 31, 2000,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by the
existing stockholders and by the new public investors (based upon an assumed
initial public offering price of $ per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- ---------
Existing stockholders....... % $ % $
New public investors........ % $ %
-------- -------- -------- --------
Total..................
======== ======== ======== ========
The above discussion and tables assume no exercise of stock options or
warrants outstanding as of March 31, 2000 and gives effect to the conversion of
all shares of our convertible preferred stock outstanding as of that date into
common stock upon completion of this offering. As of March 31, 2000, there were
options outstanding to purchase a total of shares of common stock
at a weighted average exercise price of $ per share under our 1996 Stock
Option/Stock Issuance Plan and additional shares were reserved
for grant of future options under such plan. To the extent that any of these
options are exercised, there will be further dilution to investors in this
offering.
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read
together with the consolidated financial statements and related notes,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the other information contained in this prospectus. The
consolidated statement of operations data set forth below for the years ended
December 31, 1997, 1998 and 1999 and the consolidated balance sheet data at
December 31, 1998 and 1999 are derived from, and are qualified by reference to,
the audited consolidated financial statements included elsewhere in this
prospectus. The balance sheet data as of December 31, 1997 are derived from
audited consolidated financial statements that are not included in this
prospectus. The consolidated statement of operations data for the quarters ended
March 31, 1999 and 2000 and the consolidated balance sheet data at March 31,
2000 are derived from our unaudited interim consolidated financial statements.
In management's opinion, the unaudited interim consolidated financial statements
have been prepared on substantially the same basis as the audited consolidated
financial statements and include all normal recurring adjustments necessary to
be in conformity with accounting principles generally accepted in the United
States. The pro forma net loss per share data reflect the issuance and sale in
April 2000 of 3,426,411 shares of our Series E convertible preferred stock for
aggregate proceeds of approximately $30.0 million and the automatic conversion
of all outstanding shares of our convertible preferred stock into common stock.
QUARTER ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue........................................ $ 2,045 $ 2,489 $ 8,325 $ 1,224 $ 5,003
Operating expenses:
Professional services........................ 620 1,037 4,875 584 2,527
Sales and marketing.......................... 62 425 2,451 214 4,041
General and administrative................... 1,021 1,768 6,150 500 4,386
Amortization of deferred stock-based
compensation............................... 1 67 882 51 3,453
---------- ---------- ---------- ---------- ----------
Total operating expenses....................... 1,704 3,297 14,358 1,349 14,407
---------- ---------- ---------- ---------- ----------
Operating income (loss)........................ 341 (808) (6,033) (125) (9,404)
Interest income (expense), net................. 8 (1) 144 (3) 75
Income tax (expense) benefit................... (139) 83 (1) -- (1)
---------- ---------- ---------- ---------- ----------
Net income (loss).............................. $ 210 $ (726) $ (5,890) $ (128) $ (9,330)
========== ========== ========== ========== ==========
Net income (loss) per common share:
Basic........................................ $ 0.05 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== ========== ========== ==========
Diluted...................................... $ 0.04 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== ========== ========== ==========
Weighted average shares used in computing net
income (loss) per common share:
Basic........................................ 4,160,000 4,162,181 4,693,086 4,642,790 4,905,134
Diluted...................................... 5,461,682 4,162,181 4,693,086 4,642,790 4,905,134
Pro forma basic and diluted net loss per common
share (unaudited)............................ $ (0.67)
==========
Weighted average shares used in computing pro
forma net loss per common share.............. 14,003,870
DECEMBER 31,
--------------------------- MARCH 31,
1997 1998 1999 2000
------ ------ ------- -----------
(IN THOUSANDS)
(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 250 $ 506 $ 7,643 $ 5,709
Working capital............................................. 580 526 5,835 (809)
Total assets................................................ 1,034 1,740 14,156 14,371
Total long-term liabilities, including current portion...... 7 59 604 630
Total stockholders' equity.................................. 724 686 10,228 4,658
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Consolidated Financial Data" and our financial statements and the
notes to those consolidated financial statements appearing elsewhere in this
prospectus. This prospectus contains forward-looking statements that involve
risks, uncertainties and assumptions. See "Special Note Regarding
Forward-looking Statements." Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors including those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We are an Internet consulting firm that provides eSelling solutions, which
we define as Internet services that enable companies to sell more effectively.
We provide strategy, technology and program management services to help
companies combine their existing capabilities with Web-based technologies in
order to maximize revenues and gain competitive advantage.
Our revenue is derived primarily from services performed on a fixed-price,
fixed-timeframe basis, which means that, after determining the scope of a
proposed engagement, we agree to perform the services for a specified fee and to
complete the engagement by a specified date. In order to determine the price for
an engagement, we use an estimation process that considers the overall technical
complexity, client deliverables, the project team of billable professionals
required and their associated billing rates, the projected length of the
engagement and other factors. We build into each fixed-price, fixed-timeframe
engagement the ability to adjust the price if the scope of the engagement
changes. All fixed-price, fixed-timeframe proposals must receive the prior
approval of designated senior officers.
Our revenue is determined principally by the number, size and scope of our
client engagements, as well as the percentage of completion of our engagements
at the end of each reporting period. Approximately 97% of our revenue for 1999
and approximately 90% of our revenue for the quarter ended March 31, 2000 were
derived from services performed on a fixed-price, fixed-timeframe basis, and we
expect to continue to derive our revenue primarily from fixed-price,
fixed-timeframe contracts in the future. The balance of our revenue is derived
from time and materials engagements, which means that we bill our clients for
the time spent on the engagement by our billable professionals based on their
standard billable rates, as well as for project-specific expenses incurred by us
in completing the engagement.
We recognize revenue using the percentage-of-completion method of
accounting for fixed-price, fixed-timeframe projects. Revenue for each project
is recognized based on the percentage determined by multiplying the total
billable hours incurred to date by our standard hourly billing rates for the
billable professionals and independent contractors assigned to the project and
dividing that product by the total estimated revenue to be earned on the
project. We generally apply consistent margins to our actual cost of our
billable professionals and independent contractors and, therefore, our method of
recognizing revenue approximates the ratio of the cost incurred to date to total
estimated project costs.
We frequently require deposits from our clients in advance of performing
services, which are recorded as deferred revenue. Depending on the billing
schedule in our project contract with our client, we may bill in advance of
recognizing revenue and the excess of amounts billed over revenue is recorded as
deferred revenue. If revenue exceeds billings to clients, an unbilled receivable
is recorded in current assets.
Project finance personnel meet regularly with project managers to review
the status of projects and to update estimated costs to complete projects. We
make provisions for losses on uncompleted contracts when it is probable that our
costs to complete a project will exceed total project revenue and the loss can
be reasonably estimated.
Revenue from time and materials engagements is recognized as billable hours
are incurred at agreed-upon hourly billing rates for the billable professionals
assigned to the project during the period plus project-related costs.
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26
We incurred net losses of $5.9 million in 1999 and $9.3 million for the
quarter ended March 31, 2000. We expect to continue to incur net losses
primarily because of expenses related to the opening of new offices, investment
in our knowledge management and operations infrastructure and increased
marketing and sales efforts.
A small number of clients have generated a significant portion of our
revenue, and we expect that significant customer concentration will continue
into the foreseeable future. In 1999, our five largest clients represented 48%
of our total revenue and, in the quarter ended March 31, 2000, our five largest
clients represented 81% of our total revenue. The increase in client
concentration resulted from a corresponding increase in overall project size. In
1998, our average contract size, as amended, was approximately $180,000. From
December 31, 1998 to March 31, 2000, our average contract size was approximately
$1.5 million. Our largest contract to date, which we signed in the quarter ended
December 31, 1999, was valued at $5.9 million. If any significant client
terminates its relationship with us or uses less of our services, our revenue
could decline significantly, and our operating results could be adversely
affected if we were unable to redeploy our billable professionals to other
client projects.
The following table lists clients who represented more than 10% of our
revenues in 1999 and in the quarter ended March 31, 2000.
YEAR ENDED DECEMBER 31, 1999
- ----------------------------------------------
CLIENT % OF REVENUE
- ------ ------------
Petstore.com.................... 11%
Kaplan.......................... 10
QUARTER ENDED MARCH 31, 2000
- ----------------------------------------------
CLIENT % OF REVENUE
- ------ ------------
IdeaForest.com.................. 22%
BlueLight.com................... 19
Kaplan.......................... 17
Tavolo.......................... 15
Professional services expenses consist primarily of salaries and benefits
for billable professionals and non-reimbursed out-of-pocket expenses incurred by
such billable professionals. Professional services expenses also include the
cost of subcontractors, independent contractors and allocated indirect costs.
Subcontractors consist of companies that have provided billable professional
services for us. In the future, we anticipate that our clients generally will
contract directly with these companies. We expect that professional services
expenses will increase over time primarily because of an increase in the number
of our billable professionals and independent contractors as well as wage
increases and inflation.
Sales and marketing expenses consist primarily of salaries, commissions,
travel and benefits for sales and marketing personnel. We include costs
associated with advertising, public relations and promotional activities in
sales and marketing expenses. We expect sales and marketing expenses to increase
principally as a result of continued promotion of our brand, branding efforts
associated with the opening of new offices and the expansion of our direct sales
force.
General and administrative expenses consist primarily of salaries for
senior management, finance, recruiting, administrative groups and associated
employee benefits, facilities costs including related depreciation and
amortization, training and other corporate costs. We expect general and
administrative expenses to increase to support the growth of our business. In
particular, we will incur additional general and administrative expenses related
to our ongoing enhancement of our information systems and opening of new
offices.
RESULTS OF OPERATIONS
The following table presents our consolidated statement of operations as a
percentage of our revenue for the period indicated. We have derived these
percentages from our audited consolidated financial statements for all periods
presented, except for the quarters ended March 31, 1999 and March 31, 2000,
22
27
with respect to which we derived the percentages from our unaudited interim
consolidated financial statements.
PERCENTAGE OF REVENUE
YEAR ENDED QUARTER ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------
1997 1998 1999 1999 2000
---- ---- ---- ----- -----
Revenue.................................................. 100% 100% 100% 100% 100%
Operating expenses:
Professional services.................................. 30 42 59 48 51
Sales and marketing.................................... 3 17 29 17 81
General and administrative............................. 50 71 74 41 88
Amortization of deferred stock-based compensation...... -- 3 11 4 69
--- --- --- --- ----
Total operating expenses................................. 83 132 172 110 288
--- --- --- --- ----
Operating income (loss).................................. 17 (32) (72) (10) (188)
Interest income (expense), net........................... -- -- 2 -- 1
Income tax expense (benefit)............................. 7 (3) -- -- --
--- --- --- --- ----
Net income (loss)........................................ 10% (29)% (71)% (10)% (186)%
=== === === === ====
COMPARISON OF QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 2000
Revenue. Our revenue increased from $1.2 million to $5.0 million, or 309%,
for the quarter ended March 31, 1999 compared to the same period in 2000. This
increase was primarily due to a substantial increase in the average size of our
engagements.
Professional Services Expenses. Our professional services expenses
increased from $0.6 million to $2.5 million, or 333%, for the quarter ended
March 31, 1999 compared to the same period in 2000. The increase in professional
services expenses was primarily due to increased employee-related costs, which
grew from $0.3 million to $1.4 million for the quarter ended March 31, 1999 to
the same period in 2000. Our billable headcount increased 282% from 22 billable
professionals at March 31, 1999 to 84 billable professionals at March 31, 2000.
We also incurred increased costs due to the use of subcontractors and increases
in allocated indirect costs associated with billable professionals. Professional
services expenses increased as a percentage of revenue due to increases in
non-billable expenses, increased use of independent contractors and
subcontractors, and increased allocation of indirect cost associated with
billable professionals, partially offset by a one-time resale of third-party
software at cost in the quarter ended March 31, 1999.
Sales and Marketing Expenses. Our sales and marketing expenses increased
as a percentage of revenue and in absolute dollars from $0.2 million to $4.0
million, or 1,788%, for the quarter ended March 31, 1999 compared to the same
period in 2000. These increases were primarily due to a significant investment
of $3.6 million in our initial corporate branding, advertising, marketing
promotions and public relations costs.
General and Administrative Expenses. Our general and administrative
expenses increased as a percentage of revenue and in absolute dollars from $0.5
million to $4.4 million, or 777%, for the quarter ended March 31, 1999 compared
to the same period in 2000. General and administrative expenses increased
primarily due to employee-related expenses resulting from a larger number of
senior management members and administrative staff in human resources and
finance, increased recruiting costs and one-time professional fees. Our general
and administrative headcount increased 400% from 11 employees at March 31, 1999
to 55 employees at March 31, 2000. We also incurred additional costs associated
with our facilities and information technology infrastructure.
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28
Deferred Stock-based Compensation. Deferred stock-based compensation
represents the difference between the estimated fair value of the underlying
common stock at the date of grant for accounting purposes and the exercise price
of stock options granted. The difference is recorded as a component of
stockholders' equity and is being amortized over the options' vesting period of
four years using a method that accelerates the recognition of expense. We
recorded deferred stock-based compensation of $17.2 million in the quarter ended
March 31, 2000. Our amortization of deferred stock-based compensation increased
as a percentage of revenues and in absolute dollars from $51,000 to $3.5
million, or 6,671%, for the quarter ended March 31, 1999 to the same period in
2000. These increases are due to grants of options primarily to new employees.
Based on the options granted through March 31, 2000, the amortization of
deferred stock-based compensation over the options' vesting periods is estimated
to be as follows (in thousands):
YEAR ENDING DECEMBER 31,
------------------------
2000............................................... $11,792
2001............................................... 5,390
2002............................................... 2,423
2003............................................... 716
2004............................................... 8
-------
$20,329
=======
Net Interest Income (Expense). Our interest income increased as a
percentage revenue and in absolute dollars from $3,000 to $89,000, for the
quarter ended March 31, 1999 compared to the same period in 2000. This increase
was due to our higher cash and cash equivalent balances during the quarter ended
March 31, 2000. Our interest expense decreased as a percentage of revenue but
increased in absolute dollars from $6,000 to $14,000 for the quarter ended March
31, 1999 to the same period in 2000. This increase was due to increased
obligations under capital leases.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Revenue. Our revenue increased 22% from $2.0 million in 1997 to $2.5
million in 1998 and then 234% to $8.3 million in 1999. These increases were
primarily due to substantial increases in the average size of our engagements.
Professional Services Expenses. Our professional services expenses
increased 67% from $0.6 million in 1997 to $1.0 million in 1998 and then 370% to
$4.9 million in 1999. The increases in our professional services expenses were
primarily due to the larger number of billable professionals, increased
non-billable expenses and the use of independent contractors and subcontractors
on engagements. Our ending billable headcount increased 100% from 10 billable
professionals at the end of 1997 to 20 billable professionals by the end of 1998
and then 240% to 68 billable professionals by the end of 1999. Professional
services expenses as a percentage of revenue increased from 1997 to 1998 due
primarily to increased employee expenses related to the greater number of
billable professionals and increased non-billable expenses. Professional
services expenses as a percentage of revenue increased from 1998 to 1999 due to
increases in non-billable expenses, allocated indirect costs associated with
billable professionals and increased use of subcontractors.
Sales and Marketing Expenses. Our sales and marketing expenses increased
585% from $62,000 in 1997 to $0.4 million in 1998 and then 477% to $2.5 million
in 1999. Sales and marketing expenses as a percentage of revenue increased
throughout the period. The increased sales and marketing expenses were primarily
due to increases in sales and marketing personnel, increases in commission and
selling costs and execution of our initial corporate branding and advertising
efforts. Our sales and marketing headcount increased 200% from two employees by
the end of 1997 to six employees by the end of 1998 and then 17% to seven
employees by the end of 1999.
General and Administrative Expenses. Our general and administrative
expenses increased 73% from $1.0 million in 1997 to $1.8 million in 1998 and
then 248% to $6.2 million in 1999. General and
24
29
administrative expenses as a percentage of revenue increased throughout the
period. The increases in general and administrative expenses were primarily due
to a larger number of senior management members and administrative staff in
human resources and finance. We also incurred additional costs associated with
the use of outside recruiting services, as well as increased costs for
facilities and information technology infrastructure. Our ending general and
administrative headcount increased 75% from four employees by the end of 1997 to
seven employees by the end of 1998 and then 300% to 28 employees by the end of
1999.
Deferred Stock-based Compensation. We recorded deferred stock-based
compensation of $3,000 in 1997, $0.1 million in 1998 and $4.0 million in 1999.
Amortization of deferred stock-based compensation totaled $1,000 in 1997,
$67,000 in 1998 and $0.9 million in 1999. These increases are due to grants of
options primarily to new employees.
Net Interest Income (Expense). Our interest income increased from $8,000
during 1997 to $13,000 in 1998 due to interest earned on cash received from the
Series C preferred stock financing. During 1999, interest income increased to
$0.2 million due to interest earned on cash received from the Series D preferred
stock financing. Interest expense increased from $14,000 in 1998 to $84,000 in
1999 due to additional capital leases entered into for financing of equipment
purchases and amounts owed on our line of credit during the first six months of
1999.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of our unaudited consolidated
quarterly financial information for the periods indicated. We derived the data
from our unaudited interim consolidated financial statements and, in our
opinion, included all adjustments necessary to fairly present the results of
operations for the periods shown. These unaudited consolidated quarterly results
should be read in conjunction with our consolidated financial statements and
notes to those financial statements included elsewhere in this prospectus. The
operating results in any quarter are not necessarily indicative of the results
that may be expected for any future period.
