As filed with the Securities and Exchange Commission on May 11,
2000
Registration No.
333-31458
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No.
2
to
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES
ACT OF 1933
SUPPLIERMARKET.COM, INC.
(Exact name of
registrant as specified in its charter)
Delaware
(State or other
Jurisdiction
of Incorporation
or Organization)
|
|
7389
(Primary
Standard Industrial
Classification
Code Number)
|
|
04-3473646
(I.R.S. Employer
Identification No.)
|
|
10 Mall
Road
Burlington,
Massachusetts 01803
(781)
273-6700
(Address,
including zip code, and telephone number,
including area
code, of Registrants principal executive offices)
Jonathan
Burgstone, Chief Executive Officer
Asif Satchu,
Chairman and President
SupplierMarket.com, Inc.
10 Mall
Road
Burlington,
Massachusetts, 01803
(781)
273-6700
(Name, address,
including zip code, and telephone
number, including
area code, of agent for service)
Copies
to:
Keith F.
Higgins, Esq.
David B. Walek,
Esq.
Ropes &
Gray
One
International Place
Boston,
Massachusetts 02110
(617)
951-7000
(617) 951-7050
(fax)
|
|
William J.
Whelan, III, Esq.
Cravath, Swaine
& Moore
Worldwide
Plaza
825 Eighth
Avenue
New York, New
York 10019
(212)
474-1000
(212) 474-3700
(fax)
|
|
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If any of
the securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box. ¨
If this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same
offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ¨
If
delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ¨
CALCULATION OF
REGISTRATION FEE
Title of each class of securities
to be registered |
|
Amount to
be registered(1) |
|
Proposed maximum
offering price per share(2) |
|
Proposed maximum
aggregate offering price |
|
Amount of
registration fee(3) |
|
Common Stock, $.001
par value per share |
|
11,500,000 |
|
$11.00 |
|
$126,500,000 |
|
$33,396 |
(1)
|
Includes 1,500,000
shares of common stock issuable upon exercise of the underwriters
over-allotment option.
|
(2)
|
Estimated solely
for the purpose of calculating the amount of the registration fee; based
on a bona fide estimate of the maximum offering price per share of
the securities being registered in accordance with Rule 457(a) of the
Securities Act of 1933.
|
(3)
|
Of this amount,
$33,396 has been previously paid.
|
The
registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a)
of the Securities Act of 1933 or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said
section 8(a), may determine.
SUBJECT TO COMPLETION, DATED
, 2000
10,000,000 Shares
Common Stock
Prior
to this offering there has been no public market for our common stock. The
initial public offering price of our common stock is expected to be between
$9.00 and $11.00 per share. We have applied to list our common stock on The
Nasdaq Stock Markets National Market under the symbol
SMKT.
The
underwriters have an option to purchase a maximum of 1,500,000 additional
shares of our common stock to cover over-allotments of shares.
Investing in our common stock involves risks. See Risk
Factors on page 7.
|
|
Price to
Public
|
|
Underwriting
Discounts and
Commissions
|
|
Proceeds to
SupplierMarket.com
|
Per Share |
|
$
|
|
$
|
|
$
|
Total |
|
$
|
|
$
|
|
$
|
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission, nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
At
our request, the underwriters have reserved for sale at the initial public
offering price an aggregate of 1,000,000 shares in this offering for our
non-officer employees; friends and family members of our employees, officers
and directors; and individuals affiliated with our principal stockholders,
strategic partners and several companies who participate in our marketplace
as buyers.
Credit Suisse First
Boston
The date of this prospectus
is
, 2000.
The information in this
prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
[INSIDE FRONT COVER
OF PROSPECTUS]
Front of
Gatefold:
Two large arrows
point toward the center of the page from the upper-right and lower-left
corners of the page.
In the middle of the
page appears the SupplierMarket.com logo and the following text:
People buy parts. People sell parts. This is where they
meet.
Centered below this
text in a smaller font: Bringing together qualified buyers and
suppliers of direct materials.
Inside
Gatefold:
A border runs along
the entire left and top sides of the gatefold and matches the border on the
home page of the SupplierMarket.com web site.
Inside
GatefoldLeft-Hand Page:
Just inside the
border, the upper-third of the page contains the following text: A
Leading On-line Marketplace for Direct Materials. Aggregating and matching
qualified buyers and suppliers in a neutral marketplace.
Internet-basedbuyers and suppliers only need a browser to participate.
No upfront fees, no software to install and no need for
consultants.
The lower two-thirds
of the page contains a graphic with two partial images of the RFQ Builder
pages of the SupplierMarket.com web site and the following text: Saves
buyers and suppliers time and money. Using our RFQ Builder technology,
buyers quickly construct a request for quotation that details product
specifications and defines supplier capabilities. Registered suppliers gain
access to new sources of business and reduce marketing
costs.
Inside
GatefoldRight-Hand Page:
The upper-half of the
page contains a similar graphic to the bottom of the left-hand page, with
one partial image of the SmartMatch page of the SupplierMarket.com web site
and the following text: Matches qualified buyers and suppliers. Our
proprietary SmartMatch technology matches qualified suppliers with new
business opportunities based on manufacturing capabilities, commercial
profile and quality certifications.
The lower-half of the
page contains a similar graphic with one partial image of the on-line
bidding page of the SupplierMarket.com web site and the following text:
Facilitates competitive pricing environment. The process culminates in
a competitive bidding event. The buyer then chooses a qualified supplier to
fulfill the request for quotation based on a combination of capability,
quality and price.
TABLE OF
CONTENTS
You
should rely only on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
different information. This document may only be used where it is legal to
sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus
Delivery Obligation
Until
, 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers obligation to deliver a prospectus
when acting as an underwriter and for unsold allotments or
subscriptions.
This
summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully before investing in our common
stock.
SupplierMarket.com
SupplierMarket.com is a leading business-to-business Internet-based
marketplace serving the large and fragmented market for direct materials.
Direct materials are used in the manufacture of finished goods and include a
wide variety of components and materials, from bolts, nuts and fasteners to
rubber and glass products to corrugated packaging to injection and
blow-molded plastic components. The direct materials market includes
numerous industrial segments, and we estimate that the annual market for
direct materials in the United States is approximately $1.5 trillion. As of
March 31, 2000, we had registered approximately 5,000 buyers and 9,000
suppliers. Our marketplace enables participants to efficiently and cost
effectively buy and sell direct materials in an open, neutral exchange that
requires no up-front fees, no software installation and no consulting
services.
The U.S.
market for direct materials is highly fragmented and inefficient. Based on
industry data, we believe that approximately 190,000 suppliers currently
serve this market, with over 90% of these companies generating less than $10
million in annual revenue. This high degree of fragmentation, combined with
the lack of a centralized marketplace, makes it difficult for buyers and
suppliers to find qualified trading partners, resulting in high search costs
and limited competition. Additionally, the traditional request for quotation
process through which buyers solicit bids from suppliers, is inefficient and
time-consuming, involving multiple and repetitive steps.
The
SupplierMarket.com solution provides a secure Internet-based marketplace
that aggregates buyers and suppliers, matches them with multiple qualified
trading partners and promotes a competitive pricing environment. Our
solution eliminates many of the inefficiencies in the traditional direct
materials purchasing process, thus providing benefits for both buyers and
suppliers. It benefits buyers by reducing the cost of direct materials,
providing access to an increased base of new and qualified suppliers,
shortening cycle times for purchasing and employing a standardized data
format. Suppliers benefit through increased access to new business
opportunities, reduced sales and marketing costs, shortened sales cycle
times and the opportunity to be evaluated and rewarded based on expertise
and efficiency.
There are
several key differences between our marketplace and alternatives offered by
other business-to-business e-commerce companies. First, any registered buyer
or supplier of direct materials can immediately access our entirely
Internet-based marketplace with a standard browser connection; there is no
required installation of software. Second, use of our marketplace is
completely free to the buyer, and a supplier is only required to pay us a
transaction fee after it has been selected by a buyer as a result of a
competitive bidding event to fulfill the request for quotation. Third, our
technology-based solution does not require the use of consultants for
implementation or ongoing support.
We have
developed several key proprietary technologies that underlie the advanced
functionality of our scalable Internet-based marketplace. First, our RFQ
Builder enables buyers to create and submit requests for quotation quickly
in a standardized format. Second, our SmartMatch technology automatically
matches buyers and suppliers with qualified trading partners. Finally, our
bidding technology creates a competitive pricing environment.
We have
conducted bidding events in various industrial segments for direct materials
such as extruded plastic film and sheet, injection and blow-molded plastic
components, metal stampings, bolts, nuts and fasteners, machine tooling,
molded rubber and wire and cord products.
The
Simmons Company submitted requests for quotation which resulted in 100% of
our revenue in 1999 and 91% of our revenue in the three months ended March
31, 2000. Other buyers that have posted requests for quotation on our
marketplace and held competitive bidding events since our inception
include:
Affordable Interior Systems
Becker
Group
J.L.
French
|
|
Masco
Quality Farm & Country
U.S.
Filter
|
|
We expect
the requests for quotation and competitive bidding events generated by these
buyers will result in additional revenue in the second quarter of
2000.
Some of
the suppliers that have participated in bidding events through our
marketplace and that buyers have selected to fulfill requests for quotation
include:
|
|
Shamrock Industrial Fasteners
|
SupplierMarket.com, Inc. was formed in February 1999, and we began
offering commercial access to our marketplace in October 1999. Our
headquarters is located at 10 Mall Road, Burlington, Massachusetts 01803 and
our telephone number is (781) 273-6700. Our web site address is
www.suppliermarket.com. The information on our web site is not incorporated
as a part of this prospectus.
SupplierMarket.com, RFQ Builder,
SMC, SmartMatch, RFQ Bid,
SmartBid, SupplierMarketplace, People buy
parts. People sell parts. This is where they meet. and Buying
and selling just doesnt get any easier than this. are service
marks of SupplierMarket.com. All other trademarks or service marks appearing
in this prospectus are trademarks or service marks of the respective
companies that use them.
The
Offering
Shares of common
stock offered by
SupplierMarket.com |
|
10,000,000
shares |
|
|
Total shares of
common stock to be outstanding
after the offering |
|
41,196,283
shares |
|
|
Use of
proceeds |
|
For working
capital, other general corporate purposes
and potential acquisitions. |
|
|
Proposed Nasdaq
National Market symbol |
|
SMKT |
The
number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of March 31, 2000. This
number does not include the following:
|
3,894,760 shares
of common stock issuable upon the exercise of stock options and
warrants outstanding as of March 31, 2000 and 1,265,891 additional
shares of common stock reserved for issuance under our stock plans;
and
|
|
2,181,416 shares
of common stock reserved for issuance under our strategic warrant plan
and issuable upon exercise of warrants issuable under that
plan.
|
Except
as otherwise indicated, all information in this prospectus
assumes:
|
the conversion
of each outstanding share of our Series A preferred stock into two
shares of common stock and the conversion of each outstanding share of
our Series B preferred stock into one half of one share of common
stock, both of which will occur simultaneously with the closing of this
offering;
|
|
the filing of an
amended and restated certificate of incorporation effective upon the
closing of this offering; and
|
|
no exercise of
the underwriters over-allotment option.
|
Summary
Financial Information
The
following tables summarize the financial information for our business.
You should read this information along with Selected Financial
Data, Managements Discussion and Analysis of Financial
Condition and Results of Operations and our financial statements
and related notes. Net loss per share data includes accretion of offering
costs and other charges incurred in connection with our preferred stock
issuances. Unaudited pro forma loss per share data reflect the conversion
of all preferred stock outstanding as of the end of each respective
period into common stock as if the shares had converted immediately upon
issuance, even though the effect of the conversion is antidilutive.
Unaudited pro forma loss per share data do not reflect potential shares
of common stock issuable upon exercise of outstanding options and
warrants because the effect would be antidilutive. Pro forma balance
sheet data reflect the conversion of all outstanding preferred stock into
common stock upon the closing of this offering. Pro forma as adjusted
balance sheet data reflect the preceding pro forma adjustment and the
issuance of 10,000,000 shares in this offering at an assumed initial
public offering price of $10.00 per share after deducting underwriting
discounts and commissions and estimated offering expenses.
|
|
Period From
Inception
(February 12, 1999)
Through
December 31, 1999
|
|
Three Months Ended
March 31, 2000
|
Statement of
Operations Data: |
Revenue |
|
$
51,541 |
|
|
$ 216,791 |
|
Operating
expenses: |
Costs of revenue |
|
107,605 |
|
|
205,615 |
|
Sales and marketing |
|
2,397,405 |
|
|
10,576,301 |
|
Research and development |
|
515,993 |
|
|
681,116 |
|
General and administrative |
|
636,171 |
|
|
1,577,297 |
|
Stock-based compensation |
|
2,731,515 |
|
|
1,395,093 |
|
|
|
|
|
|
|
|
Total
operating expenses |
|
6,388,689 |
|
|
14,435,422 |
|
|
|
|
|
|
|
|
Operating
loss |
|
(6,337,148 |
) |
|
(14,218,631 |
) |
Interest
income |
|
280,109 |
|
|
403,978 |
|
|
|
|
|
|
|
|
Net
loss |
|
$ (6,057,039 |
) |
|
$(13,814,653 |
) |
|
|
|
|
|
|
|
Net loss per
share, basic and diluted |
|
$
(2.66 |
) |
|
$
(2.24 |
) |
Weighted average
common shares outstanding, basic and diluted |
|
2,344,874 |
|
|
6,223,990 |
|
Unaudited pro
forma net loss per share, basic and diluted |
|
$
(0.58 |
) |
|
$
(0.51 |
) |
Unaudited pro
forma weighted average common shares outstanding,
basic and diluted |
|
10,446,037 |
|
|
27,210,518 |
|
|
|
March 31,
2000
|
|
|
Actual
|
|
Pro
Forma
|
|
Pro Forma
As Adjusted
|
Balance Sheet
Data: |
Cash and cash
equivalents |
|
$23,420,956 |
|
|
$23,420,956 |
|
$115,470,956 |
Working
capital |
|
24,167,200 |
|
|
24,167,200 |
|
116,217,200 |
Total
assets |
|
30,496,670 |
|
|
30,496,670 |
|
122,546,670 |
Redeemable
convertible preferred stock |
|
40,558,840 |
|
|
|
|
|
Total
stockholders (deficit) equity |
|
(12,873,685 |
) |
|
27,685,155 |
|
119,735,155 |
This offering involves a high degree of risk. You should
carefully consider the following risk factors, in addition to the other
information in this prospectus, before making a decision to invest in
shares of our common stock. Any of these risk factors could materially
adversely affect our business, financial condition and results of
operations. If this occurs, the trading price of our common stock could
decline, and you may lose all or part of your investment.
We only began
operating our marketplace in the fourth quarter of 1999. Our limited
operating history makes it difficult for you to evaluate our past
performance and future prospects.
We
were founded in February 1999 and only began operating our Internet-based
marketplace in October 1999. Our extremely limited operating history
makes it difficult to evaluate our business and prospects. We will
encounter risks, costs and difficulties frequently encountered by
companies in an early stage of development in new and rapidly evolving
markets. Many of these risks are unknown, but include those associated
with managing our growth and the uncertainty about the widespread
acceptance of the Internet as a means of purchasing and selling direct
materials. Our failure to identify and successfully address these risks
would harm our business.
In
addition, we have estimated that the annual market for direct materials
in the U.S. is approximately $1.5 trillion. Due to our extremely limited
operating history, however, we have yet to penetrate this market in a
significant manner.
We have not
achieved profitability to date and anticipate continued losses, and we
may be unable to achieve profitability, which could cause the market
price of our common stock to decline.
We
have never been profitable, and, if we become profitable, we may be
unable to sustain profitability. We have incurred substantial losses
since we were founded, and we expect to continue to incur net losses on
both a quarterly and annual basis for at least the foreseeable future. We
had a cumulative net loss of approximately $19.9 million for the period
since inception through March 31, 2000. We expect to continue to make
significant expenditures for our infrastructure, sales and marketing,
research and development and general and administrative functions. As a
result, we will need to generate significant revenue to achieve
profitability. We cannot assure you that our revenue will grow in the
future or that we will achieve profitability. If our revenue grows more
slowly than we anticipate, or if operating expenses exceed our
expectations, we will not be a profitable business.
Our
Internet-based marketplace business model is new and the demand for our
service may decrease if it is not successful.
To
date we have conducted only a limited number of bidding events. We earn
transaction fees from successfully completed bidding events. We depend on
our ability to grow our buyer and supplier base and expand into new
markets and industrial segments as the primary source of bidding events
in our marketplace. Our ability to generate revenue or profits is
unproven. If the assumptions underlying our business model are not valid
or we are unable to implement our business plan, our business may not
succeed. For the period since inception through March 31, 2000, all of
our revenue was generated from transaction fees paid by suppliers using
our marketplace. We may not be able to increase our revenue, and if we
fail to do so, our business will fail.
If we fail to
attract and retain a large number of buyers and suppliers, we may not be
able to grow our revenue.
The
effectiveness of our Internet-based marketplace and the revenue we derive
from business conducted there depend on our ability to attract and retain
a large number of buyers and suppliers. If we do not add and retain a
substantial number of buyers and suppliers, our business could be
severely harmed.
Buyers may be unwilling to register or conduct significant business in
our marketplace. In order to accept our method of direct materials
purchasing, buyers must adopt new purchasing practices different from
their traditional practices. Traditionally, buyers have frequently
directed business to suppliers based on factors other than price or
quality, including personal relationships. Our marketplace and method of
purchasing may be disruptive to long-standing relationships between a
buyer and its incumbent suppliers.
Suppliers may also be unwilling to register or conduct significant
business in our marketplace. Our marketplace is based on an open bidding
process that allows buyers to compare the business practices,
capabilities and prices of multiple prospective suppliers more
effectively. This heightened scrutiny and increased competition may
discourage some suppliers from participating in our marketplace.
Suppliers choosing not to participate may discourage other suppliers or
buyers from participating as well.
Buyers may not
use our marketplace or may discontinue using our marketplace if we are
unable to deliver significant savings. As a result, buyers may not post
sufficient numbers of requests for quotation on our
marketplace.
Factors beyond our control may limit our ability to deliver savings
to registered buyers. For example, a buyers incumbent suppliers may
refuse to bid on an on-line request for quotation. In addition, the
direct materials specified by some requests for quotation may be too
unusual or may otherwise be supplied by too few companies to allow for a
competitive bidding event and the attendant potential savings. Similarly,
some industrial segments may be characterized by rigid price structures
that allow for little or no variation in price among different suppliers.
Despite the fact that competition may be possible on the basis of quality
and other factors, it may not be possible to deliver strict price savings
in those segments. If our marketplace increases the efficiency of any
particular industrial segment, the future likelihood of significant
savings to buyers in that segment may decrease. If we are unable to
deliver significant savings in particular segments or the magnitude of
savings in particular segments decreases, we may have difficulty
attracting buyers in those segments, or attracting willing participants
in other segments, either of which may limit the number of requests for
quotation posted on our marketplace.
Suppliers may
not use our marketplace or may discontinue using our marketplace if we
are unable to deliver new business opportunities. As a result, our
revenue growth could be limited.
Our
marketplace depends on the participation of large numbers of willing
suppliers in bidding events to generate efficient outcomes for buyers.
Because suppliers may in some cases be discouraged from using our
marketplace due to the increased competition it seeks to promote, we
depend on our ability to provide new business opportunities to suppliers
as the primary means of attracting suppliers to our marketplace. Factors
beyond our control may limit our ability to provide these new
opportunities in sufficient numbers. For example, buyers may continue to
select from among a small group of incumbent suppliers to fill their
requests for quotation despite the existence of competitive bids
submitted by other suppliers. If we are unable to provide new business
opportunities in sufficient numbers to suppliers, our current suppliers
may reduce or discontinue their use of the marketplace and we may have
difficulty attracting new suppliers, either of which will harm our
business.
We have
depended and expect to depend on a small group of buyers for the
purchasing transactions they conduct on our marketplace; a substantial
reduction in their level of activity could harm our business and slow our
growth. In addition, our accounts receivable have been concentrated with
a small number of suppliers.
To
date, we have substantially relied on a small number of buyers to post a
significant majority of the requests for quotation on our marketplace.
Some of these buyers are portfolio companies, or companies owned by
investment funds that are our principal stockholders or affiliates of our
principal stockholders or of our directors. All revenue that we earned in
1999 resulted from requests for quotation posted on our marketplace by
one portfolio company buyer. For the three months ended March 31, 2000,
requests for quotation posted by the same portfolio company buyer
generated 91% of our revenue. In addition, this buyer and other portfolio
company buyers have posted 57% of the dollar value of requests for
quotation that have resulted in bidding events. We expect to continue to
depend on these portfolio companies as buyers, particularly if other
buyers are slow to adopt or to conduct significant business on our
marketplace. If any of these buyers discontinue use of our marketplace,
or reduce the aggregate dollar value of requests for quotation they post,
our business could be severely harmed.
We
have depended and expect to depend substantially on several strategic
buyers who have the ability to place a large amount of requests for
quotation on our marketplace. We intend to issue strategic warrants to
purchase our common stock to these strategic buyers. We expect that these
warrants will vest during the remaining calendar quarters of 2000 and
each quarter of 2001 based on the total quarterly dollar volume of each
strategic buyers requests for quotation posted on our marketplace
which result in an executed purchase order between the strategic buyer
and the supplier for the direct materials associated with the request for
quotation. For a more detailed discussion of the proposed vesting
schedules for these strategic warrants, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations. Through March 31, 2000 requests for quotation posted by
these strategic buyers have not generated any of our revenue. However,
these strategic buyers have posted requests for quotation constituting
28% of the dollar value of all requests for quotation that have resulted
in bidding events. We have obtained no commitments from these strategic
buyers or any other buyers to post requests for quotations or conduct any
other activities on our marketplace. Our strategy to expand our
marketplace and grow our business depends, in part, on the continued and
increasing use of our marketplace by these buyers. The loss or partial
loss of one or more of these buyers could be harmful to our business and
could curtail our growth.