QUARTER ENDED
--------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1999 1999 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue................................... $1,224 $1,664 $ 2,532 $ 2,905 $ 5,003
Operating expenses:
Professional services................... 584 1,152 1,648 1,491 2,527
Sales and marketing..................... 214 324 579 1,334 4,041
General and administrative.............. 500 957 1,894 2,799 4,386
Amortization of deferred stock-based
compensation......................... 51 104 163 564 3,453
------ ------ ------- ------- -------
Total operating expenses.................. 1,349 2,537 4,284 6,188 14,407
------ ------ ------- ------- -------
Operating loss............................ (125) (873) (1,752) (3,283) (9,404)
Interest income (expense) net............. (3) 2 10 135 75
Income tax (expense)...................... -- -- -- (1) (1)
------ ------ ------- ------- -------
Net loss.................................. $ (128) $ (871) $(1,742) $(3,149) $(9,330)
====== ====== ======= ======= =======
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30
QUARTER ENDED
--------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1999 1999 1999 1999 2000
-------- -------- -------- -------- --------
PERCENTAGE OF REVENUE
Revenue...................................... 100% 100% 100% 100% 100%
Operating expenses:
Professional services...................... 48 69 65 51 51
Sales and marketing........................ 17 19 23 46 81
General and administrative................. 41 58 75 96 88
Amortization of deferred stock-based
compensation............................ 4 6 6 19 69
--- --- --- ---- ----
Total operating expenses..................... 110 152 169 213 288
--- --- --- ---- ----
Operating loss............................... (10) (52) (69) (113) (188)
Interest income (expense), net............... -- -- -- 5 1
Income tax (expense)......................... -- -- -- -- --
--- --- --- ---- ----
Net loss..................................... (10)% (52)% (69)% (108)% (186)%
=== === === ==== ====
Revenue. Our revenue increased in each of the quarterly periods presented,
primarily due to a substantial increase in the average size of our engagements.
Professional Services Expenses. Professional services expenses for the
quarters presented reflect the costs associated with the increased number of
billable professionals and the use of subcontractors and independent contractors
on some engagements. The decrease in professional services expenses in absolute
dollars in the quarter ended December 31, 1999 resulted from lower expenses for
subcontractors and independent contractors. For the quarters ended June 30 and
September 30, 1999, professional services expenses increased as a percentage of
revenue due primarily to the greater use of independent contractors and
subcontractors on larger engagements.
Sales and Marketing Expenses. Sales and marketing expenses increased in
absolute dollars and as a percentage of revenue for each of the quarterly
periods presented. The increase in the 1999 quarters reflects investments in
sales and marketing personnel. For the quarter ended December 31, 1999, sales
and marketing expenses increased as a percentage of revenue from 23% at the end
of September 30, 1999 to 46%. This increase reflects higher commissions paid to
sales personnel in the fourth quarter and, to a lesser extent, the execution of
our initial branding and advertising efforts. Sales and marketing expenses for
the quarter ended March 31, 2000 increased $2.7 million, or 203%, from the
quarter ended December 31, 1999 and increased as a percentage of revenue from
46% to 81%. These increases resulted from $3.6 million spent on the continuation
of our initial branding and advertising efforts, partially offset by lower sales
commission payments.
General and Administrative Expenses. General and administrative expenses
increased in absolute dollars in each of the quarterly periods presented. The
increases are due to the addition of personnel in knowledge management, human
resources, recruiting, finance, technology and administration and to recruitment
and relocation costs for some new employees. For the quarter ended March 31,
2000, general and administrative expenses decreased as a percentage of revenue
from the prior quarter. This decrease reflects an increase in the allocation of
indirect costs to professional services expenses.
Deferred Stock-based Compensation. Amortization of deferred stock-based
compensation increased in each of the quarterly periods presented. These
increases are due to grants of options primarily to new employees.
Net Interest Income (Expense). Our interest income increased for the
quarterly periods ended March 31, 1999 through December 31, 1999 due to
increased interest earned on cash received from the Series D preferred stock
financing. Interest income decreased in the quarter ended March 31, 2000
compared with the quarter ended December 31, 1999 due to a reduction in cash and
cash equivalents. Our
26
31
interest expense increased in the quarter ended June 30, 1999 due to borrowings
under our revolving line of credit.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations and capital expenditures primarily through
the sale of preferred stock, capital leases and other debt financing. As of
December 31, 1999, we had raised $15.7 million of capital from the sale of
preferred stock. In addition, we raised approximately $30.0 million from the
sale of preferred stock during April 2000. We had cash and cash equivalents of
$7.6 million at December 31, 1999 and $5.7 million at March 31, 2000.
We have a revolving line of credit that allows us to borrow the lesser of
$1.3 million or 80% of eligible accounts receivable as defined by the line of
credit agreement. The revolving line of credit has a sub-limit of $0.3 million
for letters of credit. Borrowings under this revolving line of credit bear
interest at the prime lending rate plus 0.5%, which was 9.5% at March 31, 2000.
At March 31, 2000, there were no outstanding borrowings under this revolving
line of credit. At March 31, 2000, we had a $1.7 million letter of credit
outstanding related to a lease for office space. This letter of credit was
supported by the $0.3 million sub-limit under the revolving line of credit and a
certificate of deposit in the amount of $1.4 million. As a result, as of March
31, 2000, $1.0 million was available under the revolving line of credit.
We have entered into several lease agreements to finance purchases of
computer and communications equipment. In December 1999, we entered into a lease
agreement under which we borrowed $0.3 million to finance the purchase of a new
enterprise resource planning software package. As of March 31, 2000, we owed
$0.6 million under these lease agreements.
Net cash used in operating activities totaled $0.2 million in 1997, $0.8
million in 1998, $3.2 million in 1999 and $0.9 million in the quarter ended
March 31, 2000. In 1997, net cash used in operating activities resulted from net
income of $0.2 million, offset by increases in accounts receivable and unbilled
revenue. In 1998, net cash used in operating activities resulted from a net loss
of $0.7 million and increases in accounts receivable and prepaid expenses and
other current assets offset by increases in deferred revenue. In 1999, net cash
used in operating activities resulted from a net loss of $5.9 million and
increases in accounts receivable and unbilled receivables partially offset by
increases in deferred revenue and non-cash expenses. Non-cash expenses in this
period consisted of amortization of deferred stock-based compensation and
depreciation and amortization related to fixed assets. In the quarter ended
March 31, 2000, net cash used in operating activities resulted from a net loss
of $9.3 million and increases in accounts receivable partially offset by
increases in accrued expenses and accrued compensation and non-cash expenses.
Non-cash expenses in this period included amortization of deferred stock-based
compensation of $3.5 million. We expect that accounts receivable will continue
to increase to the extent our revenue continues to rise. Any such increase that
occurs at a greater rate than increases in revenue is likely to have an adverse
effect on net cash flows from operating activities.
Cash used in our investing activities totaled $0.1 million in 1997, $52,000
in 1998, $2.2 million in 1999 and $1.2 million in the quarter ended March 31,
2000. These amounts were used for capital expenditures for computer equipment
and software required by our increase in headcount.
Net cash provided by our financing activities totaled $0.6 million in 1997,
$1.1 million in 1998, $12.6 million in 1999 and $0.2 in the quarter ended March
31, 2000. Net cash provided by financing activities during 1997 resulted
primarily from the issuance of preferred stock. Net cash provided by financing
activities during 1998 resulted primarily from the issuance of preferred stock
and borrowings on our line of credit. Net cash provided by financing activities
during 1999 resulted primarily from the issuance of preferred stock, borrowings
and receipt of amounts receivable from stockholders partially offset by
principal payments on our line of credit. Additionally, at December 31, 1999, we
had $1.4 million in restricted cash related to a deposit on a lease for office
space. Net cash provided by financing activities in the quarter ended March 31,
2000 resulted primarily from exercises of common stock options.
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We believe that the net proceeds from the offering will be sufficient to
fund our planned operations for the next twelve months. However, we may require
significant additional funds for possible future acquisitions of businesses,
products or technologies.
Our ability to fund operations beyond twelve months will be dependent upon
the success of our operations and our future prospects, which will affect our
ability to raise debt or equity on commercially reasonable terms. If additional
funds are required, we may raise such funds from time to time through public or
private sales of equity or from borrowings. We currently have no plans for
further equity offerings but may undertake such offerings depending upon our
results of operations, capital requirements and the state of the economy and
capital markets.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities, establishing accounting and
reporting standards for derivative instruments and for hedging activities. The
statement requires that derivatives be recognized on the balance sheet at fair
value and specifies the accounting for changes in fair value. The Company must
adopt SFAS No. 133 on January 1, 2001. We do not enter into derivatives
transactions, and we anticipate that the adoption of the new statement will have
no impact on our results of operations or financial position.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which
identifies four basic criteria that must be met before revenue can be
recognized. These criteria are: (a) persuasive evidence that an arrangement
exists; (b) delivery has occurred or services have been rendered; (c) the
seller's price to the buyer is fixed or determinable; and (d) collectibility is
reasonably assured. We have already adopted the bulletin, and our revenue
recognition policies are in accordance with its provisions.
In March 2000, the Emerging Issues Task Force issued EITF Abstract No.
00-2, Accounting for Web Site Development Costs, which addresses accounting for
costs incurred to develop a Website. The abstract is effective for fiscal
quarters beginning after June 30, 2000. We do not expect adoption of the
abstract to have a significant impact on our results of operations or financial
position.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We do not currently hold any derivative instruments and do not engage in
hedging activities. We have a revolving line of credit with a variable interest
rate. At March 31, 2000, there were no outstanding borrowings under the
revolving line of credit. We have not entered into any transactions denominated
in a foreign currency. Thus, our current exposure to interest rate and foreign
exchange fluctuations is minimal.
YEAR 2000 COMPLIANCE DISCLOSURE
We have not experienced any problems with our computer systems relating to
recognizing date-related data arising from the use of two digits rather than
four digits to define the years after the year 1999, which problems generally
are referred to as year 2000 problems. We are also not aware of any material
year 2000 problems with our clients and vendors. Accordingly, we do not
anticipate incurring material expenses or experiencing any material disruptions
as a result of any year 2000 problems.
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BUSINESS
OVERVIEW
We provide eSelling solutions, which we define as Internet services that
enable companies to sell more effectively. We bring together strategy,
technology and program management services to provide eSelling solutions to our
clients. These solutions focus on helping established and start-up companies
combine their existing capabilities with Web-based and other evolving
technologies to maximize revenues and gain a competitive advantage rather than
merely reducing costs and automating business processes.
We excel at understanding every point of contact between our client and
their customers and employing technologies and processes to compel sales at each
of those contact points. We set the overall eSelling strategy and build, test
and deploy scalable, flexible eSelling solutions. We then work with our clients
on an ongoing basis to evaluate the results and options for subsequent phases.
We deliver our integrated strategy, technology implementation and program
management services through our teams of multidisciplinary professionals. In
addition, we have developed an ecosystem of relationships that enables us to
provide our clients with leading expertise in all relevant areas necessary to
develop, implement and maintain high-quality eSelling solutions as well as the
flexibility to continually take advantage of the latest technologies.
As of March 31, 2000, we had 84 billable professionals and had completed
over 40 eSelling engagements. Some of our past and present clients include
BlueLight.com, Elizabeth Arden, J.Crew and Kaplan. We have offices in San
Francisco and New York and are establishing offices in Chicago and Germany.
INDUSTRY BACKGROUND
Companies are increasingly launching e-businesses in response to the rapid
growth in the commercial use of the Internet. To understand the Internet
opportunity and launch e-businesses, many companies require the expertise of
Internet services firms. IDC estimates that the worldwide market for Internet
services will grow from $16.2 billion in 1999 to $99.1 billion in 2004.
To date, e-businesses have focused on developing a Web presence and
Web-enabling enterprise applications. As the number of e-businesses has grown,
buyers have been empowered by increased variety in product and service
offerings, greater access to information and real-time price and transaction
capability. As buyers become empowered, companies have encountered increasing
difficulty in differentiating their products and services and are looking for a
competitive advantage to increase revenues and profitability. These companies
are specifically focused on revenue growth and not merely cost reduction or
business process optimization.
This new stage of e-business also requires that companies select from an
increasingly diverse set of business models, such as online exchanges, auctions
and outsourcing. In addition, e-businesses must select from a greater variety of
technologies, including e-business applications, operating systems and
application service provider outsourcing services.
A number of Internet services firms serve this market. However, we believe
many of them focus primarily on reducing costs and optimizing business
processes, including Web-enabling of enterprise resource planning and customer
relationship management systems. In addition, we believe that few Internet
services firms have the program management and technology expertise to deliver
scalable, complex and flexible solutions that maximize revenues.
THE FORT POINT PARTNERS SOLUTION
Our eSelling solutions are specifically designed to address this new stage
of e-business. The key elements of our solution are:
Focus on eSelling. Our solution is focused on eSelling. Our clients engage
their customers at multiple points, including marketing, shopping, configuring,
pricing, selling, supply and fulfillment,
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customer service and product returns. At each point, we employ technologies and
processes to remove barriers to buying and to create additional revenue
opportunities. These opportunities include: flexible pricing based on changing
supply and demand; auctions and reverse auctions for excess inventory
liquidation; custom order configuration; up-selling and cross-selling; and
personalization.
Deep Technology Expertise and Experience. Technical program managers,
system architects and engineers comprise approximately 85% of our billable
professionals. Our technology professionals have extensive expertise in systems
architecture and Internet-based technologies, including wireless application
protocol (WAP), Linux and Java-enabled applications as well as protocols such as
XML, CORBA and EJB. We are also experienced in leading e-business,
personalization and messaging applications and integrating them with existing
computing environments. Our solutions typically involve high transaction rates
and large volumes of data.
Differentiated First-Stop Shop. Our clients engage us early in the
strategic planning process to define and execute an eSelling solution. Our
technology, strategy and project management skills allow us to assume
responsibility for the entire eSelling solution. We refer to this approach as
First-Stop Shop. We have established an ecosystem of relationships with creative
design and marketing agencies, software vendors and application service
providers that enables us to provide our clients with leading expertise in all
relevant areas necessary to develop, implement and maintain high-quality
eSelling solutions as well as the flexibility to continually take advantage of
the latest technologies.
Knowledge Merchandising for Speed of Execution. Knowledge merchandising is
our approach to identifying, capturing and reusing valuable frameworks, tools
and processes that we utilize to achieve rapid time to market when delivering
our eSelling solutions. For example, by reusing previously developed tools, we
were able to deploy a comprehensive eSelling solution for eve.com, that included
a catalog and sophisticated back-end integration, in only two months. We have a
team of technology professionals dedicated to continuously expanding and
refining our existing knowledge base, which we have built over the course of
three years and more than 40 completed eSelling engagements.
Implementation Using Proprietary Fortified Process. Over more than three
years, we developed our delivery model, the Fortified Process, to ensure rapid
time to market of our eSelling solutions and the disciplined application of
procedures that we believe produce high quality for every client engagement. The
Fortified Process consists of three stages, EC Plan, EC Build and EC Grow, that
enable us to develop, implement and enhance an eSelling solution. We designed
and optimized the Fortified Process specifically for the Internet and eSelling,
and it is constantly refined by a dedicated team of technology professionals.
The Fortified Process also allows us to provide our services on a fixed-price,
fixed-timeframe basis that focuses us and our clients on clearly defined
deliverables and aligns our interests with those of our clients.
STRATEGY
Our objective is to be the leading provider of eSelling solutions to
companies that are engaged in e-business, including in both business-to-business
and business-to-consumer selling environments. To accomplish this objective, we
employ the following strategies:
Developing New eSelling Solutions. We intend to continuously develop
innovative eSelling solutions by working with our clients to maximize sales
across all direct and indirect channels. For example, we recently developed a
business intelligence system, which we call Selling Intelligence, that allows
our clients to understand behavior across channels and to take actions that
increase revenue from customers, partners and resellers. We also plan to work
with our existing clients on expanding and refining their eSelling solutions. We
believe that our innovation will allow us to win large-scale client engagements
in the manufacturing, retail, financial services and telecommunications
industries.
Targeting Strategic eSelling Initiatives for Established Enterprises. As
e-business becomes a critical strategic growth area for established companies,
we are well-suited to help those companies use the Internet to leverage their
substantial existing corporate advantages. Established companies have three
distinct characteristics that are well-matched to our core skills: a requirement
for a robust, well-designed
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architecture due to heavy Website traffic upon first launch; a desire for
eSelling differentiation to retain leadership position; and a need for
sophisticated program management due to the complexity of the engagement and
significant organizational change and growth. We believe that this strategy will
enable us to continue to win large-scale projects in the manufacturing, retail,
financial services and telecommunications industries. These types of engagements
will also increase our brand awareness.
Cultivating our Culture. As we grow, we intend to continue to cultivate a
distinct corporate culture in order to attract, develop and retain skilled,
multidisciplinary professionals and to consistently deliver outstanding
solutions across our growing base of professionals. We have developed a culture
that emphasizes our commitment to: delivering real value to customers of our
clients; demonstrating resilience and creativity in addressing challenges;
developing successful relationships; and building a smart company through the
structured sharing of innovation and process improvement. Our values are
reinforced by our recruiting, orientation, training and evaluation of our
employees. For example, every new employee participates in a three week eMersion
program that not only exposes the employee to our culture and values, but
engages the employee in case studies designed to reinforce our values and
operational methodology.
Building Long-term Relationships with Clients. Our culture and approach
focus on developing long-term relationships with our clients. After the launch
of an eSelling solution, we continue to work with our clients to evaluate their
eSelling solutions in response to customer responses, our clients' and their
customers' changing needs, technological innovation and business trends. We
believe that this leads to additional business opportunities, large-scale client
engagements and recurring revenue streams, which enhance our ability to predict
revenue. In addition, by developing long-term client relationships, we are able
to build a strong base of referenceable clients, which helps us win new eSelling
engagements.
Continuing to Leverage Relationships. We have established an ecosystem of
relationships with creative design and marketing agencies, software vendors and
application service providers in order to help provide our clients with
high-quality eSelling solutions. In addition, these relationships provide us
with access to the latest technologies, sales leads, co-marketing opportunities,
channels of distribution, creative and enhanced solutions and new market
opportunities. We intend to enhance our existing alliances and selectively
expand our ecosystem to include additional companies that can offer us similar
or better benefits.
Fostering our Effective Selling Organization. We believe that an effective
direct sales force is critical to scale our business, obtain large engagements
and develop longer-term relationships. We also believe that an effective selling
organization and culture will be a source of long-term competitive advantage. As
of March 31, 2000, we had a sales and marketing team of 13 people and expect to
expand it in the future.
Expanding our Geographic Presence. We intend to establish a greater
geographic presence throughout the United States and internationally in order to
meet clients' eSelling needs. We believe significant revenue growth potential
exists from expanding our geographic presence. We currently have offices in San
Francisco and New York, and we are currently establishing offices in Chicago and
Germany.
THE FORTIFIED PROCESS
In order to predictably deliver high-quality eSelling solutions, we have
spent more than three years developing and refining a disciplined methodology,
which we call the Fortified Process. The Fortified Process is a critical
component of our orientation and training programs for new and existing
employees ensuring consistent delivery of high-quality eSelling solutions to our
clients in a timely, cost-effective manner across our offices and client
engagements. The proprietary tools and processes in our Fortified Process allow
us to deliver our services on a fixed-price, fixed-timeframe basis.
The Fortified Process consists of three phases: EC Plan; EC Build; and EC
Grow.
EC Plan. We begin our engagements by setting the overall goals of the
eSelling solution driven by an analysis and understanding of our clients' target
customers. Because an eSelling solution affects virtually the entire enterprise,
the client team may include representatives from sales, operations, information
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technology, marketing and finance departments. Our proprietary tools and
processes accelerate decisions among these constituents. We determine the
current and potential customer base, as well as the tasks, internal impact,
critical success factors and possible risk areas for the engagement. For each
target customer, we seek to increase sales by understanding how:
- the buyer finds products;
- our client controls access to products;
- the buyer orders products;
- our client fulfills the order; and
- the buyer's service needs are met.
The output of EC Plan is a business and technical roadmap, called the
Application Development Plan, that details all of the systems and processes to
be built, identifies the parties responsible for each task and allows us to fix
the price for EC Build. We also assist our client in selecting creative design
and marketing agencies, software vendors and application service providers.
EC Build. During EC Build, we build, test and deploy the eSelling solution
designed in EC Plan. As the program manager, we are responsible for the delivery
of the entire eSelling solution, including the management of our own team as
well as those of our clients and third parties. We build the eSelling solution
to allow for measurement of selling success and to enable continuous selling
improvement.
EC Grow. EC Grow is a strategic assessment and planning process that lays
the groundwork for continued refinement of the eSelling solution. During this
process, which begins during the deployment stage of EC Build, we work with our
clients to evaluate the results to date and options for subsequent phases. EC
Grow is particularly important given the dynamic and rapidly changing business
environment facing most eSelling clients. EC Grow is designed to help the client
follow a "launch and learn" approach to maximize performance and implement
further improvements. As a result, we engage with the client at both the
strategic and operational levels to lay the groundwork for the continued
evolution of the eSelling solution.
OUR COMPETENCIES
In the course of more than 40 client engagements, we have developed and
refined the core areas of expertise that are required to provide eSelling
solutions: strategy; project management; and technology.
Strategy. Our strategy professionals work closely with our clients to plan
their overall organizational design and business processes to meet the eSelling
objective. During EC Plan, they analyze target customers and develop the
specific strategies to be employed at the points of customer contact. These
strategy professionals also are involved in building strategic client
relationships by identifying additional opportunities for eSelling by our
existing clients. These individuals bring management consulting experience or
specific industry backgrounds to our clients.
Program Management. Our program managers are involved in specifying the
scope of the engagement, managing the work plan to fulfill the eSelling
objective and building, testing and deploying the individual modules and
applications that comprise the eSelling solution. The project managers focus on
the overall delivery of the eSelling solution and seek to ensure that project
milestones are met by our own project team, our client and any third parties. We
actively manage any third parties that are involved in the project, including
assisting our clients in structuring their contracts with third parties.
Technology. Our technology professionals are specialists in designing and
building large-scale enterprise solutions. Their primary responsibility is the
selection of the technology appropriate to the eSelling objective that can be
integrated well with existing systems and that can be managed easily by our
clients. Our technology professionals have extensive expertise in systems
architecture and Internet-based technologies, including wireless application
protocol (WAP), Linux and Java-enabled applications as well
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as protocols such as XML, CORBA and EJB. We also are experienced in leading
e-business, personalization and messaging applications and integrating them with
existing computer environments.
CASE STUDIES
BLUELIGHT.COM BlueLight.com, a joint venture between Kmart and Softbank,
is targeting Kmart's customer base to become a leading
e-business, offering free Internet access and online
shopping.
Objective: Establish a leading online shopping destination by building
Kmart's online brand and providing Kmart's customer base
with a compelling shopping experience.
eSelling Solution: We are BlueLight.com's leading partner in the overall
strategy and execution of Kmart's next generation e-business
site. In EC Plan, we focused on BlueLight.com's target
customers to design a sophisticated eSelling solution in an
environment with very high first day performance
expectations, complex organizational issues and high brand
risk. We are now delivering a wide range of enterprise
technologies central to the development of BlueLight.com
through a multi-phased approach. These EC Build phases will
entail:
- creating an advanced eSelling site that will drive
additional revenue by featuring functional components such
as: a dynamic promotion engine, sophisticated customer
segmentation, personalized offers and email campaign
management;
- building an infrastructure to support a high-volume
eSelling site that empowers BlueLight.com with the
stability and flexibility needed to rapidly scale its
operations over time;
- recommending, enlisting and managing the integration of
key partners required to create a unified eSelling
experience to drive additional revenue; and
- providing the ability to cross-sell and up-sell.
J.CREW J.Crew is a leading apparel manufacturer and retailer,
selling its products through its catalogs, retail stores and
Website.
Objective: Rebuild J.Crew's online systems architecture to handle a
large and growing volume of transactions to allow for
maximum flexibility and increased selling effectiveness.
eSelling Solution: We engaged with J.Crew on a multi-phase system rebuild.
Initially, we conducted a strategic evaluation of J.Crew's
customer types and behaviors, with an analysis of the
functionality and technology required to drive higher sales.
Next, we worked with Sun Microsystems to build a robust,
high-volume eSelling solution integrated with J.Crew's
existing systems. Subsequently, we introduced the eSelling
Intelligence infrastructure to continuously improve the
selling performance of the site by:
- employing targeted promotion, cross-selling and
up-selling;
- providing customized cross-channel reporting, segmentation
and analysis capabilities based upon buyer usage data; and
- incorporating advanced product search capabilities that
present buyers with products that they are more likely to
buy and that J.Crew is eager to sell.
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CLIENTS
We work with companies in both the business-to-business and the
business-to-consumer markets to develop and implement eSelling solutions. Since
1998, we have recognized revenue of at least $0.6 million in connection with
engagements for:
BlueLight.com IdeaForest.com The North Face
Elizabeth Arden, J.Crew Petstore.com
a Unilever company Kaplan Smith & Hawken
eve.com Lids Tavolo
SALES AND MARKETING
We focus our sales and marketing efforts on large companies in the
manufacturing, retail, financial services and telecommunications industries. We
have a direct sales team that is currently organized by geographic market. Many
of our sales leads are the result of referrals from members of our ecosystem of
relationships or from past or existing clients. In addition, our senior
consultants and members of our management frequently participate in establishing
contacts with potential clients and securing client engagements.
Our integrated effort to market our eSelling expertise includes: a brand
advertising campaign in both print and broadcast media, public relations,
strategic event participation and employee networking programs. In addition, we
intend to continue to develop the Fort Point Partners brand by showcasing our
thought leadership in eSelling through industry presentations and the
preparation of written materials. As of March 31, 2000, our sales and marketing
team consisted of 13 people.
CULTURE, RECRUITING AND TRAINING
Attracting, training and retaining professionals are critical to our
success. As a result, our people team is led by executive-level organization
development experts, and we have made early, significant investments in our
people programs.
Culture. We place tremendous importance on culture, particularly on the
core values that serve as the cornerstone of our culture. Our core values
include commitments to:
- delivering real value to customers of our clients, which we call Value;
- being resilient, optimistic and creative to resolve difficult situations
and ensure our clients' success, which we call Fortitude;
- building relationships that make our employees, clients and third parties
more successful, which we call Partnership; and
- sharing innovations and process improvements to make Fort Point Partners
more valuable, which we call Smart Company.
We have also implemented people programs that reinforce our values at all
levels in the organization. All recruits are evaluated based on whether they are
likely to embrace our company values. Each new employee is introduced to our
culture, core values and eSelling methodology through an intensive, three week
orientation and training program, which we call eMersion. In addition, all
employees are measured, rewarded and promoted based on their ability to
demonstrate these core values. Finally, our advanced training programs,
mentoring program and internal communications continuously act as further
reinforcements of our core values and our culture.
Recruiting. We have grown organically, which we believe has helped to
maintain the high level of our execution quality and client and employee
experiences. We have a dedicated recruiting team that ensures consistent hiring
practices across offices. In addition, we recruit a majority of our new
employees through an employee referral program. Services personnel are heavily
involved in the process and lead the team responsible for converting candidates
to full-time employees.
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Training. We have developed a series of programs that provide ongoing
skill-building opportunities for new hires and current employees. Our new
employees participate in the three week eMersion program that exposes new
employees to our culture, values and eSelling principles and engages them in
case-based learning. We also have a series of advanced training programs and
weekly briefings that enable our people to continue improving their skills to
meet new market opportunities, to keep up with technological advancements and to
share lessons learned from their projects.
COMPETITION
We compete against:
- Internet Commerce Systems Integrators. These firms offer
Internet-related systems integration, which is the development of
technology applications to meet Internet business needs. In addition,
they may also provide a variety of additional services like branding,
strategy consulting, application development and Web-hosting. Examples of
these firms include Proxicom, Sapient, Scient and Viant.
- Traditional Systems Integrators. These firms tend to be large companies
with integration experience that pre-dates the Internet. Most have a
background in large-scale technical implementations, such as enterprise
resource planning implementation projects. Examples of these firms
include Andersen Consulting, IBM Global Services and KPMG.
Given the low barriers to entry, the size and fragmentation of the market
and the rapidly changing landscape, a continued influx of new entrants is
likely. In addition, some firms that might contract with us or one of our
competitors may choose instead to rely on internal resources for their eSelling
needs.
We expect that we will continue to face intense competition for potential
engagements. The principal factors on which we compete are:
- reputation for designing and building effective e-business solutions;
- the depth and breadth of strategic, project management and engineering
expertise;
- the ability to articulate a compelling e-business solution early in the
process of bidding for engagements;
- speed of delivery of high quality e-business solutions;
- price; and
- the ability to stay current with technological changes.
We believe that we compete successfully overall with respect to these
competitive factors.
EMPLOYEES
We have grown organically from 34 employees at the end of 1998, to 110 at
the end of 1999 and to 177 as of March 31, 2000. Our employees are not
represented by any union and are retained on an at-will basis. We consider our
relations with our employees to be satisfactory.
PROPRIETARY RIGHTS
We have developed detailed frameworks, tools, processes, methodologies,
software code and other technologies that are used internally and in client
engagements. We seek to protect our proprietary rights and our other
intellectual property through a combination of copyrights, trademarks and trade
secret protection, as well as through contractual protections such as employee
and consultant invention assignment agreements and nondisclosure agreements. We
cannot guarantee that the steps we have taken to protect our proprietary rights
will be adequate to deter misappropriation of our intellectual property, and we
may not be able to detect unauthorized use and take appropriate steps to enforce
our intellectual property rights.
In addition, our business involves, in part, the development of software
applications for our clients. Ownership of such software is often a subject of
negotiation and is sometimes assigned to the client. When
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the rights are assigned to the client, we may retain a license for specific
uses. Issues relating to the ownership of and rights to use software
applications and frameworks can be complicated, and there can be no assurance
that disputes will not arise with our clients that affect our ability to resell
or reuse such applications and frameworks or our client relationships.
FACILITIES
Our corporate headquarters are located in San Francisco, California and
consist of approximately 28,000 square feet of office space. We have leased this
space through October 2007. We also lease office space under two leases in New
York, New York, consisting of approximately 22,000 square feet of office space.
Both of the New York office leases expire in April 2009. We anticipate that we
will enter into additional leases for office space in order to expand our
geographical presence in the U.S. and internationally, including in Chicago,
Illinois and Germany where we are currently in the process of obtaining office
space. We believe that additional office space will be available on commercially
reasonable terms.
LEGAL PROCEEDINGS
From time to time, we may become involved in litigation arising from our
ordinary course of business. We believe that there are no claims or actions
pending or threatened against us, the ultimate disposition of which would have a
material adverse effect on us.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The names, ages and positions of our current executive officers, directors
and key employees are as follows:
NAME AGE POSITION
- ---- --- --------
James T. Roche............................ 34 Co-Chief Executive Officer, Co-President
and Director
Matthew J.N.C. Roche...................... 32 Co-Chief Executive Officer, Co-President
and Chairman of the Board
Kelyn J. Brannon.......................... 41 Chief Financial Officer
Barbara J. Beasley........................ 42 Executive Vice President of People
Jeffrey J. Held........................... 46 Chief Technology Officer
Michael P. Kelleher....................... 40 Vice President of Sales
Kathleen Kusek............................ 35 Vice President of Marketing
David Karas............................... 40 Vice President, General Counsel and
Secretary
Robert Schmults........................... 31 Vice President of Strategy
Scott Gilbertson.......................... 31 Director
Richard Kashnow(1)(2)..................... 58 Director
N. D'Arcy Roche........................... 62 Director
David Sanderson........................... 39 Director
Edward Scott(1)(2)........................ 37 Director
- ---------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
James T. Roche is one of our co-founders and has served as our Co-Chief
Executive Officer, Co-President and Director since our inception. Prior to
founding Fort Point Partners, Mr. Roche established Webfactory, Inc., a computer
hardware and software sales services company and subsidiary of AGI Corp., where
he served as General Manager from October 1995 to November 1996. Prior to
establishing Webfactory, Inc., Mr. Roche worked at Silicon Graphics and KPMG.
Mr. Roche studied architecture at Yale University. Mr. Roche is the son of N.
D'Arcy Roche and the brother of Matthew J.N.C. Roche.
Matthew J.N.C. Roche is one of our co-founders and has served as our
Co-Chief Executive Officer and Co-President since our inception. Mr. Roche also
serves as the Chairman of the Board. Mr. Roche established Webfactory/Data, a
division of Webfactory, Inc., and, from October 1995 until December 1996, served
as its General Manager. Mr. Roche served as Product Manager of ParcPlace
Systems, Inc., a software company, from October 1994 to October 1995. Mr. Roche
also worked for Andersen Consulting from April 1992 until October 1994. Mr.
Roche holds a B.A. in English from Yale University. Mr. Roche is the son of N.
D'Arcy Roche and the brother of James T. Roche.
Kelyn J. Brannon has served as our Chief Financial Officer since December
1999. From October 1998 until December 1999, Ms. Brannon served as the Vice
President of Finance and Chief Accounting Officer of Amazon.com, Inc., an
Internet retailer, and as Chief Financial Officer of Amazon.com International.
Prior to joining Amazon.com, from October 1994 until October 1998, Ms. Brannon
served in various capacities at Sun Microsystems, Inc., a provider of computer
networking hardware, software and services, including as the Director of
Finance, Worldwide Field Organization in its Computer Systems Division. Prior to
working at Sun Microsystems, Ms. Brannon served with Ernst & Young LLP, an
accounting firm,
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where she last served as Senior Manager. Ms. Brannon holds a B.A. in political
science from Murray State University in Kentucky.
Barbara J. Beasley is our Executive Vice President of People and has served
in that capacity since June 1999. From 1988 to May 1999, Ms. Beasley worked at
Andersen Consulting, a management consulting firm, in various capacities, last
serving as Associate Partner. Ms. Beasley holds a M.B.A. with a focus on
organizational development from the University of Southern California and a B.A.
in psychology and human biology from Stanford University.
Jeffrey J. Held is our Chief Technology Officer. From 1988 until March
2000, Mr. Held was a partner with Ernst & Young Consulting. During the period
from July 1998 to March 2000, he also served as the Chief Technology Officer for
the Ernst & Young's Americas Critical Technologies Unit and previously served as
a director of Ernst & Young's Center for Technology Enablement. Mr. Held holds a
M.S. and a B.S. in electrical engineering from the Massachusetts Institute of
Technology.
Michael P. Kelleher has served as our Vice President of Sales since January
2000. From January 1997 until January 2000, Mr. Kelleher served in the Sales
Management Division of IBM/Tivoli Systems, a systems management software
company. From January 1984 until December 1996, Mr. Kelleher served in the Sales
Management Division of Storage Technology, a company specializing in large data
storage. Mr. Kelleher holds a B.S. in business administration from the
University of Connecticut.
Kathleen Kusek has served as our Vice President of Marketing since November
1999. From April 1996 until November 1999, Ms. Kusek served as Director of New
Business at DDB Worldwide, a branding company. From September 1994 until April
1996, Ms. Kusek served as an Account Supervisor at Foote, Cone & Belding, an
advertising company. Ms. Kusek holds a M.S. in journalism from Northwestern
University and a B.S. in finance from the University of Illinois.
David Karas joined us in February 2000 and serves as our Vice President,
General Counsel and Secretary. Beginning in 1994, Mr. Karas held various
positions at Sun Microsystems, Inc. where he last served as Director and General
Counsel for the Professional Services business from September 1998 to February
2000. During his time at Sun Microsystems, he also was an Internal Audit Manager
conducting internal business process reviews, and Assistant General Counsel with
the SunService Division. He has also served as counsel with Citibank, N.A. and
Computerland Corporation. Mr. Karas holds a M.B.A. and a J.D. from Pace
University and a B.A. in economics from the University of Connecticut.
Robert Schmults is our Vice President of Strategy. Mr. Schmults joined us
in October 1999. From May 1997 until October 1999, Mr. Schmults worked with
McKinsey & Co., a management consulting company, where he advised companies on
e-commerce strategy. From October 1994 until January 1997, Mr. Schmults was the
Director of Marketing at Worlds, Inc., an Internet software company. Mr.
Schmults holds a Masters degree in international relations from Cambridge
University, a M.B.A. from Harvard University and a B.A. in history from Yale
University.