As of
December 31, 1999, two suppliers accounted for 100% of our accounts
receivable and as of March 31, 2000, two suppliers accounted for 92% of
our accounts receivable. If we are unable to collect our receivables from
any of these suppliers, our operating cash flows may be significantly
reduced.
We face intense
competition in the business-to-business e-commerce market, including from
groups of companies in related industrial segments that have announced
plans to, or may, establish on-line exchanges. If we are unable to
compete successfully, we may not be able to attract buyers and
suppliers.
The
business-to-business e-commerce market in which we operate is new,
rapidly evolving and intensely competitive. As one of a number of
companies providing services or products to this market, and with minimal
barriers to entry by potential competitors, we face the risk that
existing and potential buyers and suppliers in our marketplace may seek
our competitors services and products. We also face the risk that
large individual buyers or suppliers or groups of companies in one or
more related industrial segments may develop in-house or specialized
on-line marketplaces. For example, in February and March 2000, groups of
companies in the automotive, aerospace and defense and plastics
industries announced their intentions to establish on-line consolidated
exchanges for buyers and suppliers in their respective
industries.
Our
marketplace is one of many alternative approaches to purchasing that
buyers and suppliers are considering. Many of our current and potential
competitors are larger and more established and have significantly
greater resources than we do. As a result, some of our current or
potential competitors may be able to commit more resources to marketing
and promotional campaigns, adopt more aggressive pricing policies and
devote more resources to technology development. In order to respond to
changes within this competitive environment, we may from time to time
make pricing, service, marketing or other strategic decisions that could
adversely affect our operating results. In addition, competitors may now
provide or later introduce products or services that appear to be the
same as ours, despite actual differences. In such an environment, we face
the risk that buyers and suppliers will confuse our marketplace with the
services of our competitors or choose the services of a competitor with
greater resources. We also face the risk that buyers and suppliers may
attain poor results with other products or services and lose interest in
trying ours. We may not be able to retain current marketplace
participants or secure new ones in light of these issues. Our revenue
growth could be limited if buyers or suppliers seek our competitors
services or products or establish their own marketplaces.
For a
more detailed discussion of the competition we face, see
BusinessCompetition.
Our revenue
growth will slow if we do not develop and maintain strategic
relationships.
We
have established and plan to continue to establish strategic
relationships with sales and marketing partners, significant buyers and
other organizations. We depend or expect to depend on these relationships
to grow our buyer and supplier base and the volume of transactions
conducted in our marketplace. We will also depend on these relationships
to generate sufficient opportunities to implement our strategies of
expanding into new markets and of providing additional services and
products. These relationships may not yield any new buyers or suppliers
or generate increased revenues. We have obtained no commitments of any
kind from any buyers to submit requests for quotation or to conduct any
other activities in our marketplace. Additionally, we may not be able to
enter into new relationships or renew existing relationships. We may not
be able to recover our costs and expenses associated with these efforts,
which could harm our business.
Most
of our current strategic relationships, including all of those with
significant buyers, are based on non-binding letters of intent. Although
we plan to consummate definitive agreements, we cannot assure you that we
will be able to do so within the relatively short expiration periods
provided for in these letters of intent.
If we fail to
continue to develop and improve our financial and managerial controls and
reporting systems and procedures, and if we do not effectively expand,
train and manage our workforce, our business will suffer dramatically and
we may not be able to implement our business plan.
Successful implementation of our business plan requires effective
management processes. We have recently experienced a period of
significant expansion of our operations. Our growth has placed, and our
anticipated future growth in our operations will continue to place, a
significant strain on our management systems and resources. Our ability
to compete effectively and to manage future expansion of our operations
will require us to continue to develop and improve our financial and
management controls, reporting systems and procedures on a timely basis,
and to continue to expand, train and manage our workforce. We continue to
increase the scope of our operations domestically and plan to expand
internationally. We have grown our workforce substantially from 13
employees in July 1999 to 125 as of March 31, 2000, and we plan to
continue to add to our sales and marketing, customer support, product
development and other administrative personnel. Our failure to manage our
growth effectively could cause our revenues to decline and our operating
expenses to increase at a higher than expected rate.
In some
instances, our transaction fees may be subject to downward adjustment.
Also, we may have difficulty collecting transaction fees from suppliers
for our services, and we may incur legal expenses to pursue collection of
receivables from some suppliers.
We
charge suppliers a transaction fee based on a percentage of the final
dollar value of their successful bids. Our invoiced transaction fees are
subject to future reduction if we receive confirmation from a buyer and
supplier that they have cancelled or reduced the price or volume of their
original purchase order. A substantial number of cancellations or price
or volume reductions would harm our revenue. For further discussion of
cancellations or price or volume reductions, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations. In addition, we may not be successful in collecting all
of our receivables, and we may incur legal expenses to pursue
collection.
If we fail to
continuously improve our technology and enhance our marketplace and
related services, we may lose buyers and suppliers, thus limiting our
revenue growth.
Our
future success will depend on our ability to enhance the technological
capabilities of our Internet-based marketplace, and to continue to
develop and introduce new services that keep pace with competitive
introductions and technological developments, satisfy diverse and
evolving requirements of buyers and suppliers and otherwise achieve
market acceptance. Our success will depend, in part, on the availability
of, and our ability to obtain on commercially reasonable terms, licenses
to technologies used in the development and maintenance of our
marketplace. Any failure by us to anticipate or respond adequately to
changes in technology and user preferences, or any significant delays in
our development or licensing efforts, could make our services
unmarketable or obsolete. In particular, we believe that our future success
will depend, in part, upon market acceptance of the latest version of our
Internet-based marketplace, which has only recently been released. We may
not be successful in developing and marketing quickly and effectively
future versions or upgrades of our technology or in offering new services
that respond to technological advances or new market requirements. As a
result, our revenue may decline.
Our success is
dependent on our key personnel, including software engineers and sales
and marketing professionals, whom we may not be able to retain or hire in
sufficient numbers to meet our needs.
We
believe that our success will depend on the continued employment of our
senior management team and key technical and sales personnel. If one or
more members of our senior management team were unable or unwilling to
continue in their present positions, we would have great difficulty
finding or may be unable to find suitable replacements, and our operating
costs could increase. Most of our senior management do not have
employment agreements, and we do not have key person life
insurance policies on any members of our senior management. In addition,
if any of these key employees joins a competitor or forms a competing
company, some of our buyers and suppliers might choose to use the
services of that competitor or new company instead of our
own.
We
plan to hire additional members of senior management and we plan to
expand our employee base to manage our anticipated growth. Competition
for personnel in our industry, particularly for senior management
personnel and employees with technical and sales expertise, is intense.
The success of our business is dependent upon hiring and retaining
suitable personnel. To maintain our position as a provider of an
Internet-based business-to-business e-commerce solutions, we must make
sure our employees maintain their technical expertise and business
skills. We cannot assure you that we will be able to attract a sufficient
number of qualified employees or that we will successfully train and
manage the employees that we hire. In addition, the employees that we
hire, including key technical personnel, may leave us to join a
competitor or to start a new business which may compete with
us.
Our senior
management team has limited tenure with us and has limited experience
working together, and our founders have limited management experience,
which may make it difficult to conduct and grow our
business.
Some
of the key members of our senior management team, including our chief
operating officer, chief financial officer, executive vice president of
strategic development, vice president of corporate development and vice
president of human resources, joined us this year. Other members of our
senior management team have been in place no longer than nine months,
since shortly before we first began operating our Internet-based
marketplace. As a result, there has been little or no opportunity to
evaluate the effectiveness of our senior management team as a combined
unit or their ability to execute our business plan. Our chief executive
officer and our president, the founders of our company, have not
previously managed a large business and have no experience managing a
public company. The failure of our founders and senior management to
function effectively as a team or to execute our business plan, or to
design and refine our business plan and provide necessary leadership, may
inhibit our ability to operate our marketplace, maintain a cohesive
culture, compete effectively and grow our business.
If we are
unable to maintain our reputation and expand recognition of the
SupplierMarket.com brand, we may have difficulty attracting new business
and retaining current buyers and suppliers and employees, and our
business may suffer.
We
believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and retaining buyers and
suppliers and employees. We also believe that the importance of
reputation and name recognition is increasing and will continue to
increase due to the growing number of entrants into the
business-to-business e-commerce market. If our reputation is damaged or
if potential buyers and suppliers are
not familiar with us or the services we provide, we may be unable to
attract new, or retain existing, buyers and suppliers and employees.
Promotion and enhancement of our name will depend largely on our success
in continuing to provide effective services. If buyers and suppliers do
not perceive our services to be effective or of high quality, our brand
name and reputation will suffer. In addition, if the services we provide
have defects, we could suffer adverse publicity as well as economic
liability.
We may need to
acquire new businesses, products and technologies that complement or
augment our existing Internet-based marketplace and related technologies
in order to remain competitive in our market.
In
order to remain competitive, we may find it necessary to acquire
additional businesses, products or technologies. If we identify an
appropriate acquisition candidate, we may not be able to negotiate the
terms of the acquisition successfully, finance the acquisition or
integrate the acquired business, products or technologies into our
existing business and operations. The inability to integrate any newly
acquired entities or technologies effectively could harm our operating
results, business and growth. Members of our senior management may be
required to devote considerable amounts of their time to this integration
process, which will decrease the time they will have to service current
buyers and suppliers, attract new suppliers and develop new products and
services. Integrating any newly acquired businesses or technologies may
be expensive and time consuming. At present, we have no commitments or
agreements and are not currently engaged in discussions for any material
acquisitions or investments. If we consummate one or more significant
acquisitions in which the consideration consists of stock or other
securities, your equity could be significantly diluted. If we were to
proceed with one or more significant acquisitions in which the
consideration included cash, we could be required to use a substantial
portion of our available cash, including proceeds of this offering, to
consummate any acquisition. Acquisition financing may not be available on
favorable terms, or at all. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection
with future acquisitions, which would seriously harm our net income. We
may not be able to operate any acquired businesses profitably or
otherwise implement our business strategy successfully. Unsuccessful
acquisitions could harm our operating results, business and
growth.
In order to
grow our business, we may need to raise additional capital in the future,
which would dilute your ownership in us. We may be unable to raise
additional capital, which may inhibit our ability to develop or enhance
our services, take advantage of business opportunities or respond to
competitive pressures.
In the
future, we may need to raise additional funds through public or private
debt or equity financing to take advantage of expansion or acquisition
opportunities, develop new services, compete effectively in the market or
fund operating losses. For the period from inception to March 31, 2000,
we used $13.9 million of cash for operating activities and we expect to
use cash for operating activities for the foreseeable future. Any
additional capital raised through the sale of equity or equity-related
securities would dilute your ownership percentage in us. These securities
could also have rights, preferences or privileges senior to those of your
common stock. We currently have no bank credit facility under which we
can borrow short-term funds. We may not be able to obtain additional
financing through securities issuances or commercial lending sources when
needed or on terms favorable to us or our stockholders. If additional
financing is not available on favorable terms or at all, this may inhibit
our ability to develop or enhance our services, take advantage of
business opportunities or respond to competitive pressures.
We expect to
recognize significant stock-based expense in the foreseeable future,
which will significantly increase our losses or adversely affect our
operating results during that time.
We
expect to recognize significant stock-based expense during the
foreseeable future in connection with our grants of stock options and our
proposed issuances of strategic warrants. The amount of this stock-based
expense will significantly increase our operating loss or minimize our
operating income, if any, during that time. We amortize stock-based
compensation for employee and director stock options over the vesting of
each individual option award. The options granted to employees generally
vest over four years, and the options granted to directors generally vest
over 12 months. As of March 31, 2000, we have recorded $16.1 million of
net deferred stock-based compensation related to employee and director
stock options which we currently expect will result in additional
non-cash compensation expense of $3.6 million in the remainder of 2000,
$4.2 million in 2001, $4.1 million in 2002, $3.9 million in 2003 and
$394,000 in 2004.
We
account for non-employee option grants as variable awards, and we cannot
estimate with certainty the related expense we will recognize in future
periods, as it will depend upon a number of factors including our stock
price. As of March 31, 2000, based on the estimated value of our stock on
that date, we have recorded $2.1 million of net deferred stock-based
compensation related to these option grants. The amount of this net
deferred stock-based compensation will increase in future periods if our
stock price increases.
We
also expect to recognize a significant amount of stock-based expense in
connection with our proposed issuance of strategic warrants to several
strategic buyers. We expect that these warrants will vest during the
remaining calendar quarters of 2000 and each quarter of 2001 based on the
total quarterly dollar volume of each strategic buyers requests for
quotation posted on our marketplace which result in an executed purchase
order between the strategic buyer and the supplier for the direct
materials associated with the request for quotation. We will record a
charge to cost of revenue each quarter equal to the product obtained by
multiplying the number of shares subject to the warrants that have vested
during the quarter by the difference between the fair value of the vested
portion of the warrants determined using the Black-Scholes valuation
model and the exercise price of the warrants. We cannot estimate with
certainty the charge we will recognize in future periods because the fair
value of these warrants will fluctuate based upon the trading price and
volatility of our stock.
Changes in the
generally accepted accounting principles which we apply when determining
how much revenue to recognize in each accounting period may require us to
substantially alter the timing of our revenue recognition in the
future.
In
December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101Revenue Recognition in Financial
Statements, which summarizes the staffs views in applying generally
accepted accounting principles to revenue recognition in financial
statements. In addition, the Emerging Issues Task Force of the FASB may
prepare new guidance in this area. Future guidance from these
standards-making bodies may limit our ability to recognize revenue
according to our current policy. We cannot predict at this time whether
these standard-making bodies will issue guidance which would require us
to change our method of recognizing revenue for financial accounting
purposes. If we are required to change our revenue recognition policy, in
the future we may alter the timing of our revenue recognition, which
could cause the market price of our common stock to fall
significantly.
In recent
months, the trading market for securities of technology companies,
particularly business-to-business Internet companies, has suffered a
sharp decline and remains highly volatile; this makes an investment in
our common stock at this time particularly risky.
The
public market for technology stocks has recently experienced a
significant downturn, with many such stocks suffering price declines of
50 to 75 percent or more. Trading in these stocks has remained extremely
volatile. Among technology stocks, the stocks of Internet
business-to-business marketplace companies have suffered some of the
sharpest declines and greatest volatility. Following this offering, the
price of our stock may experience similar volatility or suffer similar
sharp declines, particularly if current market conditions continue. Our
limited operating history, absence of profitability and expectation of
continued losses may increase the risk of price volatility and
decline.
As we expand
our marketplace services to international buyers and additional
international suppliers, our business will be exposed to the numerous
risks associated with international operations.
We
intend to offer our marketplace services to international buyers and
additional international suppliers. To date, we have limited experience
adapting our Internet-based marketplace for international buyers and
suppliers. International operations are subject to many risks,
including:
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political,
regulatory and economic instability;
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reduced
protection for intellectual property rights in some
countries;
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potentially
adverse tax consequences, including restrictions on repatriation of
earnings;
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greater
difficulties in collecting accounts receivable;
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the existence of
protectionist laws and business practices favoring local
competition;
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difficulties and
costs of staffing and managing international operations, as a result
of, among other things, distance, language, cultural and regulatory
differences; and
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fluctuations in
currency exchange rates.
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Our
Internet-based marketplace depends on the continued growth of the
Internet as a means of commerce. If this growth slows, our revenue growth
may be limited.
Our
Internet-based marketplace depends on increased and sustained acceptance
and use of the Internet as a medium of commerce. Rapid growth in
electronic commerce is a recent phenomenon. This growth may not continue
at recent rates and a sufficiently broad base of business customers may
not adopt or continue to use the Internet as a medium of commerce. Demand
for services and products recently introduced over the Internet are
subject to a high level of uncertainty.
A
number of factors could inhibit such demand, including the
following:
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the necessary
infrastructure for substantial growth in usage of the Internet may not
develop adequately;
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buyers and
suppliers using traditional means for bidding and purchasing may be
unwilling or unable to shift to an on-line forum;
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buyers and
suppliers may have security and confidentiality concerns;
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use of the
Internet and other on-line services may not continue to increase or may
increase more slowly than expected; and
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new and
burdensome governmental regulations or taxation may affect the
viability of electronic commerce.
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Our marketplace
depends on the integrity of the Internet, which is uncertain and is
beyond our control.
If
Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it or its performance or reliability may
decline. In addition, our ability to offer our services is limited, in
part, by the speed and reliability of networks operated by third parties.
Internet sites may also experience interruptions in service from time to
time as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays frequently
occur in the future, Internet usage, as well as usage of our marketplace,
could be adversely affected.
Security risks
and concerns about use of the Internet may deter potential buyers and
suppliers from using our Internet-based marketplace.
Concern about the security of the transmission of confidential
information over public networks is a significant barrier to electronic
commerce and communication. Advances in computer capabilities, new
discoveries in the field of cryptography or other events or developments
could result in compromises or breaches of Internet security systems that
protect proprietary information. If any well-publicized compromises of
security were to occur, they could substantially reduce the use of the
Internet for commerce and communications.
Anyone
who circumvents our security measures could misappropriate proprietary or
confidential information, place false requests for quotation or cause
interruptions in our services or operations. Our activities involve the
storage and transmission of proprietary information, such as confidential
buyer and supplier specifications. The Internet is a public network, and
data is sent over this network from many sources. Recently, some Internet
service providers and e-commerce web sites have been targeted by
denial of service and other attacks that overloaded these web
sites and forced them to shut down temporarily. Computer viruses have
also been distributed, and have rapidly spread, over the Internet.
Computer viruses could be introduced into our systems or those of our
buyers and suppliers, which could disrupt or make inaccessible our
Internet-based bidding technology. We may be required to expend
significant capital and other resources to protect against the threat of,
or to alleviate problems caused by, security breaches and the
introduction of computer viruses. Our security measures may be inadequate
to prevent security breaches or combat the introduction of computer
viruses, either of which may result in loss of data, increased operating
costs, litigation and other possible liability.
Failure to
maintain our buyer and supplier databases could seriously harm our
business and reputation.
We
maintain extensive databases of buyers, suppliers, products and
transactions. Database capacity constraints may result in data
maintenance and accuracy problems, which could cause a disruption in our
service and affect our ability to provide accurate information to our
buyers and suppliers. Such disruptions may result in a loss of buyers and
suppliers, which could severely harm our business.
If we encounter
system failure, our Internet-based marketplace services could be delayed
or interrupted, which could severely harm our business and result in a
loss of buyers and suppliers.
Our
ability to successfully maintain our Internet-based marketplace and
provide acceptable levels of customer service largely depends on the
efficient and uninterrupted operation of our computer and communications
hardware and software systems. Any interruptions could severely harm our
business and result in a loss of buyers and suppliers. Our computer and
communications systems are hosted by a third party, on whom we rely to
manage the security and maintenance procedures at its site. Although we
periodically back up our databases on tape and store the backup tapes
offsite, we do not maintain a redundant site. Our systems and operations
are vulnerable to damage or interruption from human error, sabotage,
fire, flood, earthquake, power loss, telecommunications failure, related
equipment failure and similar events. Although we have taken steps to
prevent a system failure, we cannot assure you that our measures will be
successful and that we will not experience system failures in the future.
Moreover, we have experienced delays and interruptions in our telephone
and Internet access which have prevented buyers and suppliers from
accessing our marketplace and our customer service department.
Furthermore, we do not have a formal disaster recovery plan and do not
carry sufficient business interruption insurance to compensate us for
losses that may occur as a result of any system failure. The occurrence
of any system failure or similar event could harm our business
dramatically.
Capacity
limits on our marketplace may be difficult to project and we may not be
able to expand and upgrade our systems to meet increased use. As a
result, we may not be able to grow our revenue.
As
traffic in our Internet-based marketplace continues to increase, we must
expand and upgrade our transaction processing systems and network
hardware and software. We may not be able to accurately project the rate
of increased usage of our marketplace. In addition, we may not be able to
expand and upgrade our systems and network hardware and software
capabilities to accommodate increased usage. If we do not appropriately
upgrade our systems and network hardware and software, the quality of our
service may decline, which could damage our reputation and relationships
with our buyers and suppliers.
If our
intellectual property protection is inadequate, competitors may gain
access to our technology and undermine our competitive position, causing
us to lose business from buyers and suppliers.
We
regard our copyrights, service marks, trade secrets and other
intellectual property as important to our success, and rely or expect to
rely on patent, trademark, service mark and copyright law, trade secret
protection and confidentiality and/or license agreements with our
employees, buyers and suppliers and business partners to protect our
proprietary rights. Despite our precautions, unauthorized parties may
copy certain portions of our Internet-based marketplace or reverse
engineer or obtain and use information that we regard as proprietary.
End-user license provisions protecting against unauthorized use, copying,
transfer and disclosure may be unenforceable under the laws of certain
jurisdictions and foreign countries. The status of United States patent
protection in the software industry is not well defined and will evolve
as the U.S. Patent and Trademark Office grants additional patents. We may
seek patents on aspects of our technology and processes. We do not know
whether any patents will be issued, and even if some or all of these
patents are issued, we cannot assure you that they will not be
successfully challenged or invalidated, that they will adequately protect
our technology and processes or that they will result in commercial
advantages to us. We have also applied for registration of several of our
brand names and other service marks, but these protections may not be
adequate. In addition, the laws of some foreign countries do not protect
proprietary rights to the same extent as do the laws of the United
States. Our means of protecting our proprietary rights in the United
States or abroad may not be adequate and competitors may independently
develop similar technology, duplicate our products or design around
patents that may be issued to us.
Others may
assert that our technology infringes their intellectual property
rights.