Richard Kashnow has served as a member of our board of directors since
August 1998. Since August 1999, Mr. Kashnow has served as President of Tyco
Ventures, a venture capital unit of Tyco International, a diversified
manufacturing and services company. From September 1995 until August 1999, Mr.
Kashnow served as the Chairman, Chief Executive Officer and President of Raychem
Corporation, an electrical and electronic components manufacturing company. From
1991 until 1995, Mr. Kashnow served as the President of Schuller International,
a subsidiary of Manville Corporation, a building products company. Mr. Kashnow
also serves on the board of directors of Applied Power, Inc., a manufacturer of
electronic and industrial products. Mr. Kashnow holds a B.S. in physics from
Worcester Polytechnic Institute and a Ph.D. in physics from Tufts University.
Scott Gilbertson has served as a member of our board of directors since May
1999. From October 1998 until March 2000, Mr. Gilbertson held various positions
at J.Crew Group, Inc., a clothing retailer, ultimately serving as its President,
eCommerce. Mr. Gilbertson helped found eVolution Global Partners, an investment
firm, in April 2000. From February 1998 until October 1998, Mr. Gilbertson
served as an Associate at Texas Pacific Group, an investment firm. From June
1991 until February 1998,
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Mr. Gilbertson held various positions at Boston Consulting Group, a strategy and
management consulting firm. Mr. Gilbertson holds a B.A. in economics from
Claremont McKenna College and a M.B.A. from Northwestern University.
N. D'Arcy Roche has served as a member of our board of directors since
December 1996. Since February 2000, Mr. Roche has served as the President and
Chief Executive Officer of Mplus3, a start-up Internet audio device
manufacturer. From January 1999 until January 2000, Mr. Roche provided
consulting services to start-up telecommunications carriers and carrier
equipment manufacturers. From 1995 until December 1998, Mr. Roche was Vice
President with, and managed the global premises equipment and services business
unit of, AMP, an electronic parts company owned by Tyco International Ltd. Mr.
Roche holds a B.A. in English from Columbia University. Mr. Roche is the father
of James T. and Matthew J.N.C. Roche.
David Sanderson has served as a member of our board of directors since
August 1998. Since 1990, Mr. Sanderson has served as a Vice President at Bain &
Company, a management consulting company. Mr. Sanderson also helped found
eVolution Global Partners, an investment firm, in April 2000 and serves on the
board of directors of IdeaForest.com, an arts and crafts e-business. Mr.
Sanderson holds a B.S. in math from the University of Massachusetts, Amherst, a
M.S. in computer science from Syracuse University and a M.B.A. from Stanford
University.
Edward Scott has served as a member of our board of directors since June
1999. Mr. Scott is a founder and General Partner of the Baker Communications
Fund, L.P., a private equity fund that invests exclusively in communications,
services and applications companies. From December 1990 until March 1996, Mr.
Scott worked at the Apollo Investment Fund, L.P. Mr. Scott is a member of the
board of directors of Akamai Technologies, Inc., Advanced Switching
Communications, Inc., Broadview Networks Holdings, Inc., InterXion Holding,
N.V., Acuent Inc. and Style365.com. Mr. Scott holds a B.A. in history from
Columbia University and a M.B.A. from Harvard University.
BOARD OF DIRECTORS AND COMMITTEES
Our board of directors currently consists of seven directors. It has two
committees: an audit committee and a compensation committee. Our bylaws divide
our board of directors into three classes, as nearly equal in size as possible,
serving staggered three-year terms.
Audit Committee. Messrs. Kashnow, Scott and currently serve on
our audit committee. Our audit committee reviews our audited consolidated
financial statements and accounting practices, recommends independent auditors
and approves the fee arrangements with the independent auditors.
Compensation Committee. Messrs. Kashnow and Scott serve on our
compensation committee. The compensation committee determines salaries and
incentive compensation of our executive officers and recommends salaries and
incentive compensation of our other employees and consultants. In addition, the
compensation committee administers our stock option plan and other benefit
plans.
DIRECTOR COMPENSATION
We do not currently provide our directors with cash compensation for their
services as directors, although we do reimburse directors for reasonable
expenses in connection with their participation in board and committee meetings.
On May 18, 1998, we granted options to purchase 20,000 shares of common
stock to each of N. D'Arcy Roche and Messrs. Sanderson and Kashnow under our
1996 Stock Option/Stock Issuance Plan at an exercise price of $0.05 per share.
On January 20, 1999, we granted options to purchase 40,000 shares of common
stock to each of N. D'Arcy Roche and Messrs. Kashnow and Sanderson at an
exercise price of $0.11. On May 27, 1999, we granted options to purchase 40,000
shares of common stock to Mr. Gilbertson at an exercise price of $0.11. Each of
these options was immediately exercisable, but was subject to a right of
repurchase until vested over a four year vesting period. The options have a ten
year term.
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On April 18, 2000, the board of directors resolved that any non-employee
director who joins the board after that date will be granted options to purchase
20,000 shares of common stock. The options will vest quarterly over three years
and have a term of ten years. The exercise price will be set at the fair market
value of the common stock at the time of grant. Each director will receive a new
option grant after the current option vests in full, on the same terms and
conditions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee has not yet held a meeting. Consequently, all
compensation decisions have been made by the entire board of directors. None of
our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation paid by us in 1999 to our Chief Executive Officers. These
individuals are referred to as the named executive officers in this prospectus.
No other executive officers earned more than $100,000 in 1999.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
------------------- SHARES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(1)
- --------------------------- --------- ------ -----------------
James T. Roche........................................... $144,583 -- 40,000
Co-Chief Executive Officer and Co-President
Matthew J.N.C. Roche..................................... $144,583 -- 40,000
Co-Chief Executive Officer and Co-President
- ---------------
(1) As adjusted to reflect the 4-for-1 split of our common stock effected on
November 22, 1999.
Barbara J. Beasley, our Executive Vice President of People, was compensated
at an annual rate of $175,000 in 1999. Kelyn J. Brannon, our Chief Financial
Officer, was compensated at an annual rate of $200,000 in 1999. Kathleen Kusek,
our Vice President of Marketing, was compensated at an annual rate of $150,000
in 1999.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, as to the named executive officers,
information concerning stock options granted in 1999.
The information regarding stock options granted to named executive officers
as a percentage of total options granted to employees in the fiscal year, as
disclosed in the table is based upon options to purchase an aggregate of
3,680,200 shares of common stock that were granted to all employees and
directors as a group, including the named executive officers, in 1999.
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(1) 1999 ($/SHARE) DATE 5% 10%
- ---- ---------- ------------- --------- ---------- --------- ---------
James T. Roche.......................... 40,000 1.09% $.11 1/20/04
Matthew J.N.C. Roche.................... 40,000 1.09% $.11 1/20/04
- ---------------
(1) As adjusted to reflect the 4-for-1 split of our common stock effected on
November 22, 1999.
The potential realizable value at assumed 5% and 10% annual rates of stock
appreciation are based upon an assumed initial public offering price of
$ per share over the five-year term, compounded annually and
subtracting from that result the total option exercise price. These rates of
appreciation are mandated by the rules of the Securities and Exchange Commission
and do not represent our estimate or projection of our future stock prices.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
Our incentive stock options are immediately exercisable. However, we have a
right to repurchase all unvested shares of common stock issued upon exercise of
incentive stock options if executive officers are terminated for any reason. All
incentive stock options vest as to 25% of the shares one year from the vesting
commencement date with the remainder of the shares vesting at the rate of 1/48
of the shares at the end of each month thereafter, subject to continued service
as an employee or consultant. The repurchase right must be exercised by us
within 60 days of termination of the executive officer and lapses on the same
terms as the option vesting period discussed above.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The table below sets forth information with respect to the ownership and
value of options held by the named executive officers as of December 31, 1999.
No options were exercised by our named executive officers during the fiscal year
ended December 31, 1999. Options described below as exercisable are those that
have vested and are no longer subject to the right of repurchase. Options
described below as unexercisable remain subject to the right of repurchase. The
value of unexercised in-the-money options was calculated by determining the
difference between $ (the assumed initial public offering price) and
the exercise price of the option.
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
James T. Roche............................. 160,000 200,000
Matthew J.N.C. Roche....................... 160,000 200,000 $ $
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CHANGE OF CONTROL AND SEVERANCE ARRANGEMENTS; OFFER LETTERS
All of our employees are at-will employees, which means that either we or
our employee may terminate the employment relationship at any time for any
reason.
On November 30, 1999, our board of directors amended James T. Roche's
options to include immediate vesting in certain circumstances and agreed to
provide severance payments to Mr. Roche. If we (1) terminate Mr. Roche, (2)
change the executive team such that Mr. Roche is no longer a member or (3) are
involved in a corporate transaction, as defined in the 1996 Stock Option/Stock
Issuance Plan, and subsequent to that corporate transaction, Mr. Roche is
terminated by us or resigns, then, we shall be required to provide Mr. Roche, as
applicable, with the following: (1) severance payments equivalent to six months
worth of his highest monthly salary payments, and (2) all of the stock options
which have been granted to him, and any restricted shares subject to vesting
held by him shall immediately vest in full.
On November 30, 1999, our board of directors amended Matthew J.N.C. Roche's
options to include immediate vesting in certain circumstances and agreed to
provide severance payments to Mr. Roche. If we (1) terminate Mr. Roche, (2)
change the executive team such that Mr. Roche is no longer a member or (3) are
involved in a corporate transaction, as defined in the 1996 Stock Option/Stock
Issuance Plan, and subsequent to that corporate transaction, Mr. Roche is
terminated by us or resigns, then we shall be required to provide Mr. Roche, as
applicable, with the following: (1) severance payments equivalent to six months
worth of his highest monthly salary payments, and (2) all of the stock options
which have been granted to him, and any restricted shares subject to vesting
held by him, shall immediately vest in full.
We entered into an employment offer letter on December 13, 1999 with Kelyn
J. Brannon, our Chief Financial Officer. This letter established Ms. Brannon's
initial annual salary at $200,000 and provided for reimbursement of her
relocation expenses up to $100,000. In connection with Ms. Brannon's offer
letter, on January 26, 2000, the board of directors granted to Ms. Brannon an
option to purchase 300,000 shares of common stock. The offer letter also
provided that the board of directors would grant additional options to purchase
100,000 shares of common stock upon successful completion of this offering. Ms.
Brannon's options will vest in full if we are acquired, and as a result of that
acquisition, she is subsequently terminated without cause from her position or
we are not able to offer her a position that is equal to or better than the
Chief Financial Officer position. "Acquired" is defined to mean either (1)
merged with a third party or (2) more than 50% of the total combined voting
power of our outstanding securities are transferred to a third party, different
from the third parties holding those securities immediately prior to such
transaction. "Cause" means the commission of any act of fraud, embezzlement or
dishonesty, conviction of a felony under the laws of the United States or any
state thereof, gross misconduct, continued failure to perform assigned duties
for 30 days after receiving written notification from our board of directors,
any unauthorized use of disclosure of our confidential information or trade
secrets, or any other intentional misconduct that adversely affects our business
or affairs in a material manner.
We entered into an employment offer letter on May 12, 1999 with Barbara J.
Beasley, our Executive Vice President of People. This letter established Ms.
Beasley's initial annual salary at $175,000. In connection with Ms. Beasley's
offer letter, the board of directors granted to Ms. Beasley an option to
purchase 200,000 shares of common stock on August 26, 1999. The offer letter
provided that the board of directors would grant Ms. Beasley options to purchase
an additional 200,000 shares of common stock upon her attainment of mutually
agreed upon hiring criteria. The board of directors granted Ms. Beasley the
additional options to purchase 200,000 shares of common stock in February 2000.
Ms. Beasley's options will vest in full upon a change of control, as defined
above in the description of Ms. Brannon's offer letter.
We entered into an employment offer letter on December 20, 1999 with
Michael P. Kelleher, our Vice President of Sales. This letter established Mr.
Kelleher's initial annual salary at $175,000 and provided for reimbursement of
apartment rental costs of up to $2,500 per month for up to six months. In
addition, the offer letter provided for payment of round trip airfare between
San Francisco and Los Angeles once a week through the end of June 2000 and
reimbursement of his relocation expenses up to $15,000. In connection with Mr.
Kelleher's offer letter, the board of directors granted to Mr. Kelleher an
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option to purchase 100,000 shares of common stock on January 26, 2000. Mr.
Kelleher's options will vest in full upon a change of control, as defined above
in the description of Ms. Brannon's offer letter.
We entered into an employment offer letter on January 24, 2000 with David
Karas, our Vice President, General Counsel and Secretary. This letter
established Mr. Karas' initial annual salary at $175,000 with a $10,000 signing
bonus. In connection with Mr. Karas' offer letter, the board of directors
granted to Mr. Karas an option to purchase 100,000 shares of common stock on
February 22, 2000. The offer letter also provided that the board of directors
would grant additional options to purchase 25,000 shares of common stock upon
attainment of criteria to be agreed upon by us and Mr. Karas. The criteria have
been determined and relate to required efforts to complete this offering and the
Series E preferred stock offering. Mr. Karas' options will vest in full upon a
change of control, as defined above in the description of Ms. Brannon's offer
letter.
EMPLOYEE BENEFITS PLANS
1996 Stock Option/Stock Issuance Plan. In December 1996, our board of
directors adopted the 1996 Stock Option/Stock Issuance Plan, which will
terminate no later than December 31, 2006. As of March 31, 2000, 3,754,350
shares of common stock were reserved for issuance under this plan. Of these
shares, 1,396,244 shares were subject to outstanding options at a weighted
average price of $0.18 per share and 2,358,106 were available for future grants.
Options have been granted by the board of directors so that they vest over
a four-year period from the date of grant, with 25% vesting one year from the
date of grant and the remaining options vesting on a pro rata basis over the
next 36 months. Options generally expire 10 years from the date of grant and
within some period after termination of employment, depending on the cause of
the termination. All canceled or expired options become available for future
grants. Plan participants may exercise options prior to vesting, although shares
issued upon the exercise of unvested options are subject to repurchase by us at
the original exercise price. The repurchase right expires on the same basis as
the vesting of the original stock option.
The plan authorizes the board of directors to grant incentive stock
options, as defined by the Internal Revenue Code of 1986, as amended, and
nonstatutory stock options. Upon the exercise of a vested nonstatutory stock
option, we generally are required to report the difference between the exercise
price and the fair value of the common stock on the date of exercise to the
employee and the Internal Revenue Service as compensation income and to withhold
income and payroll taxes on that compensation. The exercise of a vested
incentive stock option generally does not give rise to compensation income to
the employee for regular tax purposes, and we are not required to withhold
income and payroll taxes. However, the exercise of a vested incentive stock
option will result in alternative minimum taxable income to the extent the value
of shares on the exercise date exceeds the exercise price. If a participant
exercises an option prior to vesting and makes a special election, the exercise
results in consequences similar to those described above for vested options,
except that the value of the shares used to determine the employee's income and
our withholding obligation are determined without regard to our repurchase
right, and the participant will not receive a deduction for any income
recognized as a result of the election if the shares are later repurchased by us
at the original exercise price. If the special election is not made, the tax
consequences of exercise generally are determined at the time that our
repurchase right expires.
Incentive stock options may be granted only to our employees and those of
our subsidiary. Nonstatutory stock options may be granted to employees, employee
and non-employee directors and consultants. In accordance with the plan, the
exercise price of options granted cannot be less than 100% of the fair value of
the common stock on the date of grant for incentive stock options and cannot be
less than 85% of the fair value of the common stock for nonstatutory options. In
addition, under the Internal Revenue Code, the exercise price of an incentive
stock option generally may not be less than 100% of the fair market value of the
underlying stock on the date of grant, although a failure in an attempt, made in
good faith, to comply with this requirement will not disqualify the treatment of
an option as an incentive stock option. In addition, to the extent the fair
market value of stock with respect to which options, that otherwise would be
incentive stock options, first become exercisable in a single year exceeds
$100,000,
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options relating to the excess over $100,000 generally will be treated as
nonstatutory stock options. We are required to withhold taxes with respect to
the exercise of an option that is intended to be, but does not actually qualify
as, an incentive stock option, and would be liable for all taxes that we are
required to but do not withhold, and could also be liable for interest and
penalties relating to those taxes.
Shares subject to each outstanding option will automatically vest in full
and outstanding repurchase rights will automatically terminate at the time of a
corporate transaction. A corporate transaction is either (1) a merger or
consolidation in which more than 50% of the total combined voting power of our
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or (2)
the sale, transfer or other disposition of all or substantially all of our
assets in a complete liquidation or dissolution. However, the outstanding
options will not vest on such an accelerated basis if (1) such outstanding
options and the repurchase rights are assumed by the successor corporation; (2)
such options are replaced with a cash incentive program or (3) the acceleration
of such option is subject to other limitations imposed by the administrator at
the time of the option grant.
Options granted under the plan are not transferable by the optionee other
than by will or by the laws of descent and distribution. Each option is
exercisable during the lifetime of the optionee only by such optionee. Unless
the administrator determines otherwise, options granted under this plan must be
exercised within three months of the optionee's separation of service from us,
or within twelve months after such optionee's termination by death or
disability, but in no event no later than the expiration of the option's term.
The plan also authorizes the board of directors to issue shares for cash or
past services. The purchase price per share cannot be lower than 85% of the fair
market value of the common stock on the issue date. Shares may be fully and
immediately vested upon issuance or may vest on a schedule imposed by the
administrator, but such vesting schedule may not be more restrictive than 20%
per year vesting, with initial vesting to occur not later than one year after
the issuance date. Upon the occurrence of a corporate transaction, all
outstanding repurchase rights will terminate automatically, and the shares of
common stock subject to those terminated rights will immediately vest in full
unless (1) the repurchase rights are assigned to the successor corporation or
(2) such accelerated vesting is precluded by other limitations imposed by the
administrator at the time the repurchase right is issued.
Our board of directors may not amend or modify this plan if the amendment
or modification would impair any outstanding rights and obligations with respect
to options or unvested stock issuances unless we first obtain the prior consent
of all option holders or recipients of stock issuances who would be adversely
affected.
401(k) Plan. We sponsor a defined contribution plan intended to qualify
under Section 401(k) of the Internal Revenue Code. Under the plan, all employees
who are at least 18 years old are generally eligible to participate and may
enter the plan as of the first day of each calendar quarter. Participants may
elect to make pre-tax contributions up to 15% of their current compensation to
the 401(k) plan, subject to the statutorily prescribed annual limit.
Participants are fully vested in their contributions and the investment
earnings. The plan permits us to make discretionary matching contributions,
which are subject to a vesting schedule. To date, we have not made matching
contributions under the plan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION ON LIABILITY
Our certificate of incorporation that will be effective upon completion of
the offering limits the liability of directors to the fullest extent permitted
by Delaware law. Delaware law provides that directors of a corporation will not
be personally liable for monetary damages for breach of their fiduciary duties
as directors, expect liability for:
- breach of their duty of loyalty to the corporation or its stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under
the federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
Our bylaws that will be effective upon completion of the offering provide
that we shall indemnify our directors, officers, employees and other agents to
the fullest extent permitted by law. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the bylaws permit such indemnification. We currently maintain liability
insurance for our directors.
In addition to the indemnification provided for in our bylaws, we have
entered into indemnification agreements with each of our non-employee directors.
These agreements, among other things, provide for indemnification for certain
expenses, including attorney's fees, judgments, fines and settlement amounts
incurred by the indemnified party in any action or proceeding, including any
action by or in our right arising out of the indemnified party's services as a
director officer, employee, or agent of us or any of our subsidiaries. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
At present, there is no pending litigation or proceeding involving any of
our directors or officers in which indemnification is required or permitted, and
we are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
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CERTAIN TRANSACTIONS
The following is a description of transactions since our inception in
October 1996 to which we have been a party, in which the amount involved in the
transaction exceeded $60,000 and in which any director, executive officer or
holder of more than 5% of our capital stock had or will have a direct or
indirect material interest other than compensation arrangements that are
otherwise required to be described under "Management."
ISSUANCE OF COMMON STOCK
In December 1996, we issued 2,080,000 shares of our common stock to James
T. Roche and 2,080,000 shares of common stock to Matthew J.N.C. Roche for
$.00025 per share. The number of shares issued and the price per share in the
immediately preceding sentence have been adjusted to reflect a 4-for-1 split of
our common stock effected on November 22, 1999.
ISSUANCES OF PREFERRED STOCK
In April 1997, we sold an aggregate of 1,300,000 shares of our Series A
preferred stock at a purchase price of $.25 per share. In May 1997, we sold an
aggregate of 500,000 shares of our Series B preferred stock at a purchase price
of $.50 per share. In August 1998, we sold an aggregate of 787,236 shares of our
Series C preferred stock at purchase price of $1.0975 per share. From June 1999
to August 1999, we sold an aggregate of 6,511,500 shares of our Series D
preferred stock at a purchase price of $2.2025 per share. In April 2000, we sold
an aggregate of 3,426,411 shares of our Series E preferred stock at a purchase
price of $8.755 per share. With respect to the issuances of Series A, B, C and D
preferred stock, the number of shares issued and the price per share in this
paragraph have been adjusted to reflect a 4-for-1 split of our common stock
effected on November 22, 1999.
The following table summarizes, as of April 26, 2000, private placement
transactions of our preferred stock to, among others, the following directors,
executive officers, holders of more than 5% of our outstanding stock and members
of the immediate families of our directors, executive officers and holders of
more than 5% of our outstanding stock. You should refer to "Principal
Stockholders" for more detail on shares of our common stock held by these
purchasers and their affiliations with our directors and officers.
PREFERRED STOCK(1)
------------------------------------------------------
STOCKHOLDER SERIES A SERIES B SERIES C SERIES D SERIES E
- ----------- -------- -------- -------- --------- ---------
DIRECTORS, EXECUTIVE OFFICERS AND IMMEDIATE
FAMILY
MEMBERS
N. D'Arcy and Marilyn Roche.................. 200,000 176,320 150,548 11,422
Stephan Roche(2)............................. 22,780 9,112 2,284
Richard Kashnow.............................. 45,560 6,625
SF Partners XIV(3)........................... 296,128 96,252 37,032
Peggy Dunne(4)............................... 13,364
Dunbar Hoskins(5)............................ 5,711
5% STOCKHOLDERS
Baker Communications Fund, L.P.(6)........... 3,859,252 659,167
Entities Affiliated with Accel Partners(7)... 1,816,120 114,221
Entities Affiliated with Meritech Capital
Partners(8)................................ 2,284,409
Carruthers Family LLC........................ 800,000 200,000 400,056
- ---------------
(1) As adjusted to reflect the 4-for-1 split of our common stock effected on
November 22, 1999.
(2) Stephan Roche is brother to each of James T. Roche and Matthew J.N.C. Roche,
our Co-Chief Executive Officers and Co-Presidents, and son to N. D'Arcy
Roche, a member of our board of directors.
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(3) David Sanderson is a Managing Partner in SF Partners XIV, and he serves on
our board of directors.
(4) Peggy Dunne is the mother-in-law of Matthew J.N.C. Roche.
(5) Dunbar Hoskins is the father-in-law of James T. Roche.
(6) Edward Scott, a member of our board of directors, is a General Partner of
Baker Communications Fund, L.P.
(7) Accel VII L.P. purchased 1,367,536 Series D preferred shares, Accel Internet
Fund III L.P. purchased 285,132 Series D preferred shares and Accel
Investors '99 L.P. purchased 163,452 Series D preferred shares (as adjusted
to reflect the 4-for-1 split of our common stock effected on November 22,
1999).
(8) Meritech Capital Partners L.P. purchased 2,247,858 shares of Series E
preferred stock, and Meritech Capital Affiliates L.P. purchased 36,551
shares of Series E preferred stock.
LOANS TO EXECUTIVE OFFICERS
In February 2000, Kelyn J. Brannon, our Chief Financial Officer, entered
into a full-recourse promissory note for $66,000 in our favor as consideration
for her exercise of options to purchase 300,000 shares of our common stock. In
February 2000, Barbara J. Beasley, our Executive Vice President of People,
entered into a full-recourse promissory note for $88,000 in our favor as
consideration for her exercise of options to purchase 400,000 shares of our
common stock. The shares received upon the exercise of those options remain
subject to the right of repurchase as described in "Management -- Option Grants
in Last Fiscal Year."
Each promissory note bears interest at the lower of the prime rate as
announced from time to time by Bank of America, or the maximum rate of interest
permitted by law. The principal on each promissory note is due on or before the
earlier of: (1) February 2003; (2) the termination of such person's employment;
or (3) the sale by such person of shares of common stock received upon the
option exercise.
REORGANIZATION OF FORT POINT PARTNERS
Prior to the consummation of this offering, we reorganized Fort Point
Partners from a California corporation into a Delaware corporation. We also
created a two-tiered corporate structure with Fort Point Partners, the issuer of
the shares in this offering and a Delaware corporation, as the parent and Fort
Point Partners California, a California corporation, as its wholly-owned
subsidiary. In conjunction with our reorganization, each of the holders of
common stock, preferred stock, warrants and options of our California
predecessor received equivalent securities in the new Delaware corporation on a
one-for-one basis. Each holder of securities that were convertible or
exercisable into common stock of our California predecessor received equivalent
securities that are convertible into common stock in the new Delaware
corporation.
OPTIONS, CHANGE-OF-CONTROL AGREEMENTS AND INDEMNIFICATION AGREEMENTS
We have granted options to some of our directors and executive officers.
See "Management -- Option Grants in the last Fiscal Year,"
"Management -- Director Compensation" and "Principal Stockholders." We have also
entered into change-of-control agreements with certain executive officers and
indemnification agreements with our directors. See "Management -- Change of
Control and Severance Arrangements; Offer Letters" and
"Management -- Indemnification of Directors and Officers and Limitation On
Liability."
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of April 26, 2000, with respect to shares
beneficially owned by:
- each person known by us to own beneficially more than 5% of our
outstanding shares;
- each director and executive officer; and
- all directors and executive officers as a group.
The percentage of beneficial ownership for the following table is based on
22,041,582 shares of our common stock outstanding on April 26, 2000, assuming
the conversion of all outstanding shares of preferred stock and other
convertible securities into common stock. The percentage of beneficial ownership
after this offering also assumes shares of common stock outstanding
after completion of this offering and assumes no exercise of the underwriters'
option to purchase additional shares in the offering.
Unless otherwise indicated below, to our knowledge, all persons listed
below have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law.
The number of shares beneficially owned by each stockholder is determined
in accordance with the rules of the Securities and Exchange Commission and is
not necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes those shares of common stock that the
stockholder has sole or shared voting or investment power and any shares of
common stock that the stockholder has a right to acquire within 60 days after
April 26, 2000 through the exercise of any option, warrant or other right. The
percentage ownership of the outstanding common stock, however, is based on the
assumption, expressly required by the rules of the Securities and Exchange
Commission, that only the person or entity whose ownership is being reported has
converted options or warrants into shares of common stock. In general, options
to purchase our capital stock are exercisable in full, with the underlying
shares subject to repurchase rights that lapse as the shares vest. As a result,
the percentage of outstanding shares of any person as shown in the following
table does not necessarily reflect the person's actual voting power at any
particular date.
Unless otherwise indicated, the address of each person owning more than 5%
of our outstanding shares is c/o Fort Point Partners Inc., 111 Sutter Street,
San Francisco, CA 94104.
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
--------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------ ---------- ------- --------- -------
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS:
Baker Communications Fund, L.P.(1)................ 4,518,419 20.5% 4,518,419 %
Matthew J.N.C. Roche.............................. 2,440,000 11.1 2,440,000
James T. Roche.................................... 2,440,000 11.1 2,440,000
Entities affiliated with Meritech Capital
Partners(2)..................................... 2,284,409 10.4 2,284,409
Entities affiliated with Accel Partners(3)........ 1,930,341 8.8 1,930,341
Caruthers Family LLC(4)........................... 1,400,056 6.4 1,400,056
N. D'Arcy Roche(5)................................ 598,290 2.7 598,290
Barbara J. Beasley................................ 400,000 1.8 400,000
Kelyn J. Brannon.................................. 300,000 1.4 300,000
Jeffrey J. Held(6)................................ 300,000 1.3 300,000
Richard Kashnow(7)................................ 112,185 * 112,185
Michael P. Kelleher(8)............................ 100,000 * 100,000
Kathleen Kusek(9)................................. 100,000 * 100,000
David Sanderson(10)............................... 95,961 * 95,961
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SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
--------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------ ---------- ------- --------- -------
Scott Gilbertson(11).............................. 40,000 * 40,000
Executive Officers and Directors as a Group (11
persons)(12).................................... 6,926,436 31.4 6,926,436
- ---------------
* Less than one percent
(1) Represents shares issuable upon conversion of 4,518,419 shares of preferred
stock upon completion of this offering. Edward Scott, a member of our board
of directors, is a General Partner of Baker Communications Fund, L.P.
(2) Includes shares held by Meritech Capital Partners L.P. issuable upon
conversion of 2,247,858 shares of preferred stock upon completion of this
offering and shares held by Meritech Capital Affiliates L.P. issuable upon
conversion of 36,551 shares of preferred stock upon completion of this
offering.
(3) Includes shares held by Accel VII L.P. issuable upon conversion of
1,453,544 shares of preferred stock upon completion of this offering,
shares held by Accel Internet Fund III issuable upon conversion of 303,065
shares of preferred stock upon completion of this offering and shares held
by Accel Investors '99 L.P. issuable upon conversion of 173,732 shares of
preferred stock upon completion of this offering.
(4) Represents shares issuable upon conversion of 1,400,056 shares of preferred
stock upon completion of this offering.
(5) Represents shares issuable upon conversion of 538,290 shares of preferred
stock upon completion of this offering and 60,000 shares of common stock
subject to options that are exercisable or will become exercisable within
60 days of April 26, 2000.
(6) Represents 300,000 shares of common stock subject to options that are
exercisable or will become exercisable within 60 days of April 26, 2000.
(7) Includes shares issuable upon conversion of 52,185 shares of preferred
stock upon completion of this offering and 60,000 shares of common stock
subject to options that are exercisable or will become exercisable within
60 days of April 26, 2000.
(8) Represents 100,000 shares of common stock subject to options that are
exercisable or will become exercisable within 60 days of April 26, 2000.
(9) Includes 25,000 shares of common stock subject to options that are
exercisable or will become exercisable within 60 days of April 26, 2000.
(10) Represents shares issuable upon conversion of 35,961 shares of preferred
stock upon completion of this offering and 60,000 shares of common stock
subject to options that are exercisable or will become exercisable within
60 days of April 26, 2000.
(11) Represents 40,000 shares of common stock subject to options that are
exercisable or will become exercisable within 60 days of April 26, 2000.
(12) Includes the shares described in notes 5 through 11 above.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 60,000,000 shares of common stock, par value $0.001 per
share, and 20,000,000 shares of preferred stock, par value $0.001 per share. The
following description of our capital stock does not purport to be complete and
is subject to and qualified by our certificate of incorporation and bylaws,
which are included as exhibits to the Registration Statement of which this
prospectus is a part, and by the provisions of the applicable Delaware Law.
COMMON STOCK
As of April 26, 2000, assuming the conversion of all of our outstanding
preferred stock into 12,525,147 shares of common stock prior to the completion
of this offering, there were outstanding 22,041,582 shares of common stock held
of record by approximately 155 stockholders.
Voting Rights. Each holder of our common stock is entitled to one vote per
share on all matters to be voted on by the stockholders, including the election
of directors. We do not provide for cumulative voting in our certificate of
incorporation or in our bylaws.
Dividend Rights. Subject to the preferences that might be applicable to
any outstanding preferred stock, the holders of our common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the board of directors out of legally available funds.
Liquidation Rights. In the event of our liquidation, dissolution, or
winding up, the holders of our common stock are entitled to share in the assets
remaining after the payment of all of our liabilities and the satisfaction of
any liquidation preference granted to the holders of any outstanding shares of
our preferred stock.
Other Rights. Holders of our common stock have no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to our common stock. The rights, preferences and
privileges of the holders of our common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which we may designate and issue in the future.
PREFERRED STOCK
Upon the completion of this offering, our outstanding preferred stock will
convert automatically into 12,525,147 shares of our common stock, assuming that
each outstanding share of our Series A preferred stock, Series B preferred
stock, Series C preferred stock, Series D preferred stock and Series E preferred
stock will be converted into one share of our common stock.
Our board of directors has the authority, without further action by our
stockholders, to issue, from time to time, shares of our preferred stock in one
or more series. Our board of directors may fix the rights, preferences,
privileges and restrictions on any series of preferred stock, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, without further vote or action by the stockholders. The
preferences, powers, rights and restrictions of different series of preferred
stock may differ. Although the ability of our board of directors to designate
and issue preferred stock could provide flexibility in possible acquisitions or
other corporate purposes, issuance of preferred stock may have adverse effects
on the holders of our common stock such as making it more difficult for a third
party to acquire, or discouraging a third party from attempting to acquire, a
majority of the our outstanding voting stock, even if such an acquisition is
beneficial to the stockholders. The issuance of preferred stock could also
dilute the voting power of our common stock and negatively affect the other
rights of our common stock. After the completion of this offering, there will be
no shares of preferred stock outstanding, and we have no current plans to issue
any shares of preferred stock.
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WARRANTS
We have one outstanding warrant to purchase 3,600 shares of our common
stock at an exercise price of $.01 per share. The warrant, which expires on
January 30, 2010, vests over the one-year period ending on January 31, 2001 if
certain services are provided by the holder.
REGISTRATION RIGHTS
As of April 26, 2000, the holders of 12,525,147 shares of common stock
issuable upon conversion of the Series A, B, C, D and E preferred stock have the
right to cause us to register these shares under the Securities Act so that
those shares may be publicly traded. The description below regarding the
registration rights provided in our investor rights agreement is not complete
and is qualified by our investor rights agreement that is included as an exhibit
to the registration statement of which this prospectus is a part.
Right to Request Registration. At any time six months after this offering,
the holders of 60% of the common stock issued upon conversion of Series A, B, C,
D and E preferred stock, or the holders of 50% of the common stock issued upon
conversion of Series D preferred stock, or the holders of 50% of the common
stock issued upon conversion of Series E preferred stock, may request that we
register their shares with respect to all or part of their registrable
securities having aggregate gross proceeds exceeding $10,000,000.
In addition, if at any time we are eligible to file a registration
statement on Form S-3, the holders of 30% of the common stock issuable upon
conversion of the Series A, B, C, D and E preferred stock, the holders of 30% of
the common stock issuable upon conversion of the Series D preferred stock and
the holders of 30% of the common stock issuable upon conversion of the Series E
preferred stock, each have the right to request registrations on Form S-3 if we
have not already effected a registration within the past 12 months and if the
aggregate proceeds are at least $2,500,000.
Piggyback Registration Rights. The holders of common stock issuable upon
conversion of the Series A, B, C, D and E preferred stock may request to have
their shares registered any time that we file a registration statement to
register any of our securities for our own account or for the account of others
subject to a pro rata cutback to a minimum of 20% of any offering.
Expenses of Registration. We will pay all registration expenses, other
than underwriting discounts and commissions, in connection with any requested or
piggyback registration.
Termination of Registration Rights. These registration rights terminate
for each holder of such rights upon the earlier of: (1) five years after the
completion of this offering; or (2) the date when the holder may immediately
sell all shares of common stock received upon conversion of Series A, B, C, D
and E preferred stock under Rule 144 during any 90-day period.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, AND
BYLAWS AND OF DELAWARE LAW
Classified Board of Directors; Election and Removal of Directors. Our
bylaws divide our board of directors into three classes, as nearly equal in size
as possible, serving staggered three-year terms. Our certificate of
incorporation and bylaws also provide that directors may be removed only for
cause and only by the affirmative vote of at least 80% of the total number of
the then outstanding shares of capital stock entitled to vote in the election of
directors. Our certificate of incorporation and bylaws do not provide for
cumulation of stockholder votes in the election of directors. In addition, our
certificate of incorporation provides that any vacancy on the board of directors
resulting from the removal of a director, may only be filled by vote of a
majority of the directors then in office. The classification of the board of
directors and the limitations on the removal of directors and filling vacancies
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring control of us.