We do
not believe that we infringe the proprietary rights of others, but we may
be subject to infringement claims. In particular, because a United States
patent application is not publicly disclosed until the patent is issued,
we cannot be certain that there are no pending applications that, if
issued, would restrict our ability to use or provide our existing or
planned technology or services. The defense of any claims of infringement
made against us by third parties could involve significant legal costs
and require our management to divert time and attention from our business
operations. Either of these consequences of an infringement claim could
have a material adverse effect on our operating results. If we are
unsuccessful in defending against any claims of infringement, we may be
forced to obtain licenses or to pay royalties to continue to use our
technology. We may not be able to obtain any necessary licenses on
commercially reasonable terms or at all. If we fail to obtain necessary
licenses or other rights, or if these licenses are too costly, our
operating results may suffer either from reductions in revenues through
our inability to serve our buyers and suppliers or from increases in
costs to license third-party technology.
Future
government regulation of the Internet and of services offered through our
marketplace could limit the number of buyers and suppliers using our
services.
As
with many Internet companies, we operate in an environment of great
uncertainty as to potential government regulation. We believe that we are
not currently subject to direct regulation applicable to e-commerce,
other than regulations applicable to businesses generally. However, the
Internet has rapidly emerged
as a commerce medium, and governmental agencies have not yet adapted many
existing regulations to its use. Future laws, regulations and court
decisions may affect the Internet or other electronic services, covering
issues such as user pricing, user privacy, freedom of expression, access
charges, taxation, content and quality of products and services,
advertising, antitrust, intellectual property rights and user
authentication and information security. In addition, because our
Internet-based marketplace is available worldwide, foreign jurisdictions
may claim that we are required to comply with their laws. Any future law,
regulation or court decision may have a negative impact on our
business.
Because we are an Internet company, it is unclear in which
jurisdictions we are actually conducting business. Our failure to qualify
to do business in a jurisdiction that requires us to so qualify could
subject us to fines and penalties and could result in our inability to
enforce agreements.
Numerous states have laws and regulations regarding the conduct of
auctions and the liability of auctioneers. We do not believe that these
laws and regulations, which in most cases were enacted for consumer
protection many years ago, apply to our marketplace. However, one or more
jurisdictions may attempt to impose these or new laws and regulations on
our operations in the future.
We may be
exposed to product liability claims and claims based on information
provided by buyers or suppliers.
We
face potential liability for claims based on the type, adequacy and
accuracy of the information and data that we obtain from and make
available to buyers and suppliers. This includes claims for breach of
warranty, product or environmental liability, misrepresentation,
intellectual property infringement, violation of governmental regulations
and other commercial claims. We rely on buyers and suppliers to be
truthful when registering to use our marketplace and to update their
registration information as changes occur. Although we typically make
some inquiries about the creditworthiness or other characteristics of
registering buyers and verify some information about registering
suppliers, we do not and cannot practically perform extensive background
checks or audits of buyers and suppliers. Similarly, we do not screen
requests for quotation for accuracy, content or clarity. Although we
maintain commercial general liability insurance, including products
liability and completed operations liability, our insurance may not cover
some claims. Our insurance is also subject to policy limits and
exclusions, and may not fully indemnify us or our employees for any
civil, governmental or criminal liability that may be imposed.
Furthermore, this insurance may not be available at commercially
reasonable rates in the future. Any liability not covered by our
insurance or in excess of our insurance coverage could harm our business,
results of operations and financial condition. Our attempts to limit our
liability to and to obtain warranties and indemnification from buyers and
suppliers in our contracts may not absolve us of liability or may not be
enforceable.
We may be sued
for information and content contained in our Internet-based
marketplace.
As a
publisher and distributor of on-line content, we face potential liability
for defamation, negligence, copyright, patent or trademark infringement
and other claims based on the nature and content of the materials that we
publish or distribute. These claims have been brought, sometimes
successfully, against on-line content providers. We do not and cannot
practically screen all of the content generated by our users and content
partners, including buyer and supplier registration information, requests
for quotation, entries posted by buyers and suppliers to the on-line
bulletin board within our marketplace, supplier bids, any satisfaction
ratings submitted by buyers and suppliers and articles and other content
provided by our content partners. We could be exposed to liability with
respect to any or all of this content. We could also be subjected to
claims based upon the content that is accessible from our marketplace
through links to other Internet sites or through content and materials
that users may post in on-line bulletin boards. Although we carry general
liability insurance, our insurance may not cover claims of these types or
may not be adequate to indemnify us for all liability that may be
imposed. Any imposition of liability, particularly liability that is not
covered by insurance or is in excess of insurance coverage, could
severely harm our reputation and our business, operating results and
financial condition.
Our quarterly
results are subject to significant fluctuations, and our stock price may
decline if we do not meet expectations of investors and
analysts.
We
expect that our quarterly operating results will fluctuate significantly
due to many factors, many of which are outside our control,
including:
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inconsistent
growth, if any, of our buyer and supplier base;
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loss of
strategic partners;
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variations in
the timing and dollar volume of transactions completed in our
Internet-based marketplace;
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timing of the
selection of suppliers by buyers following the completion of bidding
events in our marketplace;
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increased
competition from new on-line marketplaces;
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introduction of
new services or enhancements by our competitors;
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changes in
pricing policies by us or our competitors;
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our ability to
control operating costs during the establishment and growth of our
business; and
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fluctuations in
stock-based compensation expense related to grants of options to
non-employees and warrants to strategic partners.
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Because a high percentage of our expenses is fixed, such as
compensation and rent, any of the factors listed above that could cause
significant variations in revenues may harm our financial results in any
given quarter. Any decline in revenues or earnings or a greater than
expected loss for any quarter could lower the market price of our common
stock, even if not reflective of any long-term problems with our
business.
Our common
stock has not traded publicly; the initial public offering price may not
be indicative of the market price of our common stock after this
offering, and the market price of our common stock, like the market
prices of the stocks of other Internet companies, may fluctuate widely
and rapidly.
There
is currently no public market for our common stock, and we cannot assure
you that an active trading market will develop or be sustained after this
offering. The initial public offering price will be determined through
negotiation between us and representatives of the underwriters and may
not be indicative of the market price for our common stock after this
offering.
The
market price of our common stock could fluctuate significantly as a
result of:
|
quarter-to-quarter variations in our operating results, which
may cause us to fail to meet analysts or investors
expectations;
|
|
economic and
stock market conditions specific to Internet companies;
|
|
changes in
financial estimates by securities analysts following our
stock;
|
|
earnings and
other announcements by, and changes in market evaluations of, Internet
companies;
|
|
changes in
business or regulatory conditions affecting Internet
companies;
|
|
announcements or
implementation by us or our competitors of technological innovations or
new products or services; or
|
|
trading volume
of our common stock.
|
The
securities of many companies have experienced extreme price and trading
volume fluctuations in recent years, often unrelated to the
companies operating performance. Specifically, market prices for
securities of Internet-related and technology companies have frequently
reached elevated levels, often following their initial public offerings.
These levels may not be sustainable and may not bear any relationship to
these companies operating performances. We cannot assure you that
the market price of our common stock will reach an elevated level
following this offering or that, if it does, it will not substantially
and rapidly decline. In the past, following periods of volatility in the
market price of a companys securities, stockholders have often
instituted securities class action litigation against the company. If we
were involved in a class action suit, it could divert the attention of
senior management, and, if adversely determined, could have a negative
impact on our financial condition.
Substantial
sales of our common stock after the offering could cause our stock price
to fall.
All of
our outstanding shares are currently restricted from resale, but some may
be sold into the market in the near future. Sales of these shares into
the market could cause the market price of our common stock to drop
significantly, even if our business is doing well.
Immediately following this offering, we will have outstanding
41,196,283 shares of common stock. This includes the 10,000,000 shares we
are selling in this offering. Assuming that we sell all shares reserved
under our directed share program to the entities or persons for whom
these shares have been reserved, we expect that investors may resell all
shares in the public market immediately. The remaining 75.7%, or
31,196,283 shares, of our total outstanding shares will become available
for resale in the public market as shown in the chart below:
Number of
shares / % of total outstanding
|
|
Date of
availability for resale into public market
|
29,809,457 /
72.4% |
|
180 days after
the date of this prospectus due to an
agreement many of our stockholders have with the
underwriters. However, the underwriters may waive
this restriction and allow these stockholders to sell
their shares at any time. |
|
|
|
1,386,826 /
3.3% |
|
January,
2001 or later. |
As
restrictions on resale end, the market price of our stock could drop
significantly if the holders of these restricted shares sell them or the
market perceives that they intend to sell them. For a more detailed
description, please see Shares Eligible for Future
Sale.
You will
experience immediate and substantial dilution.
If you
purchase common stock in this offering, you will pay more for your shares
than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of
approximately $7.09 per share, representing the difference between our
net tangible book value per share after giving effect to this offering
and the initial public offering price. For more information, see
Dilution.
Other companies
may have difficulty acquiring us, even if doing so would benefit our
stockholders, due to provisions of our certificate of incorporation and
by-laws and Delaware law.
Provisions in our certificate of incorporation, in our by-laws and
under Delaware law could make it more difficult for other companies to
acquire us, even if doing so would benefit our stockholders. Our
certificate of incorporation and by-laws contain the following
provisions, among others, which may inhibit an acquisition of our company
by a third party:
|
advance
notification procedures for matters to be brought before stockholder
meetings;
|
|
a limitation on
who may call stockholder meetings;
|
|
a prohibition on
stockholder action by written consent; and
|
|
an authorization
of 1,000,000 shares of undesignated preferred stock that we may issue
with special rights, preferences and privileges and that we could use,
for example, to implement a rights plan or poison pill.
|
We are
also subject to provisions of Delaware law that prohibit us from engaging
in any business combination with any interested stockholder,
meaning generally a stockholder who beneficially owns more than 15% of
our stock, for a period of three years from the date this person became
an interested stockholder, unless various conditions are met, such as
approval of the transaction by our Board. These provisions could have the
effect of delaying or preventing a change in control. For a more complete
discussion of these provisions of Delaware law, please see
Description of Capital StockAnti-Takeover
ProvisionsDelaware Law.
Our affiliates
can control matters requiring stockholder approval because they own a
large percentage of our common stock, and they may vote this common stock
in a way with which you do not agree.
After
this offering, our officers, directors and 5% stockholders will own
approximately 52.7% of the outstanding shares of our stock. As a result,
if these persons act together, they will have the ability to exercise
substantial control over our affairs and corporate actions requiring
stockholder approval, including the election of directors, a sale of
substantially all our assets, a merger with another entity or an
amendment to our certificate of incorporation. The ownership position of
these stockholders could delay, deter or prevent a change in control and
could adversely affect the price that investors might be willing to pay
in the future for shares of our common stock.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some
of the statements under Prospectus Summary, Risk
Factors, Managements Discussion and Analysis of
Financial Condition and Results of Operations, Business
and elsewhere in this prospectus constitute forward-looking statements.
These statements involve known and unknown risks, uncertainties and other
factors that may cause our or our industrys actual results, levels
of activity, performance or achievements to be materially different than
any expressed or implied by these statements. In some cases, you can
identify these statements by terminology such as may,
will, should, expects,
plans, anticipates, believes,
estimates, predicts, potential,
continue or the negative of these terms or other comparable
terminology.
Although we believe that the expectations reflected in these
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as otherwise required by
federal securities laws, we are under no duty to update any of the
statements after the date of this prospectus to conform these statements
to actual results.
We
estimate that we will receive net proceeds from this offering of
approximately $92.1 million, at an assumed initial public offering price
of $10.00 per share, net of estimated underwriting discounts and
commissions and offering expenses payable by us. If the underwriters
exercise their over-allotment option in full, we estimate our net
proceeds will be $106.0 million.
We
expect to use these proceeds for working capital, other general corporate
purposes and potential acquisitions. Other general corporate purposes
include funding anticipated operating losses, advertising campaigns,
brand-name promotions and other marketing efforts, research and
development and capital expenditures. We also may use a portion of the
net proceeds to acquire or invest in complementary businesses,
technologies, products or services, although no specific acquisitions are
currently planned. As of the date of this prospectus, we cannot specify
with certainty all of the particular uses for the remaining net proceeds
we will have upon completion of the offering. Accordingly, our management
will have broad discretion in the application of the net
proceeds.
Pending these uses, we intend to invest the net proceeds in
interest-bearing, investment-grade instruments, certificates of deposit,
or direct or guaranteed obligations of the United States.
We
have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying any dividends in the foreseeable future.
We currently intend to retain any future earnings for the expansion of
our business.
The
following table sets forth our capitalization as of March 31, 2000 on an
actual, pro forma and pro forma as adjusted basis. The pro forma column
reflects our actual capitalization and adjustments to
reflect:
|
|
the automatic
conversion of all shares of outstanding preferred stock into 21,145,764
shares of common stock upon the closing of this offering;
and
|
|
|
the filing of an
amendment to our certificate of incorporation concurrent with the
closing of this offering to authorize 100,000,000 shares of common
stock, eliminate all existing series of preferred stock and create
1,000,000 shares of undesignated preferred stock.
|
The
pro forma as adjusted column reflects our pro forma capitalization,
further adjusted to reflect our sale of 10,000,000 shares of common stock
at an assumed initial public offering price of $10.00 per share, after
deducting the underwriting discounts and commissions and estimated
offering expenses.
None
of the columns reflect 5,251,924 shares of common stock reserved for
issuance under our stock option plan as of March 31, 2000, of which
3,794,760 shares were subject to outstanding options, 2,181,416 shares of
common stock reserved for issuances under our strategic warrant plan or
100,000 shares of common stock issuable upon the exercise of outstanding
warrants.
You
should read the table below along with our financial statements and the
related notes.
|
|
As of March
31, 2000
|
|
|
Actual
|
|
Pro
Forma
|
|
Pro Forma
As Adjusted
|
|
Cash and cash
equivalents |
|
$23,420,956 |
|
|
$23,420,956 |
|
|
$115,470,956 |
|
|
|
|
|
|
|
|
|
|
|
Redeemable
convertible preferred stock; 22,652,913 shares
authorized, actual; no shares authorized,
issued or outstanding,
pro forma and pro forma as
adjusted: |
|
|
|
|
|
|
|
|
|
Series A; $.001 par value; 6,562,873 shares issued and
outstanding, actual; no shares authorized,
issued or
outstanding, pro forma and pro forma as
adjusted |
|
$ 6,080,501 |
|
|
$
|
|
|
$
|
|
Series B; $.001 par value; 16,040,039 shares issued and
outstanding, actual; no shares authorized,
issued or
outstanding, pro forma and pro forma as
adjusted |
|
34,478,339 |
|
|
|
|
|
|
|
Stockholders (deficit) equity: |
|
|
|
|
|
|
|
|
|
Preferred stock; $.001 par value; no shares authorized,
issued or outstanding, actual; 1,000,000 shares
authorized,
no shares issued and outstanding, pro forma and
pro
forma as adjusted |
|
|
|
|
|
|
|
|
|
Common stock; $.001 par value; 85,000,000 shares
authorized, actual and pro forma; 100,000,000
shares
authorized pro forma as adjusted; 10,050,519
shares
issued and outstanding, actual; 31,196,283
shares issued
and outstanding, pro forma; 41,196,283 shares
issued and
outstanding, pro forma as adjusted |
|
10,051 |
|
|
31,196 |
|
|
41,196 |
|
Additional
paid-in capital |
|
25,165,116 |
|
|
65,702,811 |
|
|
157,742,811 |
|
Deferred
stock-based compensation |
|
(18,172,218 |
) |
|
(18,172,218 |
) |
|
(18,172,218 |
) |
Accumulated
deficit |
|
(19,876,634 |
) |
|
(19,876,634 |
) |
|
(19,876,634 |
) |
|
|
|
|
|
|
|
|
|
|
Total
stockholders (deficit) equity |
|
(12,873,685 |
) |
|
27,685,155 |
|
|
119,735,155 |
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization |
|
$27,685,155 |
|
|
$27,685,155 |
|
|
$119,735,155 |
|
|
|
|
|
|
|
|
|
|
|
Our
pro forma net tangible book value as of March 31, 2000 was $27.7 million,
or $0.89 per share, assuming conversion of all outstanding shares of
Series A and Series B preferred stock into shares of our common stock
upon the closing of this offering. Pro forma net tangible book value per
share represents the amount of our total tangible assets, reduced by the
amount of our total liabilities, and then divided by the total number of
shares of common stock outstanding after giving effect to the automatic
conversion of all shares of outstanding preferred stock upon closing of
this offering. Dilution in pro forma net tangible book value per share
represents the difference between the amount paid per share by purchasers
of shares of common stock in this offering and the pro forma net tangible
book value per share of common stock immediately after the completion of
this offering. After giving effect to the sale of the 10,000,000 shares
of common stock offered by us at an initial public offering price of
$10.00 per share, and after deducting the underwriting discounts and
commissions and estimated offering expenses payable, our pro forma net
tangible book value as of March 31, 2000 would have been $119.7 million
or $2.91 per share of common stock. This represents an immediate increase
in pro forma net tangible book value of $2.02 per share to existing
stockholders and an immediate dilution of $7.09 per share to new
investors purchasing shares at the initial public offering price. The
following table illustrates this dilution of a per share
basis:
Assumed public
offering price |
|
|
|
$10.00 |
Pro
forma net tangible book value as of March 31, 2000 |
|
$ 0.89 |
|
|
Increase attributable to new investors |
|
2.02 |
|
|
|
|
|
|
|
Pro forma net
tangible book value after the offering |
|
|
|
2.91 |
|
|
|
|
|
Dilution to new
investors |
|
|
|
$ 7.09 |
|
|
|
|
|
The
preceding table assumes no exercise of options and warrants outstanding
as of March 31, 2000. If all of these options and warrants were
exercised, then the total dilution per share to new investors would be
$7.35.
The
following table summarizes, as of March 31, 2000, the differences between
the existing stockholders and new investors with respect to the number of
shares of common stock purchased from us, the total consideration paid to
us and the average price per share paid:
|
|
Shares
Purchased
|
|
Total
Consideration
|
|
Average Price
Per Share
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
Existing
stockholders |
|
35,091,043 |
|
77.8 |
% |
|
$ 47,754,552 |
|
32.3 |
% |
|
$ 1.36 |
New
investors |
|
10,000,000 |
|
22.2 |
% |
|
100,000,000 |
|
67.7 |
% |
|
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
45,091,043 |
|
100.0 |
% |
|
$147,754,552 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
preceding table assumes the exercise of all options and warrants
outstanding as of March 31, 2000. As of March 31, 2000, 3,794,760 shares
were subject to outstanding options at a weighted average exercise price
of $1.07 per share and 100,000 shares were subject to outstanding
warrants at a weighted average exercise price of $0.93 per
share.
We
derived the selected historical financial data presented below from our
financial statements and related notes. You should read the selected
historical financial data together with our historical financial
statements and related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations.
Unaudited pro forma loss per share data reflect the conversion of all
preferred stock outstanding as of the end of each respective period into
common stock as if the shares had converted immediately upon issuance,
even though the effect of the conversion is antidilutive. Net loss per
share data includes accretion of offering costs and other charges
incurred in connection with our preferred stock issuances. Unaudited pro
forma loss per share data do not reflect potential shares of common stock
issuable upon exercise of outstanding options and warrants because the
effect would be antidilutive. See Note 2 to our financial statements for
an explanation of the basis used to calculate net loss per
share.
PricewaterhouseCoopers LLP, independent accountants, audited our
historical financial statements for the period from inception, February
12, 1999, through December 31, 1999. Their report appears in another part
of this prospectus. We believe the unaudited results shown below include
all adjustments consisting only of non-recurring adjustments that we
consider necessary for a fair presentation of such
information.
|
|
Period From
Inception
(February 12, 1999)
Through
December 31, 1999
|
|
Three Months
Ended
March 31, 2000
|
Statement of
Operations Data: |
|
|
|
|
|
|
Revenue |
|
$
51,541 |
|
|
$ 216,791 |
|
Operating
expenses: |
|
|
|
|
|
|
Costs of revenue |
|
107,605 |
|
|
205,615 |
|
Sales and marketing |
|
2,397,405 |
|
|
10,576,301 |
|
Research and development |
|
515,993 |
|
|
681,116 |
|
General and administrative |
|
636,171 |
|
|
1,577,297 |
|
Stock-based compensation |
|
2,731,515 |
|
|
1,395,093 |
|
|
|
|
|
|
|
|
Total
operating expenses |
|
6,388,689 |
|
|
14,435,422 |
|
|
|
|
|
|
|
|
Operating
loss |
|
(6,337,148 |
) |
|
(14,218,631 |
) |
Interest
income |
|
280,109 |
|
|
403,978 |
|
|
|
|
|
|
|
|
Net
loss |
|
$ (6,057,039 |
) |
|
$(13,814,653 |
) |
|
|
|
|
|
|
|
Net loss per
share, basic and diluted |
|
$
(2.66 |
) |
|
$
(2.24 |
) |
Weighted average
common shares outstanding, basic and diluted |
|
2,344,874 |
|
|
6,223,990 |
|
Unaudited pro
forma net loss per share, basic and diluted |
|
$
(0.58 |
) |
|
$
(0.51 |
) |
Unaudited pro
forma weighted average common shares outstanding,
basic and diluted |
|
10,446,037 |
|
|
27,210,518 |
|
|
|
|
December 31,
1999
|
|
March 31,
2000
|
Balance Sheet
Data: |
|
|
|
|
|
|
Cash and cash
equivalents |
|
$36,761,018 |
|
|
$23,420,956 |
|
Working
capital |
|
35,784,958 |
|
|
24,167,200 |
|
Total
assets |
|
39,141,083 |
|
|
30,496,670 |
|
Redeemable
convertible preferred stock |
|
40,830,504 |
|
|
40,558,840 |
|
Total
stockholders deficit |
|
(3,491,503 |
) |
|
(12,873,685 |
) |
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion of our financial condition and results of operations
should be read together with Selected Financial Data and the
financial statements and related notes included elsewhere in this
prospectus.
Overview
SupplierMarket.com is a leading business-to-business Internet-based
marketplace serving the large and fragmented market for direct materials.
Direct materials are those components and materials used in the
manufacture of finished goods. Our marketplace enables participants to
efficiently and cost effectively buy and sell direct
materials.
We
were incorporated in February 1999. From February 1999 to the launch of
our marketplace in October 1999, we were primarily engaged in raising
capital, developing our Internet-based marketplace, building corporate
infrastructure, marketing our service and establishing relationships with
buyers and suppliers of direct materials.
We
generate revenue from transaction fees earned on bidding events that
result in a buyer selecting a supplier to fulfill its request for
quotation. The transaction fee, paid by the supplier, is based on a
percentage of the final dollar value of the selected suppliers bid.
In February 2000, we updated the terms and conditions of use of our
marketplace to set this percentage to range between 2% and 4%. Prior to
that, this percentage fee ranged from 1% to 4%. We recognize revenue when
the buyer has selected a supplier as a result of a competitive bidding
event, the supplier has issued to us a purchase order for the transaction
fee and we have an enforceable right to collect the transaction fee from
the supplier. We record a sales allowance for transaction fees that are
subject to adjustment for changes in price and volume over the course of
the purchase contract. We have determined the amount of the sales
allowance based on our historical data in conjunction with survey data
obtained from buyers and suppliers that we consider representative of
buyers and suppliers within our target industries. In the quarter ended
March 31, 2000, we recorded a sales allowance of 5% on transaction fees
that are subject to adjustment. The sales allowance represents our
managements estimate and could change in the future.
Costs
associated with the operation of our marketplace consist of costs of
revenue, sales and marketing, research and development, general and
administrative and stock-based compensation. Costs of revenue represent
salary and expenses incurred for employees who contribute directly to our
marketplace services. Sales and marketing expenses consist of
compensation expenses for our sales and marketing personnel, travel and
entertainment costs and costs associated with our marketing and branding
activities and amortization of deferred development costs. In 1999 and
the three months ended March 31, 2000, we focused our marketing
activities on direct mail, trade magazine advertising and trade shows. We
expect to substantially increase the dollar amount of sales and marketing
expenses as we continue to increase the size of our sales force and to
build awareness of our brand. Research and development expenses consist
primarily of compensation for our web site development staff and outside
consulting costs. General and administrative expenses consist primarily
of compensation for personnel, facility costs and professional
fees.
Stock-based compensation consists of non-cash expenses related to
employee and director stock option grants with exercise prices lower than
the subsequently determined fair value of the underlying shares at the
time of grant and non-employee stock option grants which we account for
at their fair value.
We
expect to recognize significant stock-based expense in connection with
our grants of stock options and our proposed issuances of strategic
warrants during the foreseeable future. The amount of this stock-based
expense will significantly increase our operating loss or minimize our
operating income, if any, during that time. We amortize stock-based
compensation for employee and director stock options over the vesting of
each individual option award. The options granted to employees generally
vest over four years, and the options granted to directors generally vest
over 12 months. As of March 31, 2000, we have recorded $16.1 million of
net deferred stock-based compensation for employee and director stock
options which we currently expect will result in additional non-cash
compensation expense of $3.6 million in the remainder of 2000, $4.2
million in 2001, $4.1 million in 2002, $3.9 million in 2003 and $394,000
in 2004.
We
account for non-employee option grants as variable awards, and we cannot
estimate with certainty the related expense we will recognize in future
periods, as it will depend upon a number of factors including our stock
price. As of March 31, 2000, based on the estimated value of our stock on
that date, we have recorded $2.1 million of net deferred stock-based
compensation related to these option grants. The amount of this net
deferred stock-based compensation will change in future periods as the
value of our stock changes.
In
February 2000, our board of directors reserved 2,181,416 shares of common
stock for issuance under strategic common stock purchase warrants which
we may issue to buyers that have the ability to place a large dollar
amount of requests for quotation on our marketplace. We have entered into
non-binding letters of intent with several companies which contemplate
the issuance of strategic warrants to these buyers. We also expect to
recognize a significant amount of stock-based expense in connection with
our strategic warrants. We expect that these warrants will vest during
the remaining calendar quarters of 2000 and each quarter of 2001 based on
the total quarterly dollar volume of each strategic buyers requests
for quotation posted on our marketplace which result in an executed
purchase order between the strategic buyer and the supplier for the
direct materials associated with the request for quotation. We will
record a charge to cost of revenue each quarter equal to the product
obtained by multiplying the number of shares subject to the warrants that
have vested during the quarter by the difference between the fair value
of the vested portion of the warrants determined using the Black-Scholes
valuation model and the exercise price of the warrants. We cannot
estimate with certainty the charge we will recognize in future periods
because the fair value of these warrants will fluctuate based upon the
trading price and volatility of our stock. We cannot assure you that we
will issue these strategic warrants to any of these buyers at all or on
terms reasonable to us. In addition, these warrants would not obligate
any of the buyers to post any requests for quotation, or otherwise
conduct any business, on our marketplace.
Since
our inception on February 12, 1999, we have incurred net losses. From
inception through December 31, 1999, we had a net loss of $6.1 million.
Our net loss for the three months ended March 31, 2000 was $13.8 million
and as of March 31, 2000, our accumulated deficit totaled $19.9 million.
We have not achieved profitability to date, and we do not expect to
achieve profitability in the foreseeable future.
We
launched our marketplace in October 1999. Our limited operating history
makes predicting future operating results very difficult. We have
estimated that the annual market for direct materials in the U.S. is
approximately $1.5 trillion. Due to our extremely limited operating
history, we have yet to penetrate this market in a significant manner. We
believe that you should not rely on any period-to-period comparison of
our operating results to predict our future performance. You must
consider our prospects in light of the risks, expenses and difficulties
encountered by companies in new and rapidly evolving markets, such as
ours. We may not be successful in addressing these risks and
difficulties.
Results of
Operations
|
Three months
ended March 31, 2000 compared to December 31, 1999
|
Revenue. We earned $217,000 of revenue during the three
months ended March 31, 2000. Revenue increased 317% from $52,000 earned
during the three months ended December 31, 1999. The increase in revenue
is the result of the increased number of bidding events, as well as, an
increase in our average transaction fee from 1% to 2%.
Costs of Revenue. We incurred costs of revenue of $206,000
during the three months ended March 31, 2000. Costs of revenue increased
91% from $108,000 incurred during the three months ended December 31,
1999. The increase in costs of revenue is primarily the result of
increased headcount for employees who operate our Internet-based
marketplace. In addition, we recorded additional amortization of web site
development costs during the three months ended March 31,
2000.
Sales and Marketing Expenses. Sales and
marketing expenses were $10.6 million during the three months ended March
31, 2000. Sales and marketing expenses increased 458% from $1.9 million
incurred during the three months ended December 31, 1999. The increase is
primarily the result of our brand development campaign and increased
advertising efforts during the three months ended March 31, 2000. We have
also incurred additional costs related to increased headcount in both our
sales and marketing departments during the three months ended March 31,
2000 compared to the three months ended December 31, 1999.
Research and Development
Expenses. Research and development expenses
were $681,000 during the three months ended March 31, 2000. Research and
development expenses increased 47% from $462,000 incurred during the
three months ended December 31, 1999. This increase is the result of
additional headcount in our engineering department as well as our
continued efforts on improving our Internet-based
marketplace.
General and Administrative
Expenses. General and administrative expenses
were $1.6 million during the three months ended March 31, 2000. General
and administrative expenses increased 206% from $523,000 incurred during
the three months ended December 31, 1999. This increase is the result of
additional headcount to continue to support the growth in our
infrastructure.
Stock-Based Compensation. Stock-based
compensation was $1.4 million during the three months ended March 31,
2000 and the three months ended December 31, 1999.
Interest Income. We earned interest
income of $404,000 during the three months ended March 31, 2000. Interest
income increased 64% from $246,000 earned during the three months ended
December 31, 1999. This increase is the result of the additional interest
income generated by the proceeds from the issuance of Series B preferred
stock in November 1999.
|
Period from
inception on February 12, 1999 through December 31,
1999
|
Revenue. For the period from the
launch of our marketplace in October 1999 through December 31, 1999, we
have earned revenue of $52,000 from the completion of two successful
bidding events. During our development stage from inception through
October 1999, we did not earn any revenue.
Costs of Revenue. We incurred costs
of revenue of $108,000 for the period from inception through December 31,
1999, all of which was incurred during the three months ended December
31, 1999.
Sales and Marketing Expenses. Sales
and marketing expenses for the period from inception through December 31,
1999 were $2.4 million, comprising $1.2 million for marketing, $713,000
for sales and $461,000 for advertising expenses. Sales and marketing
expenses consisted of salary and benefits for personnel in our sales and
marketing departments, travel and public relations expenses and branding
campaigns.
Research and Development
Expenses. Research and development expenses
for the period from inception through December 31, 1999 were $516,000.
Research and development expenses related to headcount required for the
continued technological development and enhancement of our marketplace
functionality and capacity.
General and Administrative
Expenses. General and administrative expenses
for the period from inception through December 31, 1999 were $636,000.
General and administrative expenses related to headcount to support the
growth in our infrastructure.
Stock-Based Compensation. For the
period from inception through December 31, 1999, we recorded stock-based
compensation of approximately $2.7 million in connection with stock
options granted to employees and non-employees.
Interest Income. Interest income from
inception through December 31, 1999 was $280,000. Interest income
generated by the investment of the proceeds from our issuance of Series B
preferred stock in November 1999.
Liquidity and
Capital Resources
Since
our inception in February 1999, we have had negative cash flows from our
operations. For the three months ended March 31, 2000, we used $13.9
million of cash for operations. For the period from inception through
December 31, 1999, we used $2.3 million of cash for operations. Cash
expended for operating activities included costs for the development of
our marketplace, salaries and related employee costs and marketing and
brand development. For the three months ended March 31, 2000, we used
$2.2 million of cash for investing activities, which primarily consisted
of expenditures for computer equipment. For the period from inception
through December 31, 1999, we used cash of approximately $1.6 million in
investing activities, which consisted of expenditures for computers and
related equipment, furniture and fixtures and technology costs incurred
for the development of our marketplace. We intend to increase our capital
expenditures in 2000 and 2001 primarily in connection with the
implementation of a financial accounting system and customer relationship
management system.
Since
inception, we have financed our operations from the issuance of preferred
stock. From June through August 1999, we conducted our Series A preferred
stock offering and received net proceeds of approximately $6.1 million.
In November 1999, we commenced our Series B preferred stock offering and
received net proceeds of approximately $34.6 million. We sold additional
shares of Series B preferred stock in January and February 2000 and
received an additional $2.8 million in net proceeds.
We
have entered into a non-cancelable lease commitment for our corporate
headquarters that will require an annual payment of $741,000 in 2000 and
annual payments of $761,000 in 2001 through 2004 representing a total
commitment of $3.8 million over the next five years. We have entered into
a letter of intent for additional corporate headquarters space providing
for an annual payment of an additional $275,000. We believe that we may
need to enter into additional leases for more office space in late 2000
and 2001. New leasing arrangements will increase our total non-cancelable
lease obligations at that time.
As of
December 31, 1999, we had revolving and equipment lines of credit for a
combined facility of $1.5 million with our bank that we terminated in
February 2000. There were no amounts outstanding under these lines of
credit as of December 31, 1999 and we did not borrow any amounts prior to
termination. We are currently evaluating the need to replace these credit
facilities.
As of
March 31, 2000, our principal source of liquidity was $23.4 million of
cash and cash equivalents. We expect to experience significant growth in
our operating costs for the foreseeable future in order to continue to
grow our business, particularly in the areas of brand development and
marketing and research and development. We also expect to open additional
offices. As a result, we expect these operating costs as well as other
planned expenditures will constitute a significant use of our cash
resources. Although we currently have no agreements or commitments in
place, we may also use cash to fund acquisitions of other businesses and
technologies. We believe that we have sufficient cash and cash
equivalents, including the proceeds from this offering, to fund our
operating and investing activities for at least 12 months. In order to
meet our long-term liquidity needs, we may need to obtain additional
funds. We currently have no credit facility in place to provide long-term
liquidity. We may need to raise additional funds earlier through public
or private financings, or other arrangements if we consummate
acquisitions or otherwise grow our business at a faster rate than we
currently expect. Any additional financings, if needed, might not be
available on reasonable terms or at all. Failure to raise capital when
needed could harm our business, financial condition and results of
operations. If additional funds are raised through the issuance of equity
securities, additional dilution could result. In addition, any equity
securities issued might have rights, preferences or privileges senior to
our common stock.
Market
Risk
Our
interest income is sensitive to changes in the general level of United
States interest rates, particularly since the majority of our investments
are in short-term instruments.
Recent
Accounting Pronouncements
In
June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established accounting
and reporting standards for derivative instruments and hedging. It
requires entities to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. To date, we have not engaged in derivative or
hedging activities, and accordingly do not believe the adoption of SFAS
No. 133 will have a material impact on the financial reporting and
related disclosures. We will adopt SFAS No. 133 as required by SFAS No.
137, Deferral of Effective Date of the FASB Statement No.
133, in calendar 2001.
In
December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. This bulletin summarizes certain views of the staff on
applying generally accepted accounting principles to revenue recognition
in financial statements. The staff believes that revenue is realized or
realizable and earned when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred or
services have been rendered; the sellers price to the buyer is
fixed or determinable; and collectibility is reasonably assured. We
believe that our current revenue recognition policy complies with the
Commissions guidelines.
Overview
SupplierMarket.com is a leading business-to-business Internet-based
marketplace serving the large and fragmented market for direct materials.
Direct materials are used in the manufacture of finished goods and
include a wide variety of components and materials, from bolts, nuts and
fasteners to rubber and glass products to corrugated packaging to
injection and blow-molded plastic components. Our marketplace enables
participants to efficiently and cost effectively buy and sell direct
materials in an open, neutral exchange that requires no up-front fees, no
software installation and no consulting services. Our solution enables
buyers to reduce their direct material costs, expand and improve their
base of suppliers, reduce their administrative purchasing costs and
shorten their purchasing cycle times by centralizing suppliers and
providing an Internet-based marketplace. Meanwhile, our solution enables
suppliers to gain access to new business opportunities, reduce sales,
marketing and administrative costs and shorten sales cycle times. An
important feature of our marketplace is that companies can participate as
both a buyer, purchasing their manufacturing components or materials, and
a supplier, selling their manufactured products.
We
feature a horizontal market approach, allowing our marketplace
participants to buy and sell direct materials across a wide range of
industrial segments. Through our proprietary RFQ Builder, SmartMatch and
competitive bidding technologies, we bring buyers and suppliers together,
streamlining the steps of the direct materials purchasing cycle. There
are no up-front fees for the use of our marketplace. It is completely
free for the buyer, and a supplier is only required to pay us a
transaction fee when it has been selected by a buyer as a result of a
competitive bidding event to fulfill the request for quotation. As of
March 31, 2000, we had registered approximately 5,000 buyers and 9,000
suppliers. Our marketplace participants include such companies as Masco,
U.S. Filter, The Simmons Company and J.L. French.
Industry
Background
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Business-to-Business Electronic Commerce
|
The
Internet has become the fastest growing commerce medium in history,
revolutionizing how individuals and organizations conduct business.
Companies are increasingly using the Internet to increase revenue,
enhance productivity, cut costs and communicate more effectively.
Business-to-business e-commerce marketplaces have been established to
bring together buyers and suppliers of goods and services and to provide
a centralized on-line exchange for sharing information. These on-line
marketplaces reduce the role of intermediaries and eliminate paper-based
process and transaction inefficiencies, thereby enabling buyers and
suppliers to identify new revenue opportunities, achieve supply chain
efficiencies and simplify complex business processes. These on-line
marketplaces rely on the Internet as a viable means of conducting
commerce and require certain expenditures that traditional businesses do
not incur such as the cost of web site maintenance. The Gartner Group
expects the volume of non-financial goods and services sold through
business-to-business e-commerce to reach $7.3 trillion worldwide in 2004
and that electronic marketplaces will account for 37%, or $2.7 trillion,
of these sales.
|
The Direct
Materials Market
|
The
direct materials market is broad and includes numerous industrial
segments. Some commonly used direct materials in these industrial
segments include fasteners and hardware, metal stampings, screw machine
products, simple plastic parts, die cast products, rubber products and
glass products. We estimate that the annual market for direct materials
in the United States is approximately $1.5 trillion.
The
U.S. market for direct materials is highly fragmented and inefficient.
Based on industry data, we believe that approximately 190,000 independent
suppliers, ranging from small component manufacturers with less than $1
million in annual revenues to multi-billion dollar original equipment
manufacturers, sell direct
materials. Over 90% of these companies have less than $10 million in annual
revenue. This high degree of fragmentation and inefficiency has required
companies to incur significant search, negotiation and transaction costs.
In addition, most companies in the direct materials market function as
both buyers and suppliers and experience the inefficiencies associated
with both the buying and selling processes.
|
Traditional
Direct Materials Purchasing Process
|
Traditional direct materials purchasing is a highly inefficient
process due to the large size of the market, its high degree of
fragmentation, significant distribution costs and asymmetric flows of
information. Companies in the direct materials market have traditionally
purchased and sold direct materials through the time-consuming and
paper-based request for quotation process, illustrated as
follows:
Step 1: A buyer details the
commercial and technical specifications of the component or materials it
seeks to purchase. Technical specifications and drawings are typically
prepared using any one of numerous software design packages.
Step 2: The buyers internal
purchasing professionals or third party agents identify prospective
suppliers for the requested components or materials from a variety of
sources, including supplier directories and catalogs, trade publications,
trade shows and its network of existing suppliers. At the same time,
suppliers employ third-party agents or sales and marketing personnel to
identify prospective buyers and contact or visit the buyer, often on an
unsolicited basis.
Step 3: The buyer contacts
prospective suppliers, shares technical specifications of the direct
materials, typically via paper-based means, including fax, mail or
courier, and solicits more information regarding each suppliers
capabilities and qualifications.
Step 4: The buyer analyzes the
information gathered from prospective suppliers to determine which, if
any, are qualified to fulfill the buyers purchasing
needs.
Step 5: The buyer separately
distributes its request for quotation with detailed technical
specifications and drawings to each qualified supplier, typically via
paper-based means, including fax, mail or courier.
Step 6: Each of the qualified
suppliers reviews the buyers request for quotation. Buyers
requests for quotation often vary in format and level of detail,
requiring detailed review, analysis and clarification. Upon conclusion of
this review, the supplier submits questions to the buyer regarding the
bidding process and request for quotation requirements.
Step 7: The buyer responds to each
suppliers question independently, clarifies the request for
quotation requirements as needed and communicates any additional
information independently to all of the suppliers.
Step 8: Each supplier prepares and
submits one bid for the components or materials without knowing what
price the other suppliers have offered to the buyer.
Step 9: The buyer evaluates the bids
from each qualified supplier, based on price, quality and timing
considerations and follows up separately with each supplier to ask
questions and to negotiate bid terms.
Step 10: The buyer selects one
supplier. The remaining suppliers often must contact the buyer to learn
the outcome of the bidding process.
Step 11: The buyer and supplier
complete a purchase order for the direct materials in
question.
The
traditional method of direct materials purchasing suffers from a number
of inefficiencies affecting both buyers and suppliers. First, the highly
decentralized purchasing process hinders the efficient matching of buyers
and suppliers. Second, the interactive, multi-step process can take up to
several months. Third, the
length of this process forces buyers and suppliers to engage in substantial
advanced planning to ensure they have sufficient components and materials
to meet their production needs. As a result, buyers and suppliers may
hold higher inventories, maintain higher working capital levels and
increase production lead times.
We
believe buyers often pay more for direct materials because they lack easy
access to new suppliers in a centralized and efficient marketplace, which
can limit the quality of their supplier base and can inhibit their
ability to obtain competitive prices. In addition, buyers must employ
significant resources for purchasing professionals to search for and
review the qualifications of suppliers to ensure a competitive bid. The
traditional bidding process minimizes the opportunity for suppliers to
adjust their prices during the bidding. Suppliers also find the
traditional purchasing process difficult and expensive. The lack of a
centralized source for requests for quotation, high sales costs, and poor
communication within the market can restrict buyers to using a limited
number of known suppliers, in turn reducing business opportunities for
other qualified suppliers. Therefore, suppliers incur significant costs
for their sales force, advertising and travel used to identify buyers for
their products.
The
SupplierMarket.com Solution
We
provide a secure Internet-based marketplace that centralizes buyers and
suppliers, matches companies with multiple qualified trading partners and
promotes a competitive pricing environment. Our solution eliminates many
of the steps in the traditional direct materials purchasing process. The
SupplierMarket.com purchasing process for our registered participants
consists of the following steps:
Step 1: A buyer completes a
standardized online request for quotation using our proprietary RFQ
Builder technology and includes technical specifications and drawings
using their existing design software package.
Step 2: Our proprietary SmartMatch
technology identifies qualified suppliers who can immediately view the
buyers posted request for quotation, including technical
specifications and engineering drawings presented in a standard
format.
Step 3: If necessary, suppliers post
questions regarding the request for quotation on an electronic bulletin
board located on our marketplace and the buyer responds with
clarifications. All suppliers are able to view this information, thereby
eliminating redundant questions.
Step 4: Qualified suppliers
participate in an anonymous bidding event featuring a competitive,
reverse auction during which the buyer and suppliers can view all bids as
they are submitted as well as supplier qualifications.
Step 5: The buyer selects one
supplier, after which time SupplierMarket.com provides the buyer and
chosen supplier with each others names and contact information to
complete the transaction. Our marketplace then automatically notifies the
other suppliers that they have not been selected.
Step 6: The buyer and supplier
complete a purchase order for the direct materials and may complete a
satisfaction rating of the transaction and each other for
SupplierMarket.com.