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Stockholder Action; Special Meeting of Stockholders. Our certificate of
incorporation and bylaws eliminate the ability of stockholders to act by written
consent. In addition, our bylaws provide that only our board of directors,
Chairman of the Board or either Co-President may call special meetings of our
stockholders. These provisions could have the effect of delaying actions that
are favored by some stockholders. These provisions may also discourage another
person from making a tender offer for our common stock, because that person,
even if it acquired a majority of our outstanding voting securities, would be
able to take action as a stockholder, such as electing new directors or
approving a merger, only at a duly called meeting of stockholders and not by
written consent.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder must give notice to our
Secretary not less than 90 days in advance of the annual meeting of stockholders
or, if later, within ten days after the date on which notice of the annual
meeting was made public. In addition, our bylaws specify certain requirements as
to the form and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting.
Authorized but Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
Amendments; Supermajority Vote Requirements. Our bylaws require the
approval of holders of at least 80% of the outstanding shares of stock entitled
to vote in order to adopt, amend or repeal the provisions of our certificate of
incorporation relating to special meetings of stockholders, action without a
meeting, advance notice of stockholder business, advance notice of stockholder
nominees and removal of directors.
Effect of Delaware Anti-Takeover Statute. We are subject to Section 203 of
the Delaware General Corporation Law which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years following the date that
the stockholder became an interested stockholder, unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder attained such status;
- upon the closing of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by at least two-thirds of the outstanding voting stock that
is not owned by the interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
SECTION 2115 OF THE CALIFORNIA GENERAL CORPORATION LAW
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, some provisions of California corporate law will
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apply to that company if more than 50% of its outstanding voting securities are
held of record by persons having addresses in California and the majority of the
company's operations occur in California. For example, while we are subject to
Section 2115, stockholders may cumulate votes in electing directors. Cumulative
voting allows each stockholder to vote the number of votes equal to the number
of candidates multiplied by the number of votes to which the stockholder's
shares are normally entitled in favor of one candidate and could potentially
facilitate minority stockholders electing some members of the board of
directors. When we are no longer subject to Section 2115, cumulative voting will
not be allowed and a holder of 50% or more of our voting stock will be able to
control the election of all directors. In addition to this difference, Section
2115 has the following additional effects:
- enables removal of directors with or without cause with majority
stockholder approval;
- places limitations on the distribution of dividends;
- extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of shares;
and
- provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2001 annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our 2001 annual meeting of
stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
Its telephone number is( ) - .
LISTING
We will apply to list our common stock on the Nasdaq National Market under
the trading symbol "FTPT."
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SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock, including shares
issued upon exercise of outstanding options and warrants, in the public market
after this offering could adversely affect the prevailing market price of our
common stock.
Upon completion of this offering, we will have shares of common
stock outstanding, based on shares outstanding at . Of these shares,
the shares sold in this offering will be freely tradable without
restriction under the Securities Act, unless purchased by our "affiliates," as
that term is defined in Rule 144 under the Securities Act. Substantially all
shares of our stock outstanding prior to this offering are subject to 180-day
lock-up agreements, and may not be sold in the public market prior to the
expiration of the lock-up agreements. Credit Suisse First Boston may release the
shares subject to the lock-up agreements in whole or in part at any time without
prior public notice. However, Credit Suisse First Boston has no current plans to
effect such a release. Upon the expiration of the lock-up agreements,
approximately additional shares will be available for sale in the
public market, subject in some cases to compliance with the volume and other
limitations of Rule 144.
RULE 144
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of our common stock (approximately
shares immediately after this offering); or
- the average weekly trading volume during the four calendar weeks
preceding such sale, subject to the filing of a Form 144 with respect to
the sale.
A person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
who has beneficially owned his or her shares for at least two years is entitled
to sell these shares pursuant to Rule 144(k) without regard to the limitations
described above. Affiliates must always sell pursuant to Rule 144, even after
the applicable holding periods have been satisfied.
We cannot estimate the number of shares that will be sold under Rule 144,
as this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of our
common stock in the open market may adversely affect the market price of our
common stock.
LOCK-UP AGREEMENTS
We and our directors, executive officers and substantially all of our
stockholders and holders of options have agreed pursuant to the underwriting
agreement and other agreements not to sell any of our common stock without the
prior consent of Credit Suisse First Boston until 180 days from the date of this
prospectus, except that we may, without such consent, grant options and sell
shares pursuant to our 1996 Stock Option/Stock Issuance Plan.
STOCK OPTIONS
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of our common stock that are subject to outstanding
options or reserved for issuance under our 1996 Stock Option/Stock Issuance Plan
within 180 days after the date of this prospectus, thus permitting the resale of
these shares by nonaffiliates in the public market without restriction under the
Securities Act.
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RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell those shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with some of the restrictions,
including the holding period, contained in Rule 144, upon the expiration of the
180-day lock-up period.
REGISTRATION RIGHTS
After this offering, the holders of 12,525,147 shares of our common stock
will be entitled to certain rights with respect to registration of such shares
under the Securities Act. Registration of these shares under the Securities Act
would result in these shares becoming freely tradable without restriction under
the Securities Act (except for shares purchased by our affiliates). See
"Description of Capital Stock -- Registration Rights."
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Deutsche Bank Securities Inc. and W.R. Hambrecht + Co., LLC are acting as
representatives, the following respective numbers of shares of common stock:
NUMBER
UNDERWRITER OF SHARES
----------- ---------
Credit Suisse First Boston Corporation......................
Deutsche Bank Securities Inc................................
W.R. Hambrecht + Co., LLC...................................
--------
Total..................................................
========
The underwriting agreement provides that the underwriters are obligated to
purchase all shares of common stock in the offering if any are purchased, other
than those shares covered by the over-allotment option described below. The
underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters and
selling group members may allow a discount of $ per share on sales to other
broker/dealers. After the initial public offering, the public offering price and
concession and discount to broker/dealers may be changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
Underwriting discounts and
commissions paid by us............. $ $ $ $
Expenses payable by us............... $ $ $ $
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any shares of our common stock or securities convertible into or exchangeable
or exercisable for any shares of our common stock, or publicly disclose the
intention to make any such offer, sale, pledge, disposition or filing, without
the prior written consent of Credit Suisse First Boston Corporation for a period
of 180 days after the date of this prospectus, except issuances pursuant to the
exercise of employee stock options outstanding on the date hereof and issuances
of additional options under our 1996 Stock Option/Stock Issuance Plan.
Our executive officers, directors and existing holders of our securities
have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of our
common stock, enter into a transaction which would have the same effect, or
enter into any swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our common stock, whether
any such aforementioned transaction is to be settled by delivery of our common
56
61
stock or such other securities, in cash or otherwise, or publicly disclose the
intention to make any such offer, sale, pledge or disposition, or to enter into
any such transaction, swap, hedge or other arrangement, without, in each case,
the prior written consent of Credit Suisse First Boston Corporation for a period
of 180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We will apply to list the shares of common stock on The Nasdaq Stock
Market's National Market.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
- estimates of our business potential.
We offer no assurances that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market following the offering or that an active trading market for the common
stock will develop and continue after the offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
A prospectus in electronic format will be made available on the Websites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
57
62
WR Hambrecht + Co is an online investment bank that has received an allocation
of shares of common stock in its capacity as an underwriter.
WR Hambrecht + Co is an investment banking firm formed as a limited
liability company in February 1998. In addition to this offering, WR
Hambrecht + Co has engaged in the business of public and private equity
investing and financial advisory services since its inception. The chairman and
chief executive officer of WR Hambrecht + Co, William R. Hambrecht, has 40 years
of experience in the securities industry.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, such purchaser is purchasing as principal and not as agent and
(iii) such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer, and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
58
63
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gibson, Dunn & Crutcher LLP, San Francisco, California. A limited liability
company composed of current and former partners of Gibson, Dunn & Crutcher LLP
who elected to invest in the limited liability company purchased and holds
11,422 shares of our Series E preferred stock that will convert into 11,422
shares of our common stock on the consummation of this offering. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Morrison & Foerster LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedule filed as part of the
registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedule filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to the copy of the contract
or document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. The registration statement, including exhibits and schedule, may
be inspected without charge at the principal office of the Securities and
Exchange Commission in Washington, D.C., and copies of all or any part of it may
be obtained from that office after payment of fees prescribed by the Securities
and Exchange Commission. The Securities and Exchange Commission maintains a
Website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission at http://www.sec.gov.
Upon completion of this offering, Fort Point Partners will become subject
to the information and periodic reporting requirements of the Securities
Exchange Act and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. These periodic reports, proxy
statements and other information will be available for inspection and copying at
the SEC's public reference rooms and the Website of the SEC referred to above.
We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and to
make available to our stockholders quarterly reports containing unaudited
consolidated interim financial data for the first three quarters of each year.
59
64
FORT POINT PARTNERS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1998 and 1999
and at March 31, 2000 (unaudited)......................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000 (unaudited)................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999 and for the
three months ended March 31, 1999 and 2000 (unaudited).... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000 (unaudited)................. F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
65
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Fort Point Partners Inc.
We have audited the accompanying consolidated balance sheets of Fort Point
Partners Inc. as of December 31, 1998 and 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Fort Point
Partners Inc. at December 31, 1998 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
San Francisco, California
March 3, 2000
except for Note 12,
as to which the date is
April 25, 2000, and
except for Note 13,
as to which the date is
May , 2000
The foregoing report is the form that will be signed upon the completion of
the reincorporation described in Note 13 to the financial statements.
/s/ ERNST & YOUNG LLP
San Francisco, California
April 25, 2000
F-2
66
FORT POINT PARTNERS INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, MARCH 31, EQUITY AT
----------------- --------- MARCH 31,
1998 1999 2000 2000
------ ------- --------- --------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 506 $ 7,643 $ 5,709
Accounts receivable, net of allowance of $8, $129 and $94
at December 31, 1998 and 1999 and March 31, 2000,
respectively............................................ 798 1,146 2,269
Unbilled receivables...................................... 66 395 160
Prepaid expenses.......................................... 155 198 391
Other current assets...................................... 19 10 3
------ ------- --------
Total current assets.................................... 1,544 9,392 8,532
Property and equipment, net................................. 149 2,737 3,820
Restricted cash............................................. -- 1,383 1,397
Other assets................................................ 47 644 622
------ ------- --------
Total assets............................................ $1,740 $14,156 $ 14,371
====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 43 $ 463 $ 1,325
Accrued expenses.......................................... 227 941 4,203
Accrued compensation...................................... 13 625 864
Revolving line of credit.................................. 500 -- --
Current portion of obligations under capital leases....... 23 233 258
Deferred revenue.......................................... 212 1,295 2,691
------ ------- --------
Total current liabilities............................... 1,018 3,557 9,341
Obligations under capital leases, net of current portion.... 36 371 372
------ ------- --------
1,054 3,928 9,713
Stockholders' equity:
Convertible preferred stock, $.001 par value;
authorized -- 20,000,000 shares at December 31,1999,
March 31, 2000 and pro forma; issued and
outstanding -- 2,587,236 at December 31, 1998 and
9,098,736 at December 31, 1999 and March 31, 2000 (none
pro forma); aggregate liquidation preference of $1,439,
$16,320, and $16,606 at December 31, 1998, 1999 and
March 31, 2000, respectively............................ 1,418 15,698 15,698
Common stock, $.001 par value; authorized -- 60,000,000
shares at December 31, 1999, March 31, 2000 and pro
forma; issued and outstanding -- 4,164,000, 5,119,362
and 9,429,650 (18,528,386 pro forma) at December 31,
1998, 1999 and March 31, 2000, respectively............. 4 5 9 $ 19
Additional paid in capital.................................. 131 4,151 21,932 37,620
Deferred stock-based compensation........................... (65) (3,172) (16,876) (16,876)
Receivables from stockholders............................... (238) -- (321) (321)
Accumulated deficit......................................... (564) (6,454) (15,784) (15,784)
------ ------- -------- --------
Total stockholders' equity.............................. 686 10,228 4,658 $ 4,658
------ ------- -------- ========
Total liabilities and stockholders' equity.............. $1,740 $14,156 $ 14,371
====== ======= ========
See accompanying notes.
F-3
67
FORT POINT PARTNERS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ ------------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
Revenue............................. $ 2,045 $ 2,489 $ 8,325 $ 1,224 $ 5,003
Operating expenses:
Professional services............. 620 1,037 4,875 584 2,527
Sales and marketing............... 62 425 2,451 214 4,041
General and administrative........ 1,021 1,768 6,150 500 4,386
Amortization of deferred
stock-based compensation....... 1 67 882 51 3,453
---------- ---------- ---------- ---------- -----------
Total operating expenses....... 1,704 3,297 14,358 1,349 14,407
---------- ---------- ---------- ---------- -----------
Operating income (loss)............. 341 (808) (6,033) (125) (9,404)
Other income (expense):
Interest income................... 8 13 228 3 89
Interest expense.................. -- (14) (84) (6) (14)
---------- ---------- ---------- ---------- -----------
Net income (loss) before income
taxes............................. 349 (809) (5,889) (128) (9,329)
Income tax expense (benefit)........ 139 (83) 1 -- 1
---------- ---------- ---------- ---------- -----------
Net income (loss)................... $ 210 $ (726) $ (5,890) $ (128) $ (9,330)
========== ========== ========== ========== ===========
Net income (loss) per common share:
Basic............................. $ 0.05 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== ========== ========== ===========
Diluted........................... $ 0.04 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== ========== ========== ===========
Weighted average shares used in
computing net income (loss) per
common share:
Basic............................. 4,160,000 4,162,181 4,693,086 4,642,790 4,905,134
========== ========== ========== ========== ===========
Diluted........................... 5,461,682 4,162,181 4,693,086 4,642,790 4,905,134
========== ========== ========== ========== ===========
Pro forma basic and diluted net loss
per common share.................. $ (0.67)
===========
Weighted average shares used in
computing pro forma net loss per
common share...................... 14,003,870
===========
See accompanying notes.
F-4
68
FORT POINT PARTNERS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED RECEIVABLES
------------------- ------------------ PAID IN STOCK-BASED FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS
--------- ------- --------- ------ ---------- ------------ ------------
Balance at January 1, 1997....... -- -- 4,160,000 $4 $ (2) $ -- $ --
Issuance of Series A preferred
stock, net of issuance costs
of $14....................... 1,300,000 $ 311 -- -- -- -- --
Issuance of Series B preferred
stock, net of issuance costs
of $2........................ 500,000 248 -- -- -- -- --
Deferred stock-based
compensation................. -- -- -- -- 3 (3) --
Amortization of deferred stock-
based compensation........... -- -- -- -- -- 1 --
Net income..................... -- -- -- -- -- -- --
--------- ------- --------- -- ------- -------- -----
Balance at December 31, 1997..... 1,800,000 559 4,160,000 4 1 (2) --
Issuance of Series C preferred
stock, net of issuance costs
of $5........................ 787,236 859 -- -- -- -- (238)
Issuance of common stock upon
exercise of stock options.... -- -- 4,000 -- -- -- --
Deferred stock-based
compensation................. -- -- -- -- 130 (130) --
Amortization of deferred stock-
based compensation........... -- -- -- -- -- 67 --
Net loss....................... -- -- -- -- -- -- --
--------- ------- --------- -- ------- -------- -----
Balance at December 31, 1998..... 2,587,236 1,418 4,164,000 4 131 (65) (238)
Payment of receivables from
stockholders................. -- -- -- -- -- -- 238
Issuance of Series D preferred
stock, net of issuance costs
of $62....................... 6,511,500 14,280 -- -- -- -- --
Issuance of common stock upon
exercise of stock options.... -- -- 955,362 1 31 -- --
Deferred stock-based
compensation................. -- -- -- -- 3,989 (3,989) --
Amortization of deferred stock-
based compensation........... -- -- -- -- -- 882 --
Net loss....................... -- -- -- -- -- -- --
--------- ------- --------- -- ------- -------- -----
Balance at December 31, 1999..... 9,098,736 15,698 5,119,362 5 4,151 (3,172) --
Issuance of common stock upon
exercise of stock options
(unaudited).................. -- -- 4,310,288 4 624 -- (321)
Deferred stock-based
compensation (unaudited)..... -- -- -- -- 17,157 (17,157) --
Amortization of deferred
stock-based compensation
(unaudited).................. -- -- -- -- -- 3,453 --
Net loss (unaudited)........... -- -- -- -- -- -- --
--------- ------- --------- -- ------- -------- -----
Balance at March 31, 2000
(unaudited).................... 9,098,736 $15,698 9,429,650 $9 $21,932 $(16,876) $(321)
========= ======= ========= == ======= ======== =====
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
----------- -------------
Balance at January 1, 1997....... $ (48) $ (46)
Issuance of Series A preferred
stock, net of issuance costs
of $14....................... -- 311
Issuance of Series B preferred
stock, net of issuance costs
of $2........................ -- 248
Deferred stock-based
compensation................. -- --
Amortization of deferred stock-
based compensation........... -- 1
Net income..................... 210 210
-------- -------
Balance at December 31, 1997..... 162 724
Issuance of Series C preferred
stock, net of issuance costs
of $5........................ -- 621
Issuance of common stock upon
exercise of stock options.... -- --
Deferred stock-based
compensation................. -- --
Amortization of deferred stock-
based compensation........... -- 67
Net loss....................... (726) (726)
-------- -------
Balance at December 31, 1998..... (564) 686
Payment of receivables from
stockholders................. -- 238
Issuance of Series D preferred
stock, net of issuance costs
of $62....................... -- 14,280
Issuance of common stock upon
exercise of stock options.... -- 32
Deferred stock-based
compensation................. -- --
Amortization of deferred stock-
based compensation........... -- 882
Net loss....................... (5,890) (5,890)
-------- -------
Balance at December 31, 1999..... (6,454) 10,228
Issuance of common stock upon
exercise of stock options
(unaudited).................. -- 307
Deferred stock-based
compensation (unaudited)..... -- --
Amortization of deferred
stock-based compensation
(unaudited).................. -- 3,453
Net loss (unaudited)........... (9,330) (9,330)
-------- -------
Balance at March 31, 2000
(unaudited).................... $(15,784) $ 4,658
======== =======
See accompanying notes.