The
simplicity and efficiency of the SupplierMarket.com solution is driven by
our proprietary RFQ Builder, SmartMatch and competitive bidding
technologies. The RFQ Builder provides buyers with a standardized,
on-line form for requests for quotation and the ability to easily include
all necessary technical specifications and engineering drawings for the
direct materials. SmartMatch eliminates many of the steps in the
traditional purchasing process by searching our registered supplier base
to identify suppliers capable of meeting the buyers strict quality
and capability requirements as set forth in its request for quotation.
Our competitive bidding technology allows the buyer and suppliers to view
all bids submitted in real time and allows suppliers to adjust their bids
in a dynamic process.
Benefits to
Buyers and Suppliers
There
are several key differences between our marketplace and alternatives
offered by other business-to-business e-commerce companies. First, any
registered buyer or supplier can immediately access our entirely
Internet-based marketplace with a standard browser connection; there is
no required installation of software on their information technology
system. Second, there are no up-front fees for the use of our
marketplace. It is completely free for the buyer, and a supplier is only
required to pay us a transaction fee after it has been selected by a
buyer as a result of a competitive bidding event to fulfill the request
for quotation. Third, our technology-based solution does not require the
use of consultants for implementation or ongoing support.
We
believe our marketplace benefits buyers in the following
ways:
|
Reduced costs
of direct materials. Transactions completed
on our marketplace to date have indicated that buyers using our
marketplace have reduced the costs of their direct materials when
compared to previous purchases using the traditional request for
quotation process. This is due primarily to the competitive nature of
our marketplace, which enables a number of suppliers to bid
aggressively to win new business.
|
|
Access to
increased base of new and qualified
suppliers. Access to our registered supplier
base makes it more likely that a buyer will find new suppliers that can
satisfy the criteria set forth in its request for quotation. In
addition, our marketplace allows a buyer to quickly compare and
contrast the qualifications of multiple suppliers, enabling them to
select from a higher quality pool.
|
|
Shorter cycle
times for purchasing. Our marketplace
provides quicker and more efficient identification of prospective
suppliers and a simplified request for quotation and bidding process.
This results in additional cost savings to the buyer through improved
staff efficiency and resource utilization in the purchasing process.
Buyers that have completed transactions on our marketplace to date have
reported to us that they have significantly reduced their purchasing
cycle from as long as several months to approximately one
month.
|
|
Standardized
request for quotation data format. Our
marketplace utilizes a standardized communication format called
extensible markup language (XML) for preparing and transmitting
requests for quotation. This digital transfer standard enables our
marketplace to be easily integrated with a variety of enterprise
software packages.
|
We
believe our marketplace benefits suppliers in the following
ways:
|
Increased
access to new buyers. Registering on our
marketplace increases the probability a supplier will find prospective
customers. This increased access comes without any up-front fee to the
supplier, making our marketplace a cost effective way for the supplier
to find new business opportunities.
|
|
Reduced sales
and marketing costs. Our marketplace creates
a single medium through which buyers and suppliers can exchange
information. This single medium minimizes the need for suppliers to
disseminate information through other traditional channels, reducing
selling costs and requiring less time and sales effort.
|
|
Rewarded for
expertise and efficiency. A buyer can
quickly compare and contrast suppliers qualifications and
expertise on our marketplace, such as quality certifications and
delivery capabilities. Therefore, a highly qualified supplier with
efficient operations is more likely to be selected by multiple buyers,
generating additional revenue.
|
|
Centralized
market intelligence. During a bidding event,
each participating supplier is able to view the qualifications and bids
submitted by the other suppliers including those of the supplier
ultimately chosen by the buyer. This market intelligence allows a
supplier to analyze the bid and to compete more successfully in
subsequent bidding events.
|
As
more businesses adopt our marketplace, its value to individual
participants will increase, as they will be able to conduct increasing
amounts of both their purchasing and selling on-line. For example, a
company
that supplies systems to a finished goods manufacturer through our
marketplace can also submit requests for quotation to purchase assemblies
from other registered suppliers. As momentum towards adoption of our
marketplace continues to grow, we believe buyers and suppliers who are
quick to adopt our solution will become more competitive.
The
SupplierMarket.com Strategy
Our
goal is to become the primary marketplace through which buyers and
suppliers conduct most, if not all, of their direct materials purchasing
and selling. We believe we are the first entirely Internet-based
e-commerce solution for buying and selling of direct materials, and we
intend to capitalize on our early mover position to increase our market
share through the following strategies:
|
Increase
marketplace participation. We intend to
increase the number of marketplace participants and the frequency of
their participation in three ways. First, we intend to focus our sales
and marketing efforts on attracting new buyers that will post more
requests for quotation on our marketplace. We expect that our
participant base will continue to grow because of the lack of up-front
fees and continued enhancements of our brand recognition and awareness.
Second, as our participant base grows, we expect to focus our efforts
on encouraging existing suppliers to use our marketplace for their
buying needs and likewise encouraging buyers to use our marketplace for
their selling needs. Third, we plan to enter into and capitalize on
strategic alliances with companies such as software companies, content
providers and complementary marketplaces that will provide us with
access to large numbers of additional buyers and suppliers. By
aggressively pursuing these strategic relationships, we believe we can
secure and extend our position as a leading Internet-based marketplace
for direct materials.
|
|
Expand our
service offerings. We intend to continue to
expand the range of services offered through our Internet-based
marketplace. These service offerings may include financing services,
logistics services and order tracking and billing services for
suppliers. By providing a comprehensive suite of services, we expect to
enhance the value of our marketplace to our participants.
|
|
Maintain
technological leadership. We intend to
continue to extend our Internet-based technology leadership to meet the
evolving needs of our buyers and suppliers. In particular, we will
continue to focus substantial efforts on developing and enhancing our
bidding technology and our data management tools such as SmartMatch and
RFQ Builder. We will continue to expend substantial efforts to develop,
purchase or license technological advancements for our marketplace to
enhance its reliability and functionality. We intend to capitalize on
our technology leadership to increase the attractiveness of our
marketplace to buyers and suppliers.
|
|
Pursue
strategic acquisitions. We intend to seek
acquisition or investment opportunities with businesses that will
supplement our existing marketplace with additional participants,
enhance our technology or otherwise provide complementary value to our
business. We may also use acquisitions to facilitate our entry into new
markets.
|
|
Expand
internationally. We intend to expand our
marketplace internationally to enhance the breadth of registered
suppliers while introducing international buyers to our unique
offering. Initially, we will target deeper penetration of Canadian and
Mexican companies.
|
Our Marketplace
and Market Making Process
Our
Internet-based marketplace matches buyers and suppliers of direct
materials. Our database stores in a standardized format commercial and
technical information about buyers and suppliers and the qualities they
desire when searching for new business relationships. SmartMatch, our
proprietary matching technology, enables a supplier to search for
requests for quotation matching its manufacturing capabilities.
Similarly, SmartMatch assists the buyer in qualifying prospective
suppliers. Our bidding technology allows for competitive bidding events
to match supply and demand in an efficient manner.
The
steps taken by buyers and suppliers who use our marketplace are as
follows:
[Graphic depiction
of pictures and associated text arranged in a T formation.
The top left branch bears a right-pointing arrow, a picture of a computer
keyboard and the text Buyer Registers. The top right branch
bears a left-pointing arrow, a picture of a computer keyboard and the
text Suppliers Register. The top center bears a
downward-pointing arrow and a picture of an industrial part. The
remaining pictures and text are arranged along the vertical axis of the
T from top to bottom as follows: picture of a mousepad with
text Buyer completes online RFQ; picture of a computer with
text SmartMatch identifies qualified suppliers; picture of a
clipboard with text Q&A via online bulletin board;
picture of a graph with text Anonymous online bidding event;
picture of a handshake with text Buyer chooses supplier and
picture of a check mark with text Buyer and supplier complete
purchase order.]
Each
new buyer or supplier initially registers on-line for inclusion on our
marketplaces database. A company registering as a buyer provides
general commercial information about its business and information about
the type of supplier with which the buyer prefers to do business.
Suppliers provide similar commercial information as well as detailed
technical capability, quality certifications and information about their
manufacturing processes. Suppliers must also confirm by telephone their
information with a SupplierMarket.com representative. Registration
information is not available to other participants, and access to our
marketplace is password restricted.
Any
registered buyer can submit a request for quotation to our marketplace.
Our RFQ Builder technology provides a standardized, easy-to-use, on-line
request for quotation form on which the prospective buyer may specify
information about the product, including design specifications,
materials, quantity, quality levels and delivery date. The buyer can also
post on-line blueprints or engineering drawings via fax or electronic
file upload. Our marketplace supports most major computer aided design
software, including Parametric Technologys ProEngineer and
AutoDesks AutoCAD.
Once a
buyer posts a request for quotation, we match it with prospective
suppliers using our proprietary SmartMatch technology, and the
buyers commercial and product data with the exception of its
identity is made available for prospective suppliers to evaluate.
SmartMatch automatically identifies prospective suppliers that have
expertise in the products or processes required to fulfill the request
for quotation and that meet the buyers criteria, and notifies those
suppliers by e-mail. SmartMatch achieves this matching through keyword
searches and intelligent selection criteria. In addition, all registered
suppliers are able to browse and search a database of submitted requests
for quotation and can nominate themselves to be included in the list of
prospective suppliers. A buyer may also nominate a particular supplier,
choose to eliminate any supplier or limit the number of prospective
suppliers allowed to participate in the bidding event.
We
employ a small group of experienced industry professionals as market
makers. Our market makers supervise bidding events and complement our
SmartMatch technology by ensuring that a sufficient number of suppliers
participate in each bidding event to result in a successful outcome. In
the event that a bidding event has a limited number of supplier
participants, our market makers use their extensive industry knowledge
and contacts to invite additional non-registered suppliers to register
and participate. As the number of buyers and suppliers that regularly use
our system increases, our market makers will become less involved in the
matching process. This will allow us to increase the number of bidding
events processed without a directly proportionate increase in the number
of our market makers.
At a
time specified by the buyer, all qualified suppliers participate in a
competitive on-line bidding event to fulfill the request for quotation.
At the buyers option, suppliers may bid not only on the entire
request for quotation but also on separate line items of a request for
quotation composed of multiple components or materials. Participants in
the bidding event can view each suppliers bid and commercial and
technical data, but not the suppliers identity. The bidding
typically takes place over a fixed period of time, usually one to two
hours.
Upon
completion of the bidding process, the buyer selects one supplier with
which to complete a purchase order. Our marketplace provides a
combination of price, technical and commercial data to the buyer upon
which the buyer can make its selection. Only after the buyer has made its
selection do we reveal the identities of the selected supplier and the
buyer to each other. The buyer and supplier then typically close the
transaction within several weeks.
Case
Studies
The
examples that follow highlight the benefits that buyers and suppliers
realize by using our marketplace. Each competitive bidding event is a
distinct event with a different buyer and a different mix of suppliers
and direct materials. The cost savings and other benefits of our
marketplace may differ from bidding event to bidding event. For the
bidding events completed to date in which a buyer has selected a supplier
and involving a dollar value in excess of $50,000, direct materials cost
savings for buyers have ranged from 3 to 65%. We measure these savings
based on the difference between the buyers target price for the
request for quotation as provided to us before the bidding event and the
price of the bid selected as a result of the bidding event. The companies
discussed in the following case studies continue to actively participate
in our marketplace by posting or responding to requests for
quotation.
The
Simmons Company. Simmons is one of the
worlds leading manufacturers of mattresses. In 2000 alone, Simmons
estimates that it will require over 8.5 million pounds of polyethylene
film to produce protective bags for mattresses. According to Simmons, the
traditional purchasing process can involve months to research and qualify
suppliers, which adds to the already significant cost for direct
materials. Using the SupplierMarket.com marketplace, Simmons was able to
build a request for quotation, watch the on-line bidding for its request
for quotation in real time, and ultimately choose a supplier from among
eight qualified bidders. This process took approximately 26 days using
our marketplace compared to several months using traditional means.
Compared to historical prices paid by Simmons, Simmons estimates it saved
$425,000, or 7%, in direct materials costs.
Shamrock Industrial
Fasteners. Shamrock is a small fastener
manufacturer and distributor, with limited resources for sales and
marketing staff. To find new business opportunities, the company
registered on SupplierMarket.coms marketplace, listing its
technical and commercial qualifications. After being qualified by
SmartMatch to bid on two separate requests for quotation posted by a
buyer seeking to purchase specialized fasteners, Shamrock prepared its
bids based on the engineering diagrams and specifications that were
available on-line on our marketplace. Based on a combination of
Shamrocks qualifications and the competitive bids it placed during
the bidding event, the buyer, a major automotive company, selected
Shamrock to provide over $250,000 in direct materials. Without investing
in up-front sales or marketing, and within twenty days of the requests
for quotation being posted on SupplierMarket.coms marketplace,
Shamrock secured two new orders with a new customer.
Markets and
Market Participants
Our
marketplace features a horizontal approach allowing participants to buy
and sell direct materials across a wide range of industrial segments.
Since the launch of our marketplace in October 1999, we have conducted
bidding events for various direct materials including the
following:
Metal
stampings |
|
Machine
tooling |
Casted
metal products |
|
Precision
machine parts |
Bolts,
nuts and fasteners |
|
Molded
rubber products |
Screw
products |
|
Corrugated
packaging |
Metal
tubing |
|
Wire and
cord products |
Extruded
plastic film and sheet |
|
Fabric |
Injection
and blow-molded plastic components |
|
|
|
|
The buyers and
suppliers that participate in our marketplace comprise a diverse mix
of companies in the direct materials market, ranging from small
components manufacturers to multi-billion dollar original equipment
manufacturers. Buyers who have posted requests for quotation and
suppliers who have participated in bidding events on our marketplace
include: |
|
|
Affordable Interior Systems |
|
Masco |
Becker
Group |
|
Quality
Farm & Country |
Schott
International |
|
Shamrock Industrial Fasteners |
Western
Nonwovens |
|
The
Simmons Company |
EdgeCraft Corp. |
|
Universal Products |
IPS
Industries |
|
U.S.
Filter |
J.L.
French Automotive Castings |
To
date, we have substantially relied on a small number of buyers to post
a significant majority of the requests for quotation on our
marketplace. Some of these buyers are portfolio companies, or
companies owned by investment funds that are either our principal
stockholders or affiliates of our principal stockholders or directors.
All revenue that we earned in 1999 resulted from requests for
quotation posted on our marketplace by one portfolio company buyer.
For the three months ended March 31, 2000, requests for quotation
posted by this same portfolio company buyer generated 91% of our
revenue. In addition, this and other porfolio company buyers have
posted 57% of the dollar value of requests for quotation that have
resulted in bidding events. We expect to continue to depend on these
portfolio companies as buyers, particularly if other buyers are slow
to adopt or to conduct significant business on our marketplace. If any
of these buyers discontinues use of our marketplace, or reduce the
aggregate dollar value of requests for quotation they post, our
business could be severely harmed.
We
have recently depended and expect to depend substantially on several
strategic buyers who have the ability to place a large amount of
requests for quotation on our marketplace. We intend to issue
strategic warrants to purchase our common stock to these strategic
buyers that will vest depending upon the total dollar amount of
requests for quotation they post that result in signed purchase
orders. Through March 31, 2000 requests for quotation posted by these
strategic buyers have not generated any of our revenue. However, these
strategic buyers have posted requests for quotation constituting 28%
of the dollar value of all requests for quotation that have resulted
in bidding events. We have obtained no commitments from these
strategic buyers or any other buyers to post requests for quotations
or conduct any other activities on our marketplace. Our strategy to
expand our marketplace and grow our business depends, in part, on the
continued and increasing use of our marketplace by these buyers. The
loss or partial loss of one or more of these buyers could be harmful
to our business and could curtail our growth.
Strategic
Relationships
We
have entered into or are negotiating to enter into several strategic
relationships that should improve our ability to execute our business
plan. We will partner with other companies to grow our base of
participants, broaden the range of our marketplace services and
continually improve our technologies.
We have four main categories of strategic alliances: commerce
partners, service partners, knowledge partners and technology
partners. We plan to integrate with our commerce partners
solutions to help expand our participant base and drive usage of our
marketplace. Our commerce partners are typically companies that market
software or technology solutions to manufacturing or design
engineering companies. Our service partners are typically companies
that provide services that complement our service offering. We expect
that alliances with service partners will broaden the range of
services provided to our customers, including financing, logistics and
order fulfillment providers. We plan to enter into agreements with
knowledge partners to provide industry-related content and information
relevant to our participants, and may include regional, national and
international companies publishing journals related to such industries
as manufacturing, engineering, component design and purchasing. Our
technology partners provide hardware and software that may be used to
enhance the operation and maintenance of our marketplace.
We
are pursuing strategic alliances with commerce partners that deliver
Internet- enabled products and services to companies who buy and sell
direct materials. We have executed non-binding letters of intent with
a wide range of companies, including component modeling and
collaborative design, process lifecycle management, enterprise
resource planning and supply chain management software providers. The
following is a description of our relationships with two commerce
partners that we expect to help grow our base of participants through
technology integration with their product offerings.
Parametric Technology
Corporation. Parametric is a leading
provider of integrated product development and process lifecycle
management solutions, with more than 230,000 users. We have entered
into a non-binding letter of intent that contemplates a co-development
and co-marketing agreement with Parametric providing for the
integration of our marketplace with Parametrics software. When
this integration is completed, it will allow Parametric users to
automatically convert their requests for quotation into our
standardized format for submission to our marketplace. In addition,
this will allow Parametric users to obtain reports on request for
quotation status and bidding event results through Parametrics
software, all without abandoning their investment in Parametrics
software.
Agile Software. Agile develops
Internet-based collaborative manufacturing commerce solutions that
enable manufacturers to collaborate over the Internet with their
supply chain partners about new product content, and then source and
procure the required components. Agile currently has more than 25,000
users. We have entered into a non-binding letter of intent that
contemplates a co-development and co-marketing agreement with Agile
providing for the integration of our marketplace with Agiles
software. When this integration is completed, it will allow Agile
users to automatically convert their requests for quotation into a
standardized format for submission to our marketplace and to obtain
request for quotation status and bidding event results from
Agiles Internet site.
In
February 2000, our board of directors reserved 2,181,416 shares of
common stock for issuance in connection with strategic common stock
purchase warrants which we may issue to strategic buyers that have the
ability to place a large dollar amount of requests for quotation on
our marketplace. We have entered into non-binding letters of intent
with several buyers to issue these strategic warrants. We expect that
the vesting of these strategic warrants will be based, in each case,
on the buyers attaining specified quarterly targets for the
total dollar value of requests for quotation posted on our marketplace
by that buyer that result in the signing of a purchase order. We
cannot assure you that we will be able to issue these strategic
warrants with any of these buyers at all or on terms reasonable to us.
Even if we issue strategic warrants to these buyers, the warrants
would not obligate any of the buyers to post any requests for
quotation, or otherwise conduct any business on our
marketplace.
Technology
We
operate our marketplace from our headquarters in Burlington,
Massachusetts to ensure that each bidding event is actively managed by
our market making team and runs smoothly. Our bidding event
architecture contains many features to monitor and control bidding
events so that our market making team can
quickly respond in the event of technical or other difficulties. Our
marketplace is hosted from a state-of-the-art data center managed by a
third-party host, which provides a controlled environment with backup
power, high bandwidth redundant network connections and 24-hour
security and monitoring.
In
an effort to ease integration and communications in the direct
materials market, we have become a leading contributor to the efforts
of the Open Applications Group, Inc. to standardize requests for
quotation in XML format. The Open Applications Group is a non-profit
consortium that seeks to promote greater business software
interoperability and is the largest publisher of XML content for
business software interoperability in the world. The Open Applications
Group also builds and publishes detailed specifications necessary to
use the XML format.
Since the successful launch of our marketplace in October 1999,
we have enhanced our marketplaces functionality through several
upgrades as summarized below:
Release
Date |
|
Version |
|
Primary
Features |
|
|
October 18,
1999 |
|
1.0 |
|
On-line bidding |
(initial
release) |
|
|
|
On-line RFQ Builder |
|
|
|
|
SmartMatch technology |
|
|
|
|
View
blueprints and engineering drawings |
|
|
|
|
Request for quotation search capability |
|
|
December 6,
1999 |
|
2.0 |
|
Advance searching of requests for
quotation |
|
|
|
|
Industry-related content |
|
|
|
|
On-line request for quotation bulletin
board |
|
|
|
|
Enhanced bidding features |
|
|
January
23, 2000 |
|
3.0 |
|
Line
item request for quotation generation |
|
|
|
|
Line
item bidding |
|
|
|
|
Enhanced request for quotation bulletin
board |
|
|
|
|
Buyer analysis tools |
|
|
March 31,
2000 |
|
4.0 |
|
Supplier pre-bid functionality |
|
|
|
|
Customer analysis tools |
In addition, we completed an infrastructure upgrade in
February 2000 to further enhance the reliability, security and
scalability of our technology architecture. This infrastructure
upgrade enabled us to support a greater number of concurrent
bidding events and provided greater reliability and security
through increased redundancy of firewalls, networks and web
servers.
Sales
and Marketing
We sell our solution through our field-based regional sales
teams and a national accounts sales team. Each regional team
focuses on selling our solution to regional or local manufacturers
located within its geographic territory. Our field-based regional
sales personnel are located in Baltimore, Birmingham, Buffalo,
Chicago, Cincinnati, Cleveland, Detroit, Grand Rapids, Hartford,
Indianapolis, Los Angeles, Milwaukee, Minneapolis, Newark, New
York, Phoenix, San Diego, San Francisco and Seattle.
The national accounts team focuses on larger companies that
have a presence across the U.S. Our sales teams have extensive
experience in selling industrial goods and services to industrial
manufacturing companies. The expertise of our sales force in the
direct materials market covers a variety of industrial segments.
As of March 31, 2000, our direct sales force consisted of 36 sales
professionals.