F-5
69
FORT POINT PARTNERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1997 1998 1999 1999 2000
----- ----- ------- ----- -------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 210 $(726) $(5,890) $(128) $(9,330)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 54 79 263 29 231
Amortization of deferred stock-based compensation.... 1 67 882 51 3,453
Deferred income taxes................................ 35 (3) -- -- --
Changes in operating assets and liabilities:
Accounts receivable.................................. (410) (372) (348) (125) (1,123)
Unbilled receivables................................. (196) 130 (329) 21 235
Prepaid expenses and other current assets............ (15) (158) (34) 21 (186)
Other assets......................................... (35) (12) (597) 12 22
Accounts payable..................................... (25) (9) 420 228 862
Accrued expenses and accrued compensation............ 87 88 1,326 96 3,501
Deferred revenue..................................... 96 116 1,083 (132) 1,396
----- ----- ------- ----- -------
Net cash provided by (used in) operating activities.... (198) (800) (3,224) 73 (939)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..................... (140) (52) (2,242) (61) (1,216)
----- ----- ------- ----- -------
Cash used in investing activities...................... (140) (52) (2,242) (61) (1,216)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit................. -- 500 995 -- --
Principal payments on revolving line of credit......... -- -- (1,495) (500) --
Restricted cash........................................ -- -- (1,383) -- (14)
Principal payments on capital lease obligations........ (1) (13) (64) (6) (72)
Proceeds from issuance of convertible preferred
stock................................................ 559 621 14,280 -- --
Proceeds from exercises of common stock options........ -- -- 32 3 307
Payment of receivables from stockholders............... -- -- 238 191 --
----- ----- ------- ----- -------
Net cash provided by (used in) financing activities.... 558 1,108 12,603 (312) 221
Net increase (decrease) in cash and cash equivalents... 220 256 7,137 (300) (1,934)
Cash and cash equivalents at beginning of period....... 30 250 506 506 7,643
----- ----- ------- ----- -------
Cash and cash equivalents at end of period............. $ 250 $ 506 $ 7,643 $ 206 $ 5,709
===== ===== ======= ===== =======
Supplemental disclosures of cash flows information:
Cash paid for interest............................... $ -- $ 13 $ 84 $ -- $ 13
===== ===== ======= ===== =======
Cash paid for income taxes........................... $ 80 $ 9 $ 11 $ 80 $ 9
===== ===== ======= ===== =======
Non-cash investing and financing activities:
Acquisition of equipment under capital lease
obligations....................................... $ 8 $ 65 $ 609 $ 16 $ 97
===== ===== ======= ===== =======
Stock issued for receivables from stockholders....... $ -- $ 238 $ -- $ -- $ 321
===== ===== ======= ===== =======
See accompanying notes.
F-6
70
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
1. ORGANIZATION AND BUSINESS
Fort Point Partners Inc. ("Fort Point" or the "Company"), was originally
incorporated as Powerhouse Data Corp. on October 30, 1996. The Company changed
its name to Fort Point Partners Inc. on December 2, 1996. The Company is an
Internet consulting firm that provides strategy, technology and program
management services.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND USE OF ESTIMATES
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States that require
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. These estimates are based on
information available as of the date of the financial statements. Actual results
could differ from those estimates.
On November 22, 1999 the Company effected a four-for-one split of its
outstanding shares of common stock. All share and per share information included
in the consolidated financial statements prior to that date have been
retroactively adjusted to reflect this stock split.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying financial statements at March 31, 2000 and for the three
months ended March 31, 1999 and 2000 are unaudited but include all adjustments
(consisting of normal recurring accruals) which, in the opinion of management,
are necessary for a fair statement of the financial position and the operating
results and cash flows for the interim date and periods presented. Results for
the interim period ended March 31, 2000 are not necessarily indicative of
results for the entire fiscal year or future periods.
CONCENTRATION OF CREDIT RISK
The Company extends credit to customers based on an evaluation of their
financial condition. The Company performs ongoing credit evaluations of its
customers and maintains an allowance for doubtful accounts. There has been no
revenue derived from customers outside the United States. At December 31, 1998
and 1999, three customers accounted for 61% and 47% of total accounts
receivable, respectively. In the years ended December 31, 1997, 1998 and 1999,
four customers, two customers and two customers accounted for 63%, 38% and 22%,
respectively, of the Company's revenues.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and investments in a money market
fund. The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of a deposit on a lease for office space.
F-7
71
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to the short-term
maturity of these instruments. Fair values are based on quoted market prices and
assumptions concerning the amount and timing of estimated future cash flows and
assumed discount rates reflecting varying degrees of perceived risk. Based upon
borrowing rates currently available to the Company for obligations with similar
terms, the carrying values of debt and capital lease obligations approximate
fair value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful lives of the related assets
ranging from two to five years. Leasehold improvements and equipment under
capital leases are amortized over the lease term or estimated useful lives,
whichever is shorter. Repairs and maintenance costs are charged to expense when
incurred.
The Company has adopted Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use."
Capitalized internal use software costs with an expected useful life in excess
of one year are amortized on a straight-line basis over their estimated useful
lives. Internal use software costs, which are subject to continual and
substantial change, including Website development costs, are expensed as
incurred. Costs to maintain and add minor feature upgrades to the Company's
internally-developed software and Website are expensed as incurred.
REVENUE RECOGNITION
Revenue is recognized using the percentage-of-completion method of
accounting for fixed-price projects. Revenue for each project is recognized
based on the percentage of total billable hours incurred to date times standard
hourly billing rates divided by the total estimated contractual revenue to be
earned on a project. This method approximates a cost incurred to date to total
estimated project cost method. Revenue from time and materials contracts is
recognized as billable hours are incurred at agreed-upon hourly billing rates.
Deposits received in advance of performing services are recorded as
deferred revenue. Amounts billed in excess of recognized revenue are also
recorded as deferred revenue. Revenues recognized in excess of amounts billed
are recorded as unbilled receivables.
Provisions for losses on uncompleted contracts are recorded when it is
probable that costs to complete a project will exceed total project revenue and
the amount of the loss can be reasonably estimated.
ADVERTISING EXPENSES
The Company expenses the cost of advertising and promoting its services as
incurred. Advertising costs, which are included in sales and marketing, were
approximately $10, $2 and $100 for the years ended December 31, 1997, 1998 and
1999, respectively.
F-8
72
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
SEGMENT REPORTING
The Company operates in one reportable segment under SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." The
Company conducts business in one operating segment, which has been determined by
the Company's management based upon how the business is managed and the results
of operations are reported.
NET INCOME (LOSS) PER SHARE
The Company computes basic and diluted net income (loss) per share in
accordance with SFAS No. 128, "Earnings Per Share," and SEC Staff Accounting
Bulletin ("SAB") No. 98. Under the provisions of SFAS No. 128 and SAB No. 98,
basic net income (loss) per share is computed by dividing net income (loss)
available to common stockholders for the period by the weighted average number
of common shares outstanding during the period. Diluted net income per share is
computed by dividing net income available to common stockholders for the period
by the weighted average number of common and common equivalent shares
outstanding during the period. For those periods in which the Company has
incurred a net loss, diluted net loss per share is equivalent to basic net loss
per share since the assumed exercise of the Company's stock options and the
assumed conversion of the Company's preferred stock would be anti-dilutive and,
accordingly, have been excluded from the calculation.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert to common shares upon completion of the Company's initial public
offering, using the if-converted method.
COMPREHENSIVE INCOME (LOSS)
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires that an enterprise report and display, by major components and as
a single total, the change in its net assets during the period from non-owner
sources. For the three years ending December 31, 1999 and the three months
ending March 31, 1999 and 2000, there was no difference between the Company's
comprehensive income (loss) and its net income (loss).
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but
does not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Under APB No. 25, compensation expense
is based on the difference, if any, on the
F-9
73
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
date of grant between the fair value of the Company's common stock and the
exercise price of the options to purchase that stock. The Company complies with
the disclosure provisions of SFAS No. 123.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and if so, the type of
hedge transaction. The Company must adopt SFAS No. 133 on January 1, 2001.
Management does not currently expect the adoption of SFAS No. 133 will have any
impact on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff issued SAB
No. 101, "Revenue Recognition in Financial Statements." The SAB identifies four
basic criteria that must be met before revenue can be recognized. These criteria
are (a) persuasive evidence that an arrangement exists; (b) delivery has
occurred or services have been rendered; (c) the seller's price to the buyer is
fixed or determinable; and (d) collectibility is reasonably assured. The Company
has early adopted the SAB and its revenue recognition policies are in accordance
with its provisions.
In March 2000, the Emerging Issues Task Force issued EITF Abstract No.
00-2, "Accounting for Web Site Development Costs," which addresses the
accounting for costs incurred to develop a Website. The Abstract is effective
for fiscal quarters beginning after June 30, 2000. The Company does not expect
adoption of the Abstract to have a significant impact on its results of
operations or financial position.
3. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Details of property and equipment are as follows:
DECEMBER 31,
---------------
1998 1999
----- ------
Computer hardware........................................... $ 191 $ 956
Leasehold improvements...................................... 37 1,278
Furniture and equipment..................................... 49 424
Computer software........................................... 6 233
Construction in progress.................................... -- 243
----- ------
283 3,134
Less accumulated depreciation and amortization.............. (134) (397)
----- ------
$ 149 $2,737
===== ======
Included in the above is equipment acquired under capital lease obligations
of $73 and $683 at December 31, 1998 and 1999, respectively. Accumulated
amortization on equipment acquired under capital lease obligations was $14 and
$21 as of December 31, 1998 and 1999, respectively.
F-10
74
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
4. ACCRUED EXPENSES
Details of accrued expenses that, on an individual basis, exceed five
percent of total current liabilities are as follows:
DECEMBER 31,
------------
1998 1999
---- ----
Professional fees........................................... $144 $445
Accrual for loss contracts.................................. 70 --
Other....................................................... 13 496
---- ----
$227 $941
==== ====
5. DEBT
On May 11, 1998, the Company entered into a Loan and Security Agreement
(the "Agreement") with a financial institution, which allows the Company to
borrow the lesser of the amount committed under a revolving line of credit or a
borrowing base (80% of eligible accounts as defined by the Agreement). The
committed amount available to the Company under the Agreement was $1,000. The
Agreement expired on May 10, 1999. A loan modification was entered into on May
10, 1999, which included an increase in the amount available to the Company
under the revolving line of credit to $1,250 with a sub-limit for letters of
credit of $300. The maturity date of the amended Agreement is May 10, 2000. At
December 31, 1999, a letter of credit of $1,660 was outstanding related to a
lease for office space. The letter of credit was supported by restricted cash
and the $300 sub-limit under the revolving line of credit. Interest is payable
monthly at the prime rate plus 0.5% (8.75% and 9.50% at December 31, 1998 and
1999, respectively). Borrowings under the revolving line of credit are
collateralized by substantially all of the assets of the Company. Additionally,
the Agreement contains certain covenants, limitations and restrictions. Under
the terms of the Agreement, the Company is prohibited from paying dividends to
shareholders.
6. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company is authorized under its articles of incorporation to issue
20,000,000 shares of convertible preferred stock as of December 31, 1999 and
March 31, 2000. The convertible preferred shares outstanding and related
liquidation preference by series of preferred stock are summarized in the
following table:
AGGREGATE LIQUIDATION PREFERENCE
--------------------------------
SHARES ISSUED AND DIVIDEND RATE DECEMBER 31, MARCH 31,
SERIES OUTSTANDING PER SHARE 1999 2000
- ------ ----------------- ------------- ------------ ---------
A 1,300,000 $0.0200 $ 325 $ 325
B 500,000 0.0400 250 250
C 787,236 0.0875 864 864
D 6,511,500 0.1750 14,881 15,167
--------- ------- -------
9,098,736 $16,320 $16,606
========= ======= =======
F-11
75
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
6. STOCKHOLDERS' EQUITY (CONTINUED)
CONVERSION
Each share of convertible preferred stock is convertible into one share of
common stock subject to certain anti-dilution adjustments. All issued and
outstanding shares of convertible preferred stock automatically convert into
common stock upon approval by a majority of the then outstanding preferred
stockholders voting as a class and a majority of then outstanding Series D
preferred stockholders. Outstanding convertible preferred shares also
automatically convert into common shares in the event of an initial public
offering with a per share price of not less than $6.61 and aggregate proceeds of
at least $10 million.
LIQUIDATION PREFERENCE
In the event of liquidation, Series A, B, C and D preferred stockholders
are entitled to receive their original investment. Series D preferred
stockholders are entitled to an additional 8% per annum on their original
investment.
DIVIDENDS
Series A, B, C and D preferred stockholders are entitled to receive
non-cumulative dividends at the rates indicated above when and if declared by
the board of directors.
The Series D preferred stock is senior, with respect to dividend
distributions and distributions upon a liquidation, to the common stock and
other series of convertible preferred stock.
VOTING RIGHTS
Holders of Series A, B, C and D convertible preferred stock have the right
to one vote for each share of common stock into which such shares of convertible
preferred stock can be converted.
7. STOCK OPTIONS
In December 1996, the Company adopted the 1996 Stock Option/Stock Issuance
Plan (the "Plan") that authorizes the board of directors to grant incentive
stock options, as defined by the Internal Revenue Code and nonstatutory stock
options. Incentive stock options may be granted only to Company employees.
Nonstatutory stock options may be granted to employees, directors, outside
directors and consultants. Upon the exercise of nonstatutory stock options, the
Company is required to include the difference between the estimated fair value
and the exercise price of the common stock on the date of exercise in the
employee's compensation and to withhold income and payroll taxes on that
compensation. The exercise of incentive stock options does not give rise to
compensation to the employee or obligate the Company to withhold taxes. To the
extent the fair value of stock issuable upon the exercise of incentive stock
options exceeds $100,000 in any single year, the excess over $100,000 is
generally treated as nonstatutory stock options. The maximum number of shares of
common stock, which may be issued over the term of the Plan, as amended by the
board of directors, cannot exceed 6,524,000 and 9,024,000 shares as of December
31, 1999 and March 31, 2000, respectively.
The options generally vest over a four year period from the date of grant;
25% vest after one year from the date of grant, with the remaining options
vesting on a pro rata basis over the next 36 months. Options generally expire
ten years from the date of grant; however, in the case of a stock option granted
to
F-12
76
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
7. STOCK OPTIONS (CONTINUED)
a person owning more than 10% of the combined voting power of all classes of the
Company's stock, the term of the option will be five years from the date of the
grant. All canceled or expired options become available for future grants. Plan
participants may exercise options prior to vesting. Shares issued from the
exercise of unvested options are subject to repurchase by the Company at the
original exercise price. The repurchase right expires on the same basis as the
vesting of the original stock option.
In accordance with the Plan, the stated exercise price of options granted
cannot be less than 100% and 85% of the estimated fair value of the common stock
on the date of grant for incentive stock options and nonstatutory options,
respectively. The exercise price of a stock option granted to a more than 10%
percent shareholder cannot be less than 110% of the estimated fair value of the
common stock on the date of grant. The estimated fair value of the common stock
is determined in good faith by the board of directors at each grant date and may
be subject to review by tax authorities. Differences, if any, between the
estimated fair value as determined by the board of directors and tax authorities
may subject the Company to liability for tax withholding with respect to the
exercise of nonstatutory options and options that are intended to be, but do not
qualify as, incentive stock options, as well as interest and penalties relating
to those taxes.
As discussed in Note 2, the Company accounts for the Plan in accordance
with APB No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. In connection with certain stock grants, the Company recognized
deferred compensation that is being amortized over the vesting period of the
options using the graded method. The company recorded deferred compensation
expense of $3, $130, and $3,989 in each of the years in the three year period
ending December 31, 1999. Amortization of deferred stock-based compensation
expense in each of the years ending December 31, 1997, 1998 and 1999,
respectively, was $1, $67 and $882 for options granted to employees where the
estimated fair value of the stock for accounting purposes exceeded the exercise
price of the option at the grant date.
The following table summarizes activity under the Plan:
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------------- ---------------------------- -----------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- ---------- ----------------
Options outstanding at
beginning of year....... 766,400 $0.00025 1,121,200 $0.00039 2,418,532 $0.03476
Granted................... 354,800 $0.00070 1,544,000 0.05373 3,680,200 0.15078
Canceled.................. -- -- (242,668) 0.00275 (1,002,548) 0.10368
Exercised................. -- -- (4,000) 0.00025 (1,100,867) 0.03155
--------- -------- --------- -------- ---------- --------
Options outstanding at end
of period............... 1,121,200 $0.00039 2,418,532 $0.03476 3,995,317 $0.12465
========= ======== ========= ======== ========== ========
Options vested at end of
period.................. 163,156 $0.00025 545,160 $0.00036 1,421,899 $0.02639
========= ======== ========= ======== ========== ========
MARCH 31, 2000
-----------------------------
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
---------- ----------------
Options outstanding at
beginning of year....... 3,995,317 $0.12465
Granted................... 1,786,000 0.22000
Canceled.................. (74,785) 0.20547
Exercised................. (4,310,288) 0.14494
---------- --------
Options outstanding at end
of period............... 1,396,244 $0.17965
========== ========
Options vested at end of
period.................. 451,912 $0.06188
========== ========
F-13
77
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
7. STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
under the Plan, as of December 31, 1999:
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE VESTED PRICE
-------------- ----------- ----------- -------- ----------- -------- --------- --------
$0.00025 - $0.0025 133,834 7.02 $0.00025 133,834 $0.00025 709,346 $0.00033
$0.005 - $0.11 2,620,483 8.91 $0.08585 2,620,483 $0.08585 712,553 0.05233
$0.22 1,241,000 9.80 $ 0.22 1,241,000 $ 0.22 -- --
--------- --------- ---------
3,995,317 3,995,317 1,421,899
========= ========= =========
As of December 31, 1997, 1998 and 1999, 318,800, 1,017,468 and 1,569,321
shares, respectively, were available for future stock option grants under the
Plan. As of March 31, 2000, there were 2,358,106 shares available for future
grant. During the year ended December 31, 1999, 145,505 exercised unvested
shares were repurchased from Plan participants and are included in the shares
available for future stock option grants.