Our sales teams concentrate their efforts on serving and
attracting buyers in our marketplace. In addition, they encourage
existing suppliers in our marketplace to become buyers and
existing buyers to become suppliers. Finally, they gauge
participants satisfaction with our marketplace and collect
feedback that we may
use to improve the overall quality and effectiveness of our
marketplace. We continue to build and expand our direct sales
force domestically and expect to hire sales representatives
internationally during 2000.
Our marketing efforts focus on general communications,
obtaining referrals from marketplace participants, targeted
promotions and selected advertising. For example, we participate
in trade conferences and purchasing industry forums, advertise
through national and industry-targeted publications and regionally
targeted radio, and conduct facsimile, telemarketing and direct
mail campaigns. We intend to increase our advertising and
marketing expenditures in an effort to penetrate our target
industrial segments and build our brand as the leading marketplace
for direct materials. These marketing expenditures will cover
additional personnel, increased advertising in professional
journals and general business and trade media, increased media
relations and increased presence at purchasing and technology
trade conferences.
Competition
The market for business-to-business e-commerce is rapidly
evolving and intensely competitive, and we expect competition to
further intensify in the future. A number of companies offer
services or products to this market, and existing and potential
users of our marketplace can choose from a variety of current and
potential competitors offerings. We currently or, may in the
future, compete with a number of other companies,
including:
|
consulting-oriented companies that offer similar services
or services that may be perceived to be similar, such as
FreeMarkets and A.T. Kearney;
|
|
in-house
or specialized on-line marketplaces of large individual buyers
or suppliers or groups of companies in one or more related
industrial segments. For example, groups of companies in the
automotive, aerospace and defense and plastics industries have
recently announced their intentions to establish consolidated
on-line exchanges for buyers and suppliers in their respective
industries;
|
|
e-commerce communities, such as VerticalNet;
|
|
companies
that have historically focused on developing enterprise
purchasing software systems within the indirect materials market
and may introduce or further expand their e-commerce services,
such as Ariba and Commerce One;
|
|
companies
that offer a broad array of Internet-related services or
software that currently include, or may in the future include,
business-to-business e-commerce services;
|
|
companies
that develop enterprise resource planning software and may
introduce or further expand their provision of related
e-commerce services;
|
|
companies
that provide electronic data interchanges; and
|
|
traditional third-party agents.
|
The principal competitive factors that affect our business
are breadth of industrial segments served, depth of the pool of
qualified suppliers, buyer selection, usefulness and cost
effectiveness of service offerings, time and cost of adoption,
brand loyalty and strategic relationships. We believe that we
compete favorably with respect to each of these factors. If we
fail to effectively compete in any one of these areas, we may lose
existing and potential buyers and suppliers.
Intellectual Property
We believe our intellectual property rights are important to
our business. We rely or expect to rely on a combination of
patent, copyright, trademark, service mark and trade secret
restrictions and contractual provisions to protect our
intellectual property rights. We require employees and independent
contractors to enter into nondisclosure and development
agreements. We cannot assure you that we will be successful in
obtaining these agreements in all instances. We require buyers and
suppliers using our marketplace to agree to terms and
conditions of use, which include provisions limiting the scope of
permissible uses of our marketplace. The contractual provisions
and the other steps we have taken to protect our intellectual
property may not prevent misappropriation of our technology or
deter third parties from developing similar or competing
technologies.
We may seek patents with respect to proprietary features of
our technology that we currently use or intend to use in the
future. We cannot assure you that any patents will be issued or,
even if issued, that these patents will adequately protect our
technology or processes or otherwise result in commercial
advantages to us.
We have applied for United States registration of our
service marks SupplierMarket.com,
SmartMatch, RFQ Builder, RFQ
Bid, SmartBid, SupplierMarketplace,
People buy parts. People sell parts. This is where they
meet. and SMC.
Government Regulation
As with many Internet companies, we operate in an
environment of great uncertainty as to potential government
regulation. We believe that we are not currently subject to direct
regulation applicable to e-commerce, other than regulations
applicable to businesses generally. However, the Internet has
rapidly emerged as a commerce medium, and governmental agencies
have not yet been able to adapt existing regulations to its use.
Future laws, regulations and court decisions may affect the
Internet or other electronic services, covering issues such as
user pricing, user privacy, freedom of expression, access charges,
taxation, content and quality of products and services,
advertising, antitrust, intellectual property rights and user
authentication and information security. In addition, because our
marketplace is available worldwide, foreign jurisdictions may
claim that we are required to comply with their laws. Any future
law, regulation or court decision may have a negative impact on
our business.
Because we are an Internet company, it is unclear in which
jurisdictions we are actually conducting business. Our failure to
qualify to do business in a jurisdiction that requires us to so
qualify could subject us to fines and penalties and could result
in our inability to enforce agreements.
Numerous states have laws and regulations regarding the
conduct of auctions and the liability of auctioneers. We do not
believe that these laws and regulations, which in most cases were
enacted for consumer protection many years ago, apply to the
auctions we conduct on our marketplace. However, one or more
jurisdictions may attempt to impose these or new laws and
regulations on our operations in the future.
Employees
As of March 31, 2000, we had 125 employees. Of our
employees, 62 are engaged in sales and marketing, 26 in research
and development, 29 in general and administrative and 8 in
operations. None of our employees is represented by a collective
bargaining agreement, and we believe that we have satisfactory
relations with our employees.
Facilities
Our headquarters in Burlington, Massachusetts currently
occupies approximately 28,000 square feet under a lease that
expires in December 2004. We have entered into a letter of intent
to lease an additional 8,000 square feet of space for our
headquarters. We believe that our existing facilities in
Burlington are adequate for the anticipated needs of our
headquarters for the next 12 to 18 months. We also maintain sales
presences in the following U.S. manufacturing centers: Baltimore,
Birmingham, Buffalo, Chicago, Cincinnati, Cleveland, Detroit,
Grand Rapids, Hartford, Indianapolis, Los Angeles, Milwaukee,
Minneapolis, Newark, New York, Phoenix, Providence, San Diego, San
Francisco and Seattle.
Legal
Proceedings
We are not currently involved in any material legal
proceedings.
Officers
and Directors
The following table sets forth information regarding our
executive officers, certain other officers who make significant
contributions to our business and directors as of April 30,
2000.
Name
|
|
Age
|
|
Position(s)
|
Jonathan
Burgstone |
|
28 |
|
Chief
Executive Officer and Director |
Asif
Satchu |
|
28 |
|
Chairman,
President, Secretary and Director |
Richard
Feldt |
|
48 |
|
Chief
Operating Officer |
Brian
Bethers |
|
40 |
|
Chief
Financial Officer and Treasurer |
Richard
Bierwagen |
|
38 |
|
Vice
President of Sales and Marketing |
Mark
Diker |
|
33 |
|
Managing
Director of Strategic Development |
Scott
Donnelly |
|
46 |
|
Vice
President of Human Resources |
Michael
Ellis |
|
31 |
|
Vice
President and Corporate Controller |
Brad
Hafer |
|
35 |
|
Vice
President of Corporate Development |
Daniel
Heaney |
|
47 |
|
Vice
President of Treasury and Investor Relations |
Murali
Menon |
|
40 |
|
Vice
President of Engineering |
Terrence
Mullen |
|
33 |
|
Managing
Director of Strategic Development |
Reza
Satchu |
|
30 |
|
Executive
Vice President of Strategic Development |
William
Sheehan |
|
31 |
|
Vice
President of Business Development |
Robert
Barrett(1) |
|
55 |
|
Director |
Marco
Iansiti(2) |
|
38 |
|
Director |
Peter
Lamm(1) |
|
48 |
|
Director |
Robert
Lanigan |
|
67 |
|
Director |
Marc
Lipschultz(2) |
|
31 |
|
Director |
Ravi
Mohan(2) |
|
33 |
|
Director |
(1)
|
Member of
the compensation committee.
|
(2)
|
Member of
the audit committee.
|
Jonathan Burgstone is one of our founders and has
served as our Chief Executive Officer and one of our directors
since our inception in February 1999 and as our Treasurer from
inception until February 2000. Prior to our founding, Mr.
Burgstone worked in various management positions in manufacturing
at Ford Motor Company from 1994 to 1997. Mr. Burgstone received a
bachelors degree in industrial engineering from the
University of Illinois, a masters degree in industrial and
systems engineering from the University of Michigan and a
masters degree in business administration from Harvard
Business School.
Asif Satchu is one of our founders and has served as
our President since August 1999 and as our Chairman and Secretary
and one of our directors since our inception in February 1999.
Prior to our founding, Mr. Satchu worked at Tiger Real Estate
Partners, an affiliate of Tiger Management Corporation, a private
equity fund manager, from 1995 to 1997, and at Morgan Stanley
& Co., from 1993 to 1995. Mr. Satchu received a
bachelors degree in economics and political science from
McGill University and a masters degree in business
administration from Harvard Business School.
Richard Feldt has served as our Chief Operating
Officer since January 2000. Prior to joining us, Mr. Feldt worked
for Symbol Technologies, a mobile data management systems
manufacturing company, from 1995 to 2000, most recently serving as
senior vice president and general manager of worldwide operations.
Prior to joining Symbol, Mr. Feldt held senior operations
positions at A.T. Cross from 1991 to 1995, at Eastman Kodak
Company from 1988 to 1991 and at Spectra-Physics, Inc. from 1980
to 1988. He currently serves as a board member of GSW, Inc., a
diversified Canadian manufacturer. Mr. Feldt received a
bachelors degree in industrial engineering from Northeastern
University.
Brian Bethers has served as our Chief Financial
Officer since January 2000 and as our Treasurer since February
2000. Prior to joining us, Mr. Bethers worked for Host Marriott
Services from 1995 to 1999, serving
as chief financial officer. From 1993 to 1995, Mr. Bethers served as
vice president of development for Host Marriott Corporation. From
1985 to 1993, Mr. Bethers worked for Marriott Corporation most
recently serving as director of finance. Mr. Bethers received a
bachelors degree in public policy and a masters degree
in business administration from Brigham Young
University.
Richard Bierwagen has served as our Vice President of
Sales and Marketing since September 1999. Prior to joining us, Mr.
Bierwagen worked for GKN, plc, a global manufacturing company from
1986 to 1999, most recently serving as vice president and general
manager. Mr. Bierwagen received a bachelors degree in
business from Montana State University and a masters degree
in business administration from the Owen School at Vanderbilt
University.
Mark Diker has served as our Managing Director of
Strategic Development since April 2000. Prior to joining us, Mr.
Diker worked for Geocapital Partners, a technology-focused venture
capital firm, from 1996 to 2000, most recently serving as a
general partner. Prior to joining Geocapital Partners, Mr. Diker
worked for Bankers Trust as a vice president in the Japanese
Equity Derivatives Group. He currently serves as a board member of
Autoweb.com and Infoimage, Inc. Mr. Diker received a
bachelors degree in government from Harvard University and a
masters degree in business administration from Harvard
Business School.
Scott Donnelly has served as our Vice President of
Human Resources since January 2000. Prior to joining us, Mr.
Donnelly worked for Nortel Networks, previously Bay Networks, from
1993 to 1999, most recently serving as director of human resources
for worldwide field operations. Prior to that he served as human
resources manager at Hewlett Packard and Wang Laboratories. Mr.
Donnelly received a bachelors degree in psychology from
Hartwick College and a masters of science degree in
industrial relations from West Virginia University.
Michael Ellis has served as our Vice President and
Corporate Controller since April 2000 and has been with us since
January 2000. Prior to joining us, Mr. Ellis worked for
PricewaterhouseCoopers LLP from 1993 to 1999 with high-growth
companies, principally in technology-based industries and, most
recently as a director with venture capital and leveraged buyout
firms in their mergers and acquisitions group. Mr. Ellis received
bachelors degrees in accounting and politics and government
from Ohio Wesleyan University and is a Certified Public
Accountant.
Brad Hafer has served as our Vice President of
Corporate Development since February 2000. Prior to joining us,
Mr. Hafer worked for A.T. Kearney from 1993 to 1999, most recently
serving as a principal. Mr. Hafer received a bachelors
degree in engineering from Lafayette College and a masters
degree in management from Northwestern Universitys J.L.
Kellogg Graduate School of Management.
Daniel Heaney has served as our Vice President of
Treasury and Investor Relations since April 2000. Prior to joining
us, Mr. Heaney worked from 1980 to 1999 at EG&G Inc., now
Perkin Elmer, a diversified high technology company, serving as
Treasurer from 1995 to 1999. From 1980 to 1995, Mr. Heaney served
in various financial roles including controller, technical
services group and manager of international finance. Prior to
that, he served as a senior financial analyst at Digital Equipment
Corporation. Mr. Heaney received a bachelors degree in
administrative sciences from Colby College and a masters
degree in business administration from the University of San
Francisco.
Murali Menon has served as our Vice President of
Engineering since June 1999. Prior to joining us, Mr. Menon worked
for Epsilon Data Management, a database marketing company, from
1998 to 1999, serving as senior director of the Internet group.
From 1996 to 1998, Mr. Menon worked for Ordertrust, a company
providing back-end payment and order processing services for
on-line merchants serving as vice president of product management.
From 1987 to 1996, Mr. Menon worked at the Massachusetts Institute
of Technologys Lincoln Laboratory as a researcher. Mr. Menon
received a bachelors degree, a masters degree and a
doctorate in engineering from Case Western Reserve
University.
Terrence Mullen has served as our Managing Director
of Strategic Development since March 2000. Prior to joining us,
Mr. Mullen worked for Thomas H. Lee Partners, a private equity
investment firm, from 1992 to
1994 and from 1996 to 2000, most recently serving as vice president.
Mr. Mullen received a bachelors degree in finance and
economics from the University of Notre Dame and a masters
degree in business administration from Harvard Business
School.
Reza Satchu has served as our Executive Vice
President of Strategic Development since February 2000. Mr. Satchu
began his affiliation with us while a managing director at Fenway
Partners, a private equity investment firm, which is one of our
principal investors. Mr. Satchu has taken a leave of absence from
Fenway Partners. Prior to joining Fenway Partners in 1996, Mr.
Satchu worked as an investment banker at Merrill Lynch & Co.
Mr. Satchu currently serves as a director of Decorative Concepts
and Iron Age Corporation. Mr. Satchu received a bachelors
degree in economics and political science from McGill University
and a masters degree in business administration from Harvard
Business School.
William Sheehan has served as our Vice President of
Business Development since February 2000 and has been with us
since August 1999. Prior to joining us, Mr. Sheehan worked for
Precision Castparts Corporation, an industrial manufacturing
company, from 1998 to 1999, serving as vice president of business
development. From 1995 to 1998, Mr. Sheehan worked for A.T.
Kearney as a management consultant. Mr. Sheehan received a
bachelors degree in electrical engineering from the
University of Massachusetts and a masters degree in
management from Northwestern Universitys J.L. Kellogg
Graduate School of Management.
Robert Barrett has served as one of our directors
since June 1999. Mr. Barrett has served as a general partner since
1983 at Battery Ventures, a venture capital firm he founded, which
is one of our principal investors. Mr. Barrett currently serves as
a director of a number of companies, including Corillian Software,
Interspeed, Brooktrout Technologies and Peerless Systems in
addition to several privately-held companies. Mr. Barrett received
a bachelors degree in history from Harvard College and a
masters degree in business administration from Harvard
Business School.
Marco Iansiti has served as one of our directors
since February 2000. Mr. Iansiti has been a professor in the
Technology and Operations Management Area at Harvard Business
School since 1989, where he focuses his research and teaching on
the management of technology, product development and the design
and start-up of new ventures. He is a member of the advisory
boards of Desktop.com, Inc. and PDF Solutions, Inc., and is a
director of Integrated Development Enterprise, Inc. and Model N,
Inc. Mr. Iansiti received a bachelors degree and a Ph.D. in
physics from Harvard University.
Peter Lamm has served as one of our directors since
November 1999. Mr. Lamm is chairman and chief executive officer
and a founding partner of Fenway Partners, which he co-founded in
1994 and which is one of our principal investors. Mr. Lamm
currently serves as a director of a number of Fenway
Partners portfolio companies, including Aurora Foods,
Quality Stores, Iron Age Corporation, Simmons Company, Delimex
Holdings, Decorative Concepts and Blue Capital Management. Mr.
Lamm received a bachelors degree in English literature from
Boston University and a masters degree in business
administration from Columbia University School of
Business.
Robert Lanigan has served as one of our directors
since March 2000. Mr. Lanigan is Chairman Emeritus of the board of
directors of Owens-Illinois, Inc., a manufacturer and seller of
packaging products. Mr. Lanigan also serves as a director of
Daimler Chrysler AG and IMS Health, Inc., a consulting company for
the pharmaceutical and health care industries. Mr. Lanigan
received his bachelors degree in economics from St. Francis
College.
Marc Lipschultz has served as one of our directors
since December 1999. Mr. Lipschultz has worked since 1995 at
Kohlberg Kravis Roberts & Co., one of our principal investors.
Prior to joining Kohlberg Kravis Roberts & Co., Mr. Lipschultz
worked as an investment banker at Goldman, Sachs & Co. Mr.
Lipschultz serves as a director of Amphenol Corporation, The
Boyds Collection, Ltd., Evenflo Company and Spaulding Sports
Worldwide. Mr. Lipschultz received a bachelors degree from
Stanford University and received a masters degree in
business administration from Harvard Business School.
Ravi Mohan has served as one of our directors since June
1999. Mr. Mohan has worked with Battery Ventures since 1996, most
recently as a general partner. Prior to joining Battery Ventures,
Mr. Mohan worked for McKinsey & Company from 1994 to 1996. Mr.
Mohan currently serves as a director for Corillian Software. Mr.
Mohan received a bachelors degree in operations research and
industrial engineering from Cornell University and a masters
degree in business administration from the University of Michigan
Business School.
Our board of directors currently consists of eight
directors. Each director is elected for a period of one year at
our annual meeting of stockholders and serves until the next
annual meeting or until his or her successor is duly elected and
qualified.
The board of directors appoints our executive officers on an
annual basis, and they serve until successors have been duly
elected and qualified. Asif Satchu and Reza Satchu are brothers.
There are no other family relationships among any of our
directors, officers or key employees.
The board of directors intends to name one additional
outside director.
The election of Messrs. Barrett and Mohan to our board of
directors in June 1999 was required by our stockholders agreement
with the holders of our Series A preferred stock and of
substantially all of our common stock. The election of Mr. Lamm in
November 1999 and Mr. Lipschultz in December 1999 was required by
our voting agreement with the holders of our Series A preferred
stock, our Series B preferred stock and substantially all of our
common stock. Both the stockholders agreement and the voting
agreement automatically terminate upon the closing of this
offering.
Our board of directors has established an audit committee
and a compensation committee, both in January 2000. The audit
committee reviews our internal accounting procedures and consults
with and reviews the services provided by our independent
accountants. The compensation committee reviews and determines the
compensation and benefits of all of our officers, establishes and
reviews general policies relating to the compensation and benefits
of all of our employees, and upon the closing of this offering
will administer our 1999 Stock Option Plan.
|
Compensation Committee Interlocks and Insider
Participation
|
Prior to establishing the compensation committee, the board
of directors as a whole performed the functions delegated to the
compensation committee. No member of our current compensation
committee has ever served as one of our officers or employees.
None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or
more executive officers serving on our board of directors or
compensation committee.
Our directors currently do not receive any cash compensation
from us for their services as members of the board of directors.
We reimburse our directors for out-of-pocket expenses in
connection with attendance at board and committee meetings. All of
our directors, including non-employee directors, are eligible to
participate in our 1999 Stock Option Plan.
In February and March 2000, we granted options to purchase
15,000 shares of common stock to each member of the board of
directors other than Messrs. Burgstone and Satchu. These options
vest ratably over twelve months following the date of
grant.
We have entered into employment agreements with each of
Messrs. Burgstone and Satchu. Our agreements with Messrs.
Burgstone and Satchu require that we employ each of them in a
position no lower in authority than Executive Vice President. Each
of them will receive a salary of $150,000 annually, subject to
adjustment from time to time by the board, plus a discretionary
bonus. All work product and intellectual property created by
Messrs. Burgstone and Satchu during the term of the agreements
belong to us. Our agreements prohibit Messrs. Burgstone and Satchu
from working for a competitor of ours and from soliciting any of
our employees to work for either of them at another company for
two years following termination of employment with us. The
employment agreements provide that we may terminate Mr.
Burgstones or Mr. Satchus employment upon 30 days
notice, or earlier if the termination is for cause. If we
terminate Mr. Burgstones or Mr. Satchus employment
without cause or either of them terminates his employment for good
reason, we must continue to pay each of them his base salary for
12 months. In addition, Mr. Satchu received a one-time bonus from
us in March 2000 of $135,000.
We have also entered into stock restriction agreements with
each of Messrs. Burgstone and Satchu. Under these stock
restriction agreements, as of March 2000, 1,553,444 shares held by
each vest ratably each month that each executive is employed by us
through June 2001. Our stock restriction agreement with each
provides, among other things, that the vesting schedule of all
shares of common stock owned by each will be accelerated by 12
months if we terminate him without cause or if he resigns for good
reason.
The following table sets forth a summary of the compensation
paid during the fiscal year ended December 31, 1999 to our Chief
Executive Officer. No other executive officer earned more than
$100,000. Mr. Burgstone was paid a salary from July 1 through
December 31, 1999. His annual salary is $150,000. Compensation in
the form of perquisites and other personal benefits has been
omitted because the aggregate amount of these perquisites and
other personal benefits constituted less than the lesser of
$50,000 or 10% of his total annual salary and bonus for 1999. We
did not award any long term compensation to Mr. Burgstone in
1999.
Summary
Compensation Table
|
|
|
|
|
Name
and Principal Position
|
|
Salary
|
|
Bonus
|
Jonathan
Burgstone |
|
$73,365 |
|
$50,000 |
Chief Executive
Officer |
|
|
|
|
Option
Grants
Since our inception we have not granted any options to Mr.
Burgstone.
1999
Stock Option Plan
Our board of directors and shareholders adopted our 1999
Stock Option Plan in June 1999. We have reserved 5,251,924 shares
of common stock for issuance under the plan. The plan terminates
in June 2009, unless terminated earlier by our board of
directors.
Effective upon the closing of this offering the compensation
committee of our board of directors will administer the plan. The
compensation committee has authority to interpret the plan, grant
awards and make all other determinations necessary to administer
the plan.
The plan provides for the grant of both incentive stock
options, commonly called ISOs, that qualify under Section 422 of
the Internal Revenue Code, and nonqualified stock options,
commonly called NQSOs. ISOs may be granted only to our employees
or employees of a parent or subsidiary. NQSOs may be granted to our
employees, directors and consultants. Generally, the exercise price
of ISOs must be at least equal to the fair market value of our
common stock on the date of grant. Any grant of an ISO to a holder
of 10% or more of our outstanding shares of common stock must have
an exercise price of at least 110% of the fair market value of our
common stock on the date of grant. Options granted under the plan
have a maximum term of 10 years. Options granted under the plan
may not be transferred other than by will or by the laws of
descent and distribution. They generally also must be exercised
during the lifetime of the optionee and only by the
optionee.
Options granted under the plan generally expire three months
after the termination of the optionees service, except in
the case of death or disability, in which case the options
generally may be exercised up to 12 months following the date of
death. If we are dissolved or liquidated or experience a
change in control, the successor corporation, if any,
may assume or substitute for outstanding awards. If a successor
corporation does not assume or substitute for the awards, the
compensation committee may accelerate the vesting of outstanding
options.
Limitation of Liability and Indemnification
Matters
Our certificate of incorporation limits the liability of
directors to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their
fiduciary duties as directors, except liability for:
|
any
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;
|
|
unlawful
payments of dividends or unlawful stock repurchases or
redemption; or
|
|
any
transaction from which the director derived an improper personal
benefit.
|
This limitation of liability does not apply to liabilities
arising under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or
rescission.
Our by-laws provide that we shall indemnify our directors,
officers, employees and agents to the fullest extent permitted by
law. We believe that indemnification under our by-laws covers
negligence and gross negligence on the part of indemnified
parties. Our by-laws also permit us to secure insurance on behalf
of any officer, director, employee or other agent for any
liability arising out of his or her actions in that capacity,
regardless of whether the by-laws would permit indemnification. We
intend to obtain director and officer liability insurance that
covers these matters, including matters arising under the
Securities Act.
At present, we are not aware of any pending or threatened
litigation or proceeding involving any of our directors, officers,
employees or agents in which indemnification would be required or
permitted.
RELATED PARTY TRANSACTIONS
From June through July 1999, we sold 6,562,873 shares of
Series A preferred stock at $0.93 per share. In this private
placement, we sold 4,317,324 shares to Battery Ventures V L.P. and
affiliated entities, 1,618,997 shares to Sequoia Capital VIII and
affiliated entities, 86,346 shares to Rustom and Zarina Satchu,
Mr. Satchus parents, 68,357 shares to Peter Lamm and 68,357
shares to Reza Satchu, Mr. Satchus brother. Each share of
Series A preferred stock is convertible into two shares of common
stock.
From November 1999 through February 2000, we sold 16,040,039
shares of Series B preferred stock at $2.34 per share. In this
private placement, we sold 2,138,672 shares to Battery Ventures V
L.P. and affiliated entities, 3,421,875 shares to Aurora
Investments LLC, 3,421,875 shares to Fenway Partners Capital Fund
II, L.P., 1,283,203 shares to Sequoia Capital VIII and affiliated
entities, 155,954 shares to Rustom and Zarina Satchu, 78,630
shares to Peter Lamm, 78,630 shares to Reza Satchu and 56,632
shares to Karen Andrews, Mr. Burgstones mother. Each share
of Series B preferred stock is convertible into one half of one
share of common stock.
In November 1999, we granted an immediately exercisable
option to purchase 172,328 shares of common stock at $0.94 per
share to Reza Satchu in connection with his provision of advisory
services to us. His services included assistance in identifying
potential financing sources and advice on growth strategies and
product offerings. In April 2000, we granted Reza Satchu an option
to purchase 180,000 shares of common stock at $5.00 per share in
connection with his becoming our Executive Vice President of
Strategic Development. This option vests with respect to
one-eighth of the underlying shares six months after the date of
grant. The option vests with respect to the remaining underlying
shares ratably over the succeeding 42 months.
From June 1999 through February 2000, we loaned a total of
$133,634 to Asif Satchu. We did not charge interest on the loan.
Mr. Satchu has since repaid all loaned amounts.
Since the launch of our marketplace in October 1999, we have
substantially relied on a small number of buyers to post a
significant majority of requests for quotation on our marketplace.
Some of these buyers are portfolio companies, or companies owned
by investment funds that are either principal stockholders or
affiliates of our principal stockholders or directors. For the
three months ended March 31, 2000, these portfolio companies have
accounted for 57% of the dollar value of requests for quotation
that have resulted in bidding events. These portfolio companies
include Amphenol Corporation, Aurora Foods, Evenflo Company,
Intercontinental Art, J.L. French, The Milnot Company, Quality
Farm & Country, The Simmons Company, Simonds Industries,
Spalding Sports Worldwide, Sun Gro Horticulture and Woods
Equipment Company. See Risk Factors.
In each transaction set forth above where executive
officers, directors, five percent or greater stockholders or
family members of any of these persons purchased shares, these
shares were purchased at the same price and on the same terms as
shares purchased by other investors at those times.
We will require that all future transactions with parties
affiliated with us, including loans between us and our officers,
directors, principal stockholders and their affiliates, be
approved by a majority of the board of directors, including a
majority of independent and disinterested directors, and that such
transactions be on terms no less favorable to us than could be
obtained from unaffiliated third parties.
The following table sets forth information known to us with
respect to the beneficial ownership of our common stock by the
following persons as of March 31, 2000:
|
each
person or group of affiliated persons known by us to own
beneficially more than 5% of the outstanding shares of common
stock;
|
|
each of
our executive officers named in the summary compensation table;
and
|
|
all
directors and executive officers as a group.
|
Percentage ownership in the following table is based on
31,196,283 shares of common stock outstanding as of March 31,
2000. Percentage ownership assumes conversion of all shares of
preferred stock outstanding as of March 31, 2000 into shares of
common stock, which will occur upon the closing of this
offering.
We have determined beneficial ownership in the table in
accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, we have
deemed shares of common stock subject to options or warrants held
by that person that are currently exercisable or will become
exercisable within 60 days of March 31, 2000, assuming that this
offering occurs in that 60-day period, to be outstanding, but we
have not deemed these shares to be outstanding for computing the
percentage ownership of any other person. To our knowledge, except
as set forth in the footnotes below, each stockholder identified
in the table possesses sole voting and investment power with
respect to all shares of common stock shown as beneficially owned
by that stockholder.
The address for each listed director and officer is c/o
SupplierMarket.com, Inc., 10 Mall Road, Burlington, MA 01803. The
address of the entities affiliated with Battery Ventures is c/o
Battery Ventures, 901 Mariners Island Boulevard, Suite 475,
San Mateo, CA 94404. The address for Sequoia Capital is 3000
Sandhill Road, Building 4, Suite 280, Menlo Park, CA 94025. The
address of the Fenway Partners Capital Fund II, L.P. is c/o Fenway
Partners, Inc., 152 West 57th St., New York, NY 10019. The address
of Aurora Investments LLC is c/o Kohlberg Kravis Roberts &
Co., 9 West 57th St., New York, NY 10019.
Beneficial Ownership
|
|
|
|
|
|
|
|
Percentage of Shares
Outstanding
|
Name
of Beneficial Owner
|
|
Number
of Shares
Beneficially Owned
|
|
Number
of Options
Exercisable By
May 30, 2000
|
|
Total
|
|
Before
Offering
|
|
After
Offering
|
Entities
affiliated with Battery
Ventures(1) |
|
9,955,499 |
|
|
|
9,955,499 |
|
31.9 |
% |
|
24.2 |
% |
Entities
affiliated with Sequoia Capital(2) |
|
4,131,110 |
|
|
|
4,131,110 |
|
13.2 |
% |
|
10.0 |
% |
Jonathan
Burgstone |
|
3,535,218 |
|
|
|
3,535,218 |
|
11.3 |
% |
|
8.6 |
% |
Asif
Satchu |
|
3,535,218 |
|
|
|
3,535,218 |
|
11.3 |
% |
|
8.6 |
% |
Fenway
Partners Capital Fund II, L.P. |
|
1,792,072 |
|
|
|
1,792,072 |
|
5.7 |
% |
|
4.4 |
% |
Aurora
Investments LLC, executives of
KKR & Co. |
|
1,751,505 |
|
|
|
1,751,505 |
|
5.6 |
% |
|
4.3 |
% |
Robert
Barrett(1) |
|
9,955,499 |
|
2,500 |
|
9,957,999 |
|
31.9 |
% |
|
24.2 |
% |
Marco
Iansiti |
|
51,729 |
|
1,250 |
|
52,979 |
|
* |
|
|
* |
|
Peter
Lamm(3) |
|
1,968,101 |
|
2,500 |
|
1,970,601 |
|
6.3 |
% |
|
4.8 |
% |
Robert
Lanigan |
|
4,278 |
|
1,250 |
|
5,528 |
|
* |
|
|
* |
|
Marc
Lipschultz(4) |
|
1,751,505 |
|
2,500 |
|
1,754,005 |
|
5.6 |
% |
|
4.3 |
% |
Ravi
Mohan(1) |
|
9,955,499 |
|
2,500 |
|
9,957,999 |
|
31.9 |
% |
|
24.2 |
% |
All
directors and officers as a group
(20 persons)(1)(3)(4) |
|
21,634,194 |
|
295,951 |
|
21,930,145 |
|
69.6 |
% |
|
52.9 |
% |
*
|
Less than
1% of the outstanding shares of common stock.
|
(1)
|
Includes
8,515,061 shares held by Battery Ventures V L.P., 195,999 shares
held by Battery Investment Partners V, LLC and 1,244,439 shares
held by Battery Ventures Convergence Fund, L.P. Mr. Barrett and
Mr. Mohan disclaim beneficial ownership of the shares held by
these entities except to the extent of their pecuniary interest
in those shares.
|
(2)
|
Includes
3,517,489 shares held by Sequoia Capital VIII, 75,732 shares
held by Sequoia International Technology Partners VIII, 201,659
shares held by Sequoia International Technology Partners VIII
(Q), 77,592 shares held by CMS Partners LLC, 7,124 shares held
by Sequoia 1997, 221,332 shares held by Sequoia Capital
Franchise Fund and 30,182 shares held by Sequoia Capital
Franchise Partners.
|
(3)
|
Includes
1,792,072 shares held by Fenway Partners Capital Fund II, L.P.
and 176,029 shares held directly by Mr. Lamm. Mr. Lamm is a
managing member of Fenway Partners II, LLC, the general partner
of Fenway Partners Capital Fund II, L.P. Mr. Lamm disclaims
beneficial ownership of the shares held by Fenway Partners
Capital Fund II, L.P. except to the extent of his pecuniary
interest in those shares.
|
(4)
|
Includes
1,751,505 shares held by Aurora Investments LLC, an entity with
which Mr. Lipschultz is affiliated. Mr. Lipschultz disclaims
beneficial ownership of the shares held by this entity except to
the extent of his pecuniary interest in those
shares.
|
DESCRIPTION OF CAPITAL STOCK
General
Upon the completion of this offering, we will be authorized
to issue 100,000,000 shares of common stock, $0.001 par value per
share, and 1,000,000 shares of undesignated preferred stock,
$0.001 par value per share. The following paragraphs describe the
material aspects of our capital stock.
Common
Stock
As of March 31, 2000, there were 10,050,519 shares of common
stock outstanding, held of record by 45 stockholders. In addition,
as of March 31, 2000, there were 3,794,760 shares of common stock
subject to outstanding options. Upon completion of this offering,
there will be 41,196,283 shares of common stock outstanding,
assuming no exercise of outstanding stock options outstanding as
of March 31, 2000. All outstanding shares of preferred stock will
convert into common stock upon the closing of this
offering.
Each share of common stock entitles its holder to one vote
on all matters to be voted upon by stockholders. Subject to
preferences that may apply to any outstanding preferred stock,
holders of common stock will receive ratably any dividends that
the board of directors may declare out of funds legally available
for that purpose. In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities and
any liquidation preference of preferred stock that may be
outstanding. The common stock has no preemptive rights, conversion
rights or other subscription rights or redemption or sinking fund
provisions. All outstanding shares of common stock are fully paid
and non-assessable, and the shares of common stock that we will
issue upon completion of this offering will be fully paid and
non-assessable.
Preferred Stock
As of March 31, 2000, we had two series of convertible
preferred stock: Series A and Series B. As of March 31, 2000, the
number of outstanding shares for each series of our preferred
stock was:
|
6,562,873
shares of Series A; and
|
|
16,040,039 shares of Series B.
|
Upon the closing of this offering, all outstanding shares of
Series A preferred stock will convert on a one-to-two basis into
13,125,745 shares of common stock and all outstanding shares of
Series B preferred stock will convert on a two-to-one basis into
8,020,019 shares of common stock. Thereafter, the board of
directors will have the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of preferred stock
in one or more series and to designate the rights, preferences,
privileges and restrictions of each series. The issuance of
preferred stock could have the effect of restricting dividends on
the common stock, diluting the voting power of the common stock,
impairing the liquidation rights of the common stock or delaying
or preventing a change in control without further action by the
stockholders. We have no present plans to issue any shares of
preferred stock after the completion of this offering.
Warrants
In September, 1999 we issued a warrant to purchase 50,000
shares of Series A preferred stock at an exercise price of $0.93
per share. This warrant was outstanding at March 31, 2000 and is
exercisable until September 21, 2006. Upon the closing of this
offering, this warrant will automatically convert into a warrant
to purchase 100,000 shares of common stock at an exercise price of
$0.46.
In February 2000, our board of directors authorized the
issuance of strategic warrants to various companies to purchase up
to a total of 2,181,416 shares of common stock. We have entered
into non-binding
letters of intent with several companies to issue warrants under
this program. We expect that these warrants will vest during the
remaining calendar quarters of 2000 and each quarter of 2001,
based on the total quarterly dollar volume of requests for
quotation posted by the warrant holder through our marketplace
that result in an executed purchase order between the warrant
holder and the supplier for the direct materials associated with
the request for quotation.
Registration Rights
Set forth below is a summary of the registration rights we
have granted under our registration rights agreement. All holders
of our preferred stock, each of Jonathan Burgstone and Asif Satchu
and the holder of the warrant to purchase shares of our Series A
preferred stock have registration rights under our registration
rights agreement. These registration rights apply to the shares of
our common stock that holders of preferred stock or warrants will
receive upon conversion or exercise of the security they currently
hold.
Required Registrations. At any
time following 90 days after this offering, holders of the
registration rights, excluding Messrs. Burgstone and Satchu,
granted under our registration rights agreement may request us to
register shares of common stock, provided the holders own at least
35% of the common stock issued upon conversion of preferred stock.
These required registrations are subject to our right, upon advice
of our underwriters, to reduce the number of shares proposed to be
registered. We are obligated to effect only three registrations
pursuant to requests for required registrations. If, pursuant to
advice from our underwriters, we exclude shares requested to be
included in a registration, the shares registered on behalf of the
selling shareholders will be allocated among all holders of shares
with rights to be included in the registration on the basis of the
number of shares with associated registration rights held by these
shareholders.
Incidental Registrations. The
holders of incidental registration rights, which, in addition to
holders of preferred stock, include Jonathan Burgstone and Asif
Satchu under the registration rights agreement, have unlimited
rights to require us to register their shares when we undertake a
public offering, subject to the discretion of the managing
underwriter of the offering to decrease, or in the case of this
offering, to eliminate, the number of shares that the holders may
register.
Registrations on Form
S-3. After we have qualified for
registration on Form S-3, which will not be available until at
least 12 months after we become a publicly reporting company,
holders of registration rights may request in writing that we
effect registrations on Form S-3. Holders of registration rights
granted under our registration rights agreement may request an
unlimited number of registrations on Form S-3.
Restrictions. Under our
registration rights agreement, if our board of directors
determines that a registration of our common stock would have a
material adverse effect on one of our underwritten public
offerings or would require premature disclosure of pending
negotiations of a significant transaction, our board of directors
may suspend these rights to register shares for so long as the
condition exists, but in no event for longer than 90 days and not
more than once in any twelve-month period.
Transferability. The
registration rights granted under the registration rights
agreement are transferable provided the transfer is to a person or
entity holding at least 50,000 shares or to a partner, member,
shareholder or affiliate of an existing party to the registration
rights agreement, and provided the transferee agrees in writing to
be bound by the terms of the registration rights
agreement.
Termination. All registration
rights terminate six years after the closing of this
offering.
Expenses. We must bear all
expenses associated with the filing of registration statements on
behalf of holders of registration rights, except for underwriting
discounts and selling commissions, which holders of registration
rights selling in the offering must bear.
In connection with our proposed issuance of strategic
warrants, we expect to grant limited registration rights to
holders of these warrants.
Anti-Takeover Provisions
We are subject to Section 203 of the Delaware General
Corporation Law, which regulates acquisitions of some Delaware
corporations. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a business
combination with an interested stockholder for a
period of three years following the date the person becomes an
interested stockholder, unless:
|
the
corporations board of directors approved the business
combination or the transaction in which the person became an
interested stockholder prior to the time the person attained
this status;
|
|
upon
consummation of the transaction that resulted in the person
becoming an interested stockholder, the person owned at least
85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding shares owned by
persons who are directors and also officers; or
|
|
at or
subsequent to the time the person became an interested
stockholder, the corporations board of directors approved
the business combination and the stockholders other than the
interested stockholder authorized the transaction at an annual
or special meeting of stockholders by the affirmative vote of at
least 66 2
/3% of the
outstanding voting stock not owned by the interested
stockholder.
|
A business combination generally includes a
merger, asset or stock sale or other transaction with or caused by
the interested stockholder. In general, an interested
stockholder is a person who, together with the persons
affiliates and associates, owns, or within three years prior to
the determination of interested stockholder status did own, 15% or
more of a corporations voting stock.
This statute could prohibit or delay mergers or other
takeover or change-in-control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.
|
Certificate of Incorporation and Bylaw
Provisions
|
Elimination of Stockholder Action by Written
Consent. Our certificate of
incorporation and by-laws will provide that any action required or
permitted to be taken by our stockholders at an annual or special
meeting may be taken only if properly brought before the meeting,
and may not be taken by written consent in lieu of a
meeting.
Stockholder Meetings. The
by-laws will also provide that special meetings of the
stockholders may be called only by the board of directors, the
chairman of the board or the chief executive officer.
Notice Requirements for Stockholder Nominations and
Proposals. Under our by-laws to be
effective upon the closing of this offering, stockholders wishing
to propose business to be brought before a meeting of stockholders
will be required to comply with various advance notice
requirements.
Undesignated Preferred
Stock. The authorization of
undesignated preferred stock makes it possible for our board of
directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to
acquire us. These and other provisions may have the effect of
deterring hostile takeovers or delaying changes in control of
us.
Transfer
Agent and Registrar
The transfer agent and registrar for the common stock is
American Stock Transfer and Trust. The transfer agents
address is 40 Wall Street, New York, NY 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our
common stock. Future sales of substantial amounts of our common
stock in the public market could adversely affect prevailing
market prices. Sales of substantial amounts of our common stock in
the public market after any restrictions on sale lapse could
adversely affect the prevailing market price of the common stock
and impair our ability to raise equity capital in the
future.
Upon completion of the offering, we will have 41,196,283
outstanding shares of common stock, outstanding options to
purchase 3,794,760 shares of common stock and outstanding warrants
to purchase 100,000 shares of common stock, assuming no additional
option or warrant grants or exercises after March 31, 2000. Of the
10,000,000 shares sold in the offering, no shares will be subject
to the lock-up agreements described below assuming that we sell
all shares reserved under our directed share program to the
entities or persons for whom these shares have been reserved. We
expect that all shares sold in the offering, plus any shares
issued upon exercise of the underwriters over-allotment
option, will be freely tradable without restriction under the
Securities Act, unless purchased by our affiliates as
that term is defined in Rule 144 under the Securities Act. In
general, affiliates include officers, directors and 10% or greater
stockholders.
The remaining 31,196,283 shares outstanding and 3,894,760
shares subject to outstanding options and warrants are
restricted securities within the meaning of Rule 144.
Restricted securities may be sold in the public market only if the
sale is registered or if it qualifies for an exemption from
registration, or if the securities can be sold under Rules 144,
144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of restricted securities in the public
market, or the availability of these shares for sale, could
adversely affect the market price of the common stock.
Lock-Up
Agreements
Our directors, officers, employees and various other
stockholders, who together hold substantially all of our
securities, have entered into lock-up agreements in connection
with this offering. These lock-up agreements generally provide
that these holders will not offer, sell, contract to sell, grant
any option to purchase or otherwise dispose of our common stock or
any securities exercisable for or convertible into our common
stock owned by them for a period of 180 days after the date of
this prospectus without the prior written consent of the
representatives of the underwriters of this offering. The lock-up
agreements executed by our officers, directors and certain
affiliates also cover any shares acquired through our directed
share program. The lock-up agreements executed by our employees do
not cover any shares they may acquire through our directed share
program. Notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144, 144(k) and 701, shares subject
to lock-up agreements may not be sold until these agreements
expire or are waived by the representatives of the underwriters of
this offering. Assuming that the representatives of the
underwriters of this offering do not release any security holders
from the lock-up agreements, the following shares will be eligible
for sale in the public market at the following times:
|
Beginning
on the effective date of the registration statement of which
this prospectus forms a part, all of the 10,000,000 shares sold
in this offering will be immediately available for sale in the
public market.
|
|
Beginning
180 days after the effective date, an additional 29,809,457
shares will be eligible for sale pursuant to Rule 144 and Rule
701.
|
Rule
144
In general, under Rule 144 as currently in effect, after the
expiration of the lock-up agreements, a person who has
beneficially owned restricted securities for at least one year
would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of:
|
one
percent of the number of shares of common stock then
outstanding, which will equal approximately 411,963 shares
immediately after this offering; and
|
|
the
average weekly trading volume of our common stock during the
four calendar weeks preceding the sale.
|
Sales under Rule 144 are also subject to requirements with
respect to manner of sale, notice and the availability of current
public information about us.