The weighted-average fair value of Plan options granted was $0.008, $0.129
and $1.219 for the years ended December 31, 1997, 1998 and 1999, respectively.
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
1997 1998 1999
----------- ----------- -----------
Risk-free interest rate range....................... 5.8% - 6.5% 4.5% - 5.6% 4.6% - 6.1%
Expected lives (years).............................. 4 4 4
Expected dividend yields............................ 0% 0% 0%
Expected volatility................................. 80% 80% 80%
Had compensation cost for the Company's stock options been determined using
the fair value at the grant dates for awards under the Plan, the Company's net
income (loss) and net income (loss) per share would have been as follows:
1997 1998 1999
----- ------ -------
Net income (loss) -- as reported............................ $ 210 $ (726) $(5,890)
===== ====== =======
Net income (loss) -- pro forma.............................. $ 210 $ (763) $(6,311)
===== ====== =======
Basic net income (loss) per common share -- as reported..... $0.05 $(0.17) $ (1.26)
===== ====== =======
Basic net income (loss) per common share -- pro forma....... $0.05 $(0.18) $ (1.34)
===== ====== =======
Diluted net income (loss) per common share -- as reported... $0.04 $(0.17) $ (1.26)
===== ====== =======
Diluted net income (loss) per common share -- pro forma..... $0.04 $(0.18) $ (1.34)
===== ====== =======
F-14
78
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
8. INCOME TAXES
The Company's income tax provisions (benefit) for the years ended December
31, 1997, 1998 and 1999 are as follows:
DECEMBER 31,
------------------------
1997 1998 1999
---- ----- -------
Current:
Federal................................................... $ 81 $ (81) $ --
State..................................................... 23 1 1
---- ----- -------
104 (80) 1
Deferred:
Federal................................................... 25 (141) (1,617)
State..................................................... 10 (64) (211)
---- ----- -------
35 (205) (1,828)
---- ----- -------
139 (285) (1,827)
Change in valuation allowance............................... -- 202 1,828
---- ----- -------
$139 $ (83) $ 1
==== ===== =======
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense for the
years ended December 31, 1997, 1998 and 1999 are as follows:
DECEMBER 31,
----------------------
1997 1998 1999
---- ----- -----
Tax at U.S. statutory rate........................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit........... 6.2 5.0 2.2
Change in valuation allowance........................ -- (24.3) (29.2)
Meals and entertainment.............................. 0.7 (0.7) (0.2)
Non-deductible stock-based compensation.............. -- (3.6) (6.8)
Other................................................ (1.1) (0.4) --
---- ----- -----
39.8% 10.0% --%
==== ===== =====
Deferred tax assets and liabilities are determined based on differences
between financial reporting and the tax basis of assets and liabilities and are
measured using the effective tax rates and regulations that
F-15
79
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
8. INCOME TAXES (CONTINUED)
will be in effect when the differences are expected to reverse. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1998 and 1999 are as follows:
DECEMBER 31,
----------------
1998 1999
----- -------
Deferred tax assets:
Accruals and reserves................................... $ 88 $ 328
Net operating loss carryforward......................... 37 2,011
Fixed assets and intangibles............................ 23 --
Other................................................... 75 11
----- -------
Total deferred tax assets....................... 223 2,350
Valuation allowance....................................... (202) (2,030)
----- -------
Net deferred tax assets................................... 21 320
Deferred tax liabilities:
Fixed assets and intangibles............................ -- (29)
Other................................................... (21) (291)
----- -------
Total deferred tax liabilities.................. (21) (320)
----- -------
Net deferred tax assets................................... $ -- $ --
===== =======
The valuation allowance increased by $202 and $1,828 in the years ended
December 31, 1998 and 1999, respectively.
As of December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $5,180, which expire beginning
in the tax year 2018. The Company also has net operating loss carryforwards for
state income tax purposes of approximately $2,830, which expire beginning in tax
year 2004.
Because of the "change in ownership" provisions of the Internal Revenue
Code, a portion of the Company's net operating loss carryforwards may be subject
to an annual limitation regarding their utilization against taxable income in
future periods. As a result of the annual limitation, a portion of these
carryforwards may expire before ultimately becoming available to reduce future
income tax liabilities.
9. 401(k) SAVINGS PLAN
In April 1997, the Company established a defined contribution plan
authorized under Section 401(k) of the Internal Revenue Code. All
benefits-eligible employees are eligible to participate in the plan. Employees
may contribute up to 15 percent of their pre-tax covered compensation through
salary deductions. The Company does not provide a match of contributions to the
plan.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space and office equipment under non-cancelable
operating and capital leases with initial or remaining terms of one year or
more. Total rent expense under operating leases was
F-16
80
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
$62, $99 and $574 for the years ended December 31, 1997, 1998 and 1999,
respectively. The future minimum lease payments under all lease arrangements are
as follows:
OPERATING CAPITAL
YEARS ENDING DECEMBER 31, LEASES LEASES
------------------------- --------- -------
2000...................................................... $ 1,526 $296
2001...................................................... 1,821 289
2002...................................................... 1,835 118
2003...................................................... 1,905 --
2004...................................................... 1,919 --
Thereafter................................................ 6,960 --
------- ----
Total minimum lease payments........................... $15,966 703
=======
Less amount representing interest......................... 99
----
Present value of minimum lease payments................... 604
Less current portion of capital leases.................... 233
----
Long-term obligations under capital leases................ $371
====
11. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing the net income
(loss) per share by the weighted average number of common shares outstanding for
the period. Diluted net income (loss) per share reflects the potential dilution
of securities by adding other common stock equivalents, including stock options
and convertible preferred stock, in the weighted average number of common shares
outstanding for a period, if dilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred stock not included above that will automatically convert
upon the completion of the Company's initial public offering, using the if-
converted method.
F-17
81
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
11. NET INCOME (LOSS) PER SHARE (CONTINUED)
The calculation of historical and pro forma basic and diluted net income
(loss) per share is as follows:
DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1997 1998 1999 1999 2000
---------- ---------- ----------- ---------- -----------
Historical:
Net income (loss).......................... $ 210 $ (726) $ (5,890) $ (128) $ (9,330)
========== ========== =========== ========== ===========
Net income (loss) per common share:
Basic.................................... $ 0.05 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== =========== ========== ===========
Diluted.................................. $ 0.04 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== =========== ========== ===========
Weighted average shares of common stock
outstanding used in computing net income
(loss) per common share:
Basic.................................. 4,160,000 4,162,181 4,693,086 4,642,790 4,905,134
========== ========== =========== ========== ===========
Diluted................................ 5,461,682 4,162,181 4,693,086 4,642,790 4,905,134
========== ========== =========== ========== ===========
Pro forma:
Net loss................................... $ (5,890) $ (9,330)
=========== ===========
Pro forma net basic and diluted net loss
per common share......................... $ (0.57) $ (0.67)
=========== ===========
Weighted average shares of common stock
used in computing basic and diluted net
loss per common share.................... 4,693,086 4,905,134
=========== ===========
Adjustment to reflect the effect of the
assumed conversion of preferred stock.... 5,686,367 9,098,736
=========== ===========
Weighted average shares of common stock
used in computing pro forma net loss per
common share............................. 10,379,453 14,003,870
=========== ===========
If the Company had reported net income, the calculation of historical
diluted earnings per share would have included an additional 2,104,110,
5,686,367, 2,587,236 and 9,098,736 common equivalent shares related to the
conversion of preferred shares using the if-converted method for the years ended
December 31, 1998 and 1999 and for the three months ended March 31, 1999 and
2000, respectively. Additionally, if the Company had reported net income, the
calculation of diluted earnings per share would have included an additional
483,021, 1,131,593, 1,673,890 and 519,252 common equivalent shares related to
the exercise of stock options for the years ended December 31, 1998 and 1999 and
for the three months ended March 31, 1999 and 2000, respectively.
12. SUBSEQUENT EVENTS
During the three months ended March 31, 2000, the Company granted stock
options to acquire an aggregate of 1,786,000 shares of common stock at an
exercise price of $0.22. The Company has recorded additional deferred
stock-based compensation of approximately $17,157, which is being recognized
over the vesting period of the options using the graded method.
F-18
82
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
12. SUBSEQUENT EVENTS (CONTINUED)
On April 26, 2000, the Company issued 3,426,411 shares of Series E
convertible preferred stock (Series E) totaling $29,998, Each share of Series E
preferred stock is convertible at the option of the holder and automatically
converts into common stock upon the closing of a firm commitment underwritten
public offering with gross proceeds of $40,000. The conversion ratio generally
shall be one share of common stock for each share of Series E preferred.
However, if the Series E preferred stock is automatically converted as a result
of a public offering in which the initial per share price is less than $13.1325,
the number of shares to be received upon conversion will be subject to
adjustment. Holders of Series E preferred stock are entitled to a liquidation
preference of $8.755 per share. The rights and privileges of the Series E
convertible preferred stock are substantially the same as those of all other
series' of convertible preferred stock although the holders of the Series E
preferred stock are not entitled to vote for the election of directors.
The shares of Series E preferred stock are immediately convertible into
common stock at the option of the holder. The initial issuance price of the
Series E preferred stock was less than the estimated fair value of the common
stock into which it is convertible. The difference between the issue price of
the Series E preferred stock and the estimated fair value of the common stock
will be accounted for as a deemed dividend for the computation of earnings per
share in the three months ending June 30, 2000.
13. REINCORPORATION
On May , 2000, the Company reincorporated in Delaware through a tax-free
merger with its wholly owned Delaware subsidiary.
14. YEAR 2000
The Company completed its year 2000 readiness plan prior to December 31,
1999, which did not result in significant incremental costs to the Company.
Although year 2000 risk may decrease with the passage of time and the Company
has experienced no year 2000-related issues to date, the Company will continue
to monitor the implications of year 2000. The Company does not expect to expend
material additional funds in the future related to the year 2000 issue.
F-19
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[DESCRIPTION OF INSIDE BACK COVER]
Within the borders of a large black box is a black and white picture of a
salesman. The picture is cut off just below his neck. At the bottom of the
picture, appears the text "TEACH THE WEB THE LOST ART OF SCHMOOZING" in bold
white font, and in all capital letters. The blue and gold Fort Point Partners
logo is overlayed on the bottom right portion of the photograph. It includes a
view of a portion of the Golden Gate Bridge and the Fort Point Partners name.
84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
AMOUNT
TO BE PAID
----------
SEC Registration Fee........................................ $18,216
NASD Filing Fee............................................. 7,400
Nasdaq National Market Listing Fee.......................... *
Printing and Engraving...................................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Transfer Agent Fees......................................... *
Director & Officer Liability Insurance (1933 Act
Premiums)................................................. *
Miscellaneous............................................... *
-------
Total..................................................... $
=======
- -------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VIII of the registrant's
certificate of incorporation (Exhibit 3.1 hereto) and Article VII of the
registrant's bylaws (Exhibit 3.2 hereto) provide for indemnification of the
registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
registrant has also entered into agreements with certain of its directors that
will require the registrant, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors to the fullest extent not prohibited by law.
The underwriting agreement (Exhibit 1.1) provides for indemnification by
ourselves and our underwriters for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1997, we have issued and sold the following unregistered
securities:
1. In April 1997, we issued and sold an aggregate of 1,300,000 shares
of Series A preferred stock to four investors for an aggregate
consideration of $325,000 in cash.
2. In May 1997, we issued and sold an aggregate of 500,000 shares of
Series B preferred stock to two investors for an aggregate consideration of
$250,000 in cash.
3. In August 1998, we issued and sold an aggregate of 787,236 shares
of Series C preferred stock to nine investors for an aggregate
consideration of $863,991.51 in cash.
II-1
85
4. During the period from June 1999 through August 1999, we issued and
sold an aggregate of 6,511,500 shares of Series D preferred stock to 13
investors for an aggregate consideration of $14,341,578.96 in cash.
5. In April 2000, as partial consideration for services, we issued a
warrant to a vendor to purchase an aggregate of 3,600 shares of common
stock, which warrant expires, if not earlier exercised, on January 30,
2010. The warrant has an exercise price of $0.01 per share.
6. In April 2000, we issued and sold an aggregate of 3,426,411 shares
of Series E preferred stock to 26 investors for an aggregate consideration
of $29,998,228.38 in cash.
7. As of March 31, 2000, 7,365,000 shares of common stock had been
issued to our employees, directors and consultants upon exercise of options
at exercise prices ranging from $0.00025 to $0.22 per share and 1,396,244
shares of common stock were issuable upon exercise of outstanding options
under our stock option plan at a weighted average exercise price of $0.18
per share.
All share numbers and exercise prices for preferred and common stock have
been adjusted to reflect a 4-for-1 stock split of our Series A preferred stock,
Series B preferred stock, Series C preferred stock, Series D preferred stock and
common stock effected on November 22, 1999. All 1,300,000 shares of Series A
preferred stock, all 500,000 shares of our Series B preferred stock, all 787,236
shares of our Series C preferred stock, all 6,511,500 shares of our Series D
preferred stock and all 3,426,411 shares of our Series E preferred stock will
automatically convert on a one-to-one basis into shares of common stock upon the
consummation of this offering.
The sales of the above securities under Items 1 through 6 were exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder. The option grants and
exercise under Item 7 were exempt from registration under the Securities Act
pursuant to Rule 701 promulgated under Section 3(b) of the Securities Act.
The recipients of securities in each of these transactions represented
their intention to acquire the securities for investment only and not with view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access to information about the
registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
See exhibits listed on the Exhibit Index following the signature page of
the Form S-1, which is incorporated herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate
II-2
86
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, as amended, 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.
(3) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing(s) specified in the underwriting agreements,
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
II-3
87
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on the 3rd day of May, 2000.
FORT POINT PARTNERS INC.
By: /s/ JAMES T. ROCHE
------------------------------------
James T. Roche,
Co-Chief Executive Officer,
Co-President
and Director
POWER OF ATTORNEY
KNOW ALL PERSON BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints James T. Roche and Matthew Roche and each
of them, his or her true and lawful attorneys-in-fact and agents with full power
of substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and to sign any registration
statement for the same offering covered by the Registration Statement that is to
be effective upon filing pursuant to 462(b) promulgated under the Securities Act
of 1933, as amended, and to file the same with all exhibits thereto and all
documents in connection therewith, making such changes in this Registration
Statement as such person or person so acting deems appropriate, 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 requisite and necessary to be done, as fully to all intents
and purposes as her or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his,
her 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, as amended,
this Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MATTHEW J.N.C. ROCHE Co-President, Co-Chief Executive May 3, 2000
- --------------------------------------------- Officer and Chairman of the Board
Matthew J.N.C. Roche (Principal Executive Officer)
/s/ JAMES T. ROCHE Co-President and Co-Chief Executive May 3, 2000
- --------------------------------------------- Officer and Director (Principal
James T. Roche Executive Officer)
/s/ KELYN J. BRANNON Chief Financial Officer (Principal May 3, 2000
- --------------------------------------------- Financial and Accounting Officer)
Kelyn J. Brannon
/s/ SCOTT GILBERTSON Director May 3, 2000
- ---------------------------------------------
Scott Gilbertson
/s/ RICHARD KASHNOW Director May 3, 2000
- ---------------------------------------------
Richard Kashnow
II-4
88
SIGNATURE TITLE DATE
--------- ----- ----
/s/ N. D'ARCY ROCHE Director May 3, 2000
- ---------------------------------------------
N. D'arcy Roche
/s/ DAVID SANDERSON Director May 3, 2000
- ---------------------------------------------
David Sanderson
/s/ EDWARD SCOTT Director May 3, 2000
- ---------------------------------------------
Edward Scott
II-5
89
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Bylaws of the Registrant
4.1* Form of Registrant's Common Stock Certificate
5.1* Opinion of Gibson, Dunn & Crutcher LLP
10.1 1996 Stock Option/Stock Issuance Plan
10.2 Amended and Restated Investor Rights Agreement, dated April
26, 2000.
10.3 111 Sutter Street Sublease by and between ShopNow.com, Inc.
and Fort Point Partners Inc., dated April 6, 2000
10.4 Office Building Lease by and between CEP Investors XII LLC
and Fort Point Partners Inc., dated August 5, 1999
10.5 Standard Form of Loft Lease and Rider by and between 162
Associates LLC and Fort Point Partners Inc., dated April 26,
1999 (related to the eighth floor in the building known as
162 Fifth Avenue)
10.6 Lease Modification Agreement by and between 162 Associates
LLC and Fort Point Partners Inc., dated May 14, 1999
(related to the entire eighth floor in the building known as
162 Fifth Avenue)
10.7 Lease Modification Agreement by and between 162 Associates
LLC and Fort Point Partners Inc., dated September 2, 1999
(related to the entire eighth floor in the building known as
162 Fifth Avenue)
10.8 Standard Form of Loft Lease and Rider by and between 162
Associates LLC and Fort Point Partners Inc., dated April 26,
1999 (related to the entire seventh floor in the building
known as 162 Fifth Avenue)
10.9 Loan and Security Agreement by and between Silicon Valley
Bank and Fort Point Partners Inc., dated May 11, 1998
10.10 Loan Modification Agreement by and between Silicon Valley
Bank and Fort Point Partners Inc., dated May 10, 1999
10.11 Standard Form of Indemnification Agreement
21.1* Subsidiaries
23.1* Consent of Gibson, Dunn & Crutcher, LLP (included in Exhibit
5.1)
23.2 Consent of Ernst & Young LLP, Independent Accountants
24.1 Power of Attorney (included in II-4)
27.1 Financial Data Schedule
- -------------------------
* To be filed by amendment.