Rule
144(k)
Under Rule 144(k), a person who is not deemed to have been
our affiliate at any time during the three months preceding a
sale, and who has beneficially owned the shares proposed to be
sold for at least two years, may sell these shares without
complying with the manner of sale, public information, volume
limitation or notice requirements of Rule 144.
Rule
701
Rule 701, as currently in effect, permits our employees,
officers, directors or consultants who purchased shares pursuant
to a written compensatory plan or contract to resell these shares
in reliance upon Rule 144, but without compliance with certain
restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 ninety days after effectiveness
without complying with the holding period requirement and that
non-affiliates may sell these shares in reliance on Rule 144
ninety days after effectiveness without complying with the holding
period, public information, volume limitation or notice
requirements of Rule 144.
Employee
Plans
We intend to file a registration statement under the
Securities Act after the effective date of this offering to
register shares to be issued pursuant to our employee benefit
plans. As a result, any options or rights exercised under our 1999
Stock Option Plan will also be freely tradable in the public
market. However, shares held by affiliates will still be subject
to the volume limitation, manner of sale, notice and public
information requirements of Rule 144, unless otherwise resellable
under Rule 701. As of March 31, 2000, we had granted options to
purchase 3,794,760 shares of common stock to employees that had
not been exercised, of which options to purchase 136,808 shares
were exercisable. See Management1999 Stock Option
Plan and Description of Capital
StockRegistration Rights.
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED STATES
HOLDERS
General
This section summarizes the material U.S. Federal tax
consequences to holders of common stock that are non-U.S. holders.
In general, you are a non-U.S. holder if you are:
|
an
individual who is a nonresident alien of the U.S;
|
|
a
corporation or other entity taxed as a corporation organized or
created under non-U.S. law;
|
|
an estate
that is not taxable in the U.S. on its worldwide income;
or
|
|
a trust
that is either not subject to primary supervision over its
administration by a U.S. Court or not subject to the control of
a U.S. person with respect to substantial trust
decisions.
|
If a partnership holds common stock, the tax treatment of a
partner will generally depend upon the status of the partner and
upon the activities of the partnership. If you are a partner of a
partnership holding common stock, we suggest that you consult your
tax advisor.
If you are an individual, you may, in many cases, be deemed
to be a resident alien, as opposed to a nonresident alien, by
virtue of being present in the United States for at least 31 days
in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding
year, and one-sixth of the days present in the second preceding
year). Resident aliens are subject to United States federal income
tax as if they were United States citizens.
This discussion does not address all aspects of U.S. Federal
taxation, and in particular is limited in the following
ways:
|
the
discussion assumes that you hold your common stock as a capital
asset (that is, for investment purposes), and that you do not
have a special tax status;
|
|
the
discussion does not consider tax consequences that depend upon
your particular tax situation in addition to your ownership of
the common stock;
|
|
the
discussion does not consider special tax provisions that may be
applicable to you if you have relinquished U.S. citizenship or
residence;
|
|
the
discussion is based on current law. Changes in the law may
change the tax treatment of the common stock;
|
|
the
discussion does not cover state, local or foreign law;
or
|
|
we have
not requested a ruling from the IRS on the tax consequences of
owning the common stock. As a result, the IRS could disagree
with portions of this discussion.
|
If you are considering buying common stock, we suggest that
you consult your tax advisors about the tax consequences of
holding and disposing of the common stock in your particular
situation.
Distributions
Distributions paid on the shares of common stock generally
will constitute dividends for U.S. Federal income tax purposes to
the extent paid from our current or accumulated earnings and
profits, as determined under U.S. Federal income tax principles.
To the extent that the amount of any distributions exceeds our
current or accumulated earnings and profits for a taxable year,
the distribution will first be treated as a tax-free return of
your basis in the shares of common stock, causing a reduction in
the adjusted basis of the common stock,
and the balance in excess of adjusted basis will be taxed as capital
gain recognized on a disposition of the common stock (as discussed
below). Dividends paid to you generally will be subject to U.S.
withholding tax at a 30% rate or, if a tax treaty applies, a lower
rate specified by the treaty, unless you receive the dividends in
connection with a trade or business you conduct in the U.S. To
receive a reduced treaty rate, you must furnish to us or our
paying agent a duly completed Form 1001 or Form W-8BEN (or
substitute form) certifying to your qualification for the reduced
rate.
Currently, withholding generally is imposed on the gross
amount of a distribution, regardless of whether we have sufficient
earnings and profits to cause the distribution to be a dividend
for U.S. Federal income tax purposes. However, withholding on
distributions made after December 31, 2000, may be on less than
the gross amount of the distribution if the distribution exceeds a
reasonable estimate of our accumulated and current earnings and
profits.
In order to claim an exemption from withholding on the
ground that the dividends are effectively connected with a U.S.
trade or business, you must provide to us or our paying agent a
duly completed Form 4224 or Form W-8ECI (or substitute form)
certifying your exemption. However, dividends exempt from U.S.
withholding because they are effectively connected generally are
subject to U.S. Federal income tax on a net income basis at the
regular graduated tax rates. These rules might be altered by an
applicable tax treaty. If you are a corporation, any effectively
connected dividends received by you may, under certain
circumstances, be subject to an additional branch profits tax at a
30% rate or a lower rate specified by an applicable income tax
treaty.
Under current U.S. Treasury regulations, dividends paid
before January 1, 2001, to an address outside the U.S. are
presumed to be paid to a resident of the country of address,
unless the payor has knowledge to the contrary, for purposes of
the withholding discussed above and for purposes of determining
the applicability of a tax treaty rate. However, U.S. Treasury
regulations applicable to dividends paid after December 31, 2000
eliminate this presumption, subject to certain transition
rules.
For dividends paid after December 31, 2000, you generally
will be subject to U.S. backup withholding tax at a 31% rate under
the backup withholding rules described below, rather than at the
30% or reduced tax treaty rate, as described above, unless you
comply with certain IRS certification or documentary evidence
procedures. Certain changes to these rules apply to dividend
payments made after December 31, 2000 to certain non-U.S. holders
or foreign intermediaries. You should consult your own tax advisor
concerning the effect, if any, of the rules affecting
post-December 31, 2000 dividends on your possible investment in
common stock.
You may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund along with the required
information with the IRS.
Gain on
Disposition of Common Stock
You generally will not be subject to U.S. Federal income tax
on a sale or other disposition of the common stock unless one of
the following apply:
|
if the
gain is effectively connected with a trade or business you
conduct in the U.S. you will, unless an applicable treaty
provides otherwise, be taxed on your net gain on the sale under
regular graduated U.S. Federal income tax rates. If you are a
foreign corporation, you may be subject to an additional branch
profits tax at a 30% rate, unless an applicable income tax
treaty provides for a lower rate.
|
|
if you
are an individual and are present in the U.S. for 183 or more
days in the taxable year of the disposition and certain other
conditions are met, you will be subject to a flat 30% tax on
your gain from the sale, which may be offset by certain U.S.
capital losses.
|
|
if we are
or have been a U.S. real property holding corporation for U.S.
Federal income tax purposes at any time during the shorter of
the five-year period ending on the date of the disposition or
the period
during which you held the common stock, and certain other
conditions apply, you may be taxable in the U.S. on your gain
from a sale of the common stock pursuant to the effectively
connected rules described above. We believe that we never have
been, are not currently and are not likely in the future to
become, a U.S. real property holding corporation for U.S.
Federal income tax purposes.
|
Federal
Estate Tax
If you are an individual who owns or is treated as owning
common stock at the time of your death or if you have made certain
lifetime transfers of an interest in common stock, you will be
required to include the value of the common stock in your gross
estate for U.S. Federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
Tax
We must report annually to the IRS the amount of dividends
paid to you and the tax withheld with respect to the dividends.
These requirements apply even if withholding was not required on
payments to you. Pursuant to an applicable tax treaty, that
information may also be made available to the tax authorities in
your country of residence.
Backup withholding tax generally may be imposed at the rate
of 31% on certain payments to persons that fail to furnish certain
required information. Backup withholding generally will not apply
to dividends paid before January 1, 2001 to non-U.S. holders. See
the discussion under Distributions above for rules
regarding reporting requirements to avoid backup withholding on
dividends paid after December 31, 2000.
As a general matter, information reporting and backup
withholding will not apply to a payment to you by or through a
foreign office of a foreign broker of the proceeds of a sale of
common stock effected outside the U.S. However, information
reporting requirements, but not backup withholding, will apply to
such a payment if the broker:
|
is a
foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the
U.S.;
|
|
is a
controlled foreign corporation as defined in the Internal
Revenue Code; or
|
|
is a
foreign partnership with certain U.S. connections (for payments
made after December 31, 2000).
|
Information reporting requirements will not apply in the
above cases if the broker has documentary evidence in its records
that you are a non-U.S. holder and certain conditions are met or
you otherwise establish an exemption.
Payment of the proceeds of a sale of common stock by or
through a U.S. office of a broker is subject to both backup
withholding and information reporting unless you certify to the
payor in the manner required as to your non-U.S. status under
penalties of perjury or otherwise establish an
exemption.
Amounts withheld under the backup withholding rules do not
constitute a separate U.S. Federal income tax. Rather, any amounts
withheld under the backup withholding rules will be refunded or
allowed as a credit against your U.S. Federal income tax
liability, if any, provided the required information or
appropriate claim for refund is filed with the IRS.
The foregoing discussion is only a summary of certain U.S.
Federal income and estate tax consequences of the ownership, sale
or other disposition of common stock by non-U.S. holders. You are
urged to consult your own tax advisor with respect to the
particular tax consequences to you of ownership and disposition of
common stock, including the effect of any state, local, foreign or
other tax laws and any applicable income or estate tax
treaties.
Under the terms and subject to the conditions contained in
an underwriting agreement dated
, 2000, we have agreed to sell
to the underwriters named below, for whom Credit Suisse First
Boston Corporation, Lehman Brothers Inc. and FleetBoston Robertson
Stephens Inc. are acting as representatives, the following
respective numbers of shares of common stock:
Underwriter
|
|
Number
of Shares
|
Credit
Suisse First Boston Corporation |
|
|
Lehman
Brothers Inc. |
|
|
FleetBoston Robertson Stephens Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
The underwriting agreement provides that the underwriters
are obligated to purchase all the shares of common stock in the
offering if any are purchased, other than those shares covered by
the over-allotment option described below. The underwriting
agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be
increased or the offering of common stock may be
terminated.
We have granted to the underwriters a 30-day option to
purchase on a pro rata basis up to
additional shares from us at
the initial public offering price less the underwriting discounts
and commissions. The option may be exercised only to cover any
over-allotments of common stock.
The underwriters propose to offer the shares of common stock
initially at the public offering price on the cover page of this
prospectus and to selling group members at that price less a
concession of $ per share. The
underwriters and the selling group members may allow a discount of
$ per share on sales to other
broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may
be changed by the representatives.
The following table summarizes the compensation and
estimated expenses we will pay.
|
|
Per
Share
|
|
Total
|
|
|
Without
Over-allotment
|
|
With
Over-allotment
|
|
Without
Over-allotment
|
|
With
Over-allotment
|
Underwriting Discounts and
Commissions paid by us |
|
$
|
|
$
|
|
$
|
|
$
|
Expenses
payable by us |
|
$
|
|
$
|
|
$
|
|
$
|
The underwriters have informed us that they do not expect
discretionary sales to exceed 5% of the shares of common stock
being offered.
We have agreed that we will not offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities Exchange Commission a registration
statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or
exercisable for any of shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the
date of this prospectus, except for grants of employee stock
options pursuant to the terms of any plan in effect on the date of
this prospectus, issuances of securities pursuant to the exercise
of employee stock options outstanding on the date of this
prospectus, employee stock purchases pursuant to the terms of a
plan in effect on the date of this prospectus or the issuance of
shares pursuant to the exercise of any other stock options or
warrants outstanding on the date of this prospectus.
Our officers, directors, employees and various other
stockholders, who together hold substantially all of our stock,
have agreed that they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares
of our common stock or securities convertible into or exchangeable
or exercisable for any of our common stock, enter into a
transaction that would have the same effect, or enter into any
swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our common
stock, whether any such aforementioned transaction is to be
settled by delivery of our common stock or such other securities,
in cash or otherwise, or publicly disclose the intention to make
any such offer, sale, pledge or disposition, or enter into any
such transaction, swap, hedge or other arrangement, without, in
each case, the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale at the initial
public offering price up to 1,000,000 shares of common stock for
non-officer employees; friends and family members of our
employees, officers and directors; and individuals affiliated with
our principal stockholders, strategic partners and several
companies who participate in our marketplace as buyers who have
expressed an interest in purchasing our common stock in the
offering. The number of shares available for sale to the general
public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general
public on the same terms as the other shares. Assuming that we
sell all shares reserved under our directed share program to the
persons for whom these shares have been reserved, none of these
reserved shares will be subject to the lock-up agreements
described in the preceding paragraph.
We have agreed to indemnify the underwriters against
liabilities under the Securities Act, or contribute to payments
which the underwriters may be required to make in that
respect.
We have applied to list the shares of common stock on The
Nasdaq Stock Markets National Market under the symbol
SMKT.
Prior to this offering, there has been no public market for
the common stock. The initial public offering price will be
determined by negotiation between us and the representatives, and
may not reflect the market price for the common stock following
this offering. We will consider, among others, the following
principal factors in determining the initial public offering
price:
|
the
information in this prospectus and otherwise available to the
representatives;
|
|
market
conditions for initial public offerings;
|
|
the
history of and prospects for the industry in which we will
compete;
|
|
our past
and present operations;
|
|
our past
and present earnings and current financial position;
|
|
the
ability of our management;
|
|
our
prospects for future earnings;
|
|
the
present state of our development and our current financial
condition;
|
|
the
recent prices of, and the demand for, publicly traded common
stock of generally comparable companies;
|
|
the
general condition of the securities markets at the time of this
offering; and
|
|
other
relevant factors.
|
We can offer no assurance that the initial public offering
price will correspond to the price at which the common stock will
trade in the public market subsequent to this offering or that an
active trading market for the common stock will develop and
continue after this offering.
The representatives may engage in over-allotment,
stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities
Exchange Act of 1934.
|
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
the transactions. These transactions may be effected on The Nasdaq
National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made
available on the web sites maintained by one or more underwriters
participating in this offering. The representatives may agree to
allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet
distributions on the same basis as other allocations.
NOTICE TO CANADIAN RESIDENTS
Resale
Restrictions
The distribution of the common stock in Canada is being made
only on a private placement basis exempt from the requirement that
we prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are
effected. Accordingly, any resale of the common stock in Canada
must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the common
stock.
Representations of Purchasers
Each purchaser of the common stock in Canada who receives a
purchase confirmation will be deemed to represent to us and the
dealer from whom such purchase confirmation is received that (i)
such purchaser is entitled under applicable provincial securities
laws to purchase such common stock without the benefit of a
prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal
and not as agent, and (iii) such purchaser has reviewed the text
above under Resale Restrictions.
Rights
of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer
and Ontario purchasers will not receive the contractual right of
action prescribed by Ontario securities law. As a result, Ontario
purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or
rights of action under the civil liability provisions of the U.S.
federal securities laws.
Enforcement of Legal Rights
All of the issuers directors and officers as well as
the experts named herein may be located outside of Canada and, as
a result, it may not be possible for Canadian purchasers to effect
service of process within Canada upon the issuer or such persons.
All or a substantial portion of the assets of the issuer and such
persons may be located outside of Canada and, as a result, it may
not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian
courts against such issuer or persons outside of
Canada.
Notice
to British Columbia Residents
A purchaser of common stock to whom the Securities
Act (British Columbia) applies is advised that such purchaser
is required to file with the British Columbia Securities
Commission a report within ten days of the sale of any common
stock acquired by such purchaser pursuant to this offering. Such
report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be
obtained from us. Only one such report must be filed in respect of
common stock acquired on the same date and under the same
prospectus exemption.
Taxation
and Eligibility for Investment
Canadian purchasers of common stock should consult their own
legal and tax advisors with respect to the tax consequences of an
investment in the common stock in their particular circumstances
and with respect to the eligibility of the common stock for
investment by the purchaser under relevant Canadian
legislation.
The validity of the common stock offered hereby will be
passed upon for us by Ropes & Gray, Boston, Massachusetts.
Cravath, Swaine & Moore, New York, New York, has represented
the underwriters in this offering. Attorneys of Ropes & Gray
own 10,694 shares of our common stock through a collective
investment vehicle.
The financial statements as of December 31, 1999 and for the
period from inception, February 12, 1999 to December 31, 1999
included in this Prospectus have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act
concerning the common stock offered in this offering. This
prospectus does not contain all of the information set forth in
the registration statement or its exhibits and schedules. For
further information about us and our common stock, we refer you to
the registration statement and to its attached exhibits and
schedules. Statements made in this prospectus concerning the
contents of any document are not necessarily complete. With
respect to each document filed as an exhibit to the registration
statement, we refer you to the exhibit for a more complete
description of the matter involved.
You may inspect our registration statement and the attached
exhibits and schedules without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New
York, NY 10048, and at 500 West Madison Street, Suite 1400,
Chicago, IL 60661. You may obtain information on the operation of
these reference facilities by calling the Commission at 1 (800)
SEC-0330. You may obtain copies of all or any part of our
registration statement from the Commission upon payment of
prescribed fees. You may also inspect reports, proxy and
information statements and other information that we file
electronically with the Commission without charge at the
Commissions Internet site, http://www.sec.gov.
We intend to furnish our stockholders with annual reports
containing financial statements audited by our independent
auditors.
INDEX TO
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the
Board of Directors and Stockholders of
SupplierMarket.com, Inc.:
In our opinion, the accompanying balance sheet and the
related statements of operations, of stockholders deficit
and of cash flows present fairly, in all material respects, the
financial position of SupplierMarket.com, Inc. as of December 31,
1999 and the results of its operations and cash flows for the
period from inception (February 12, 1999) through December 31,
1999 in conformity with accounting principles generally accepted
in the United States. These financial statements are the
responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in
accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers
LLP
Boston,
Massachusetts
March 1,
2000
SUPPLIERMARKET.COM, INC.
BALANCE
SHEETS
|
|
December 31, 1999
|
|
March
31, 2000
|
|
Pro
Forma
March 31, 2000
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
|
|
|
Note
2 |
Assets |
|
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$36,761,018 |
|
|
$23,420,956 |
|
|
$23,420,956 |
|
Accounts receivable, net of allowances of $0 and
$18,076 at December 31, 1999
and March 31, 2000
(unaudited),
respectively |
|
7,475 |
|
|
155,320 |
|
|
155,320 |
|
Prepaid expenses and other assets |
|
684,913 |
|
|
3,268,805 |
|
|
3,268,805 |
|
Loan receivable from related party |
|
133,634 |
|
|
133,634 |
|
|
133,634 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
37,587,040 |
|
|
26,978,715 |
|
|
26,978,715 |
|
Property and equipment, net |
|
1,554,043 |
|
|
3,517,955 |
|
|
3,517,955 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$39,141,083 |
|
|
$30,496,670 |
|
|
$30,496,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Convertible Preferred Stock and
Stockholders (Deficit)
Equity |
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ 1,405,508 |
|
|
$2,461,340 |
|
|
$ 2,461,340 |
|
Accrued expenses and other liabilities |
|
396,574 |
|
|
350,175 |
|
|
350,175 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
1,802,082 |
|
|
2,811,515 |
|
|
2,811,515 |
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
Redeemable convertible Series A preferred stock, $0.001
par
value, 6,612,873 shares authorized,
6,562,873 shares issued
and outstanding; no shares issued
and outstanding on a pro
forma basis (unaudited) |
|
6,080,501 |
|
|
6,080,501 |
|
|
|
|
Redeemable convertible Series B preferred stock, $0.001
par
value, 16,040,040 shares authorized,
14,863,770 and
16,040,039 shares issued and
outstanding at December 31,
1999 and March 31, 2000 (unaudited),
respectively; no
shares issued and outstanding on a
pro forma basis
(unaudited) |
|
34,750,003 |
|
|
34,478,339 |
|
|
|
|
Stockholders (deficit) equity: |
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 85,000,000 shares
authorized, 9,884,246 and
10,050,519 shares issued
and outstanding at December
31, 1999 and
March 31, 2000 (unaudited),
respectively;
31,196,283 shares issued and
outstanding on a
pro forma basis (unaudited)
|
|
9,884 |
|
|
10,051 |
|
|
31,196 |
|
Additional paid-in capital |
|
7,946,736 |
|
|
25,165,116 |
|
|
65,702,811 |
|
Deferred stock-based compensation |
|
(5,386,142 |
) |
|
(18,172,218 |
) |
|
(18,172,218 |
) |
Accumulated deficit |
|
(6,061,981 |
) |
|
(19,876,634 |
) |
|
(19,876,634 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit)
equity |
|
(3,491,503 |
) |
|
(12,873,685 |
) |
|
27,685,155 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible
preferred
stock and
stockholders (deficit) equity |
|
$39,141,083 |
|
|
$30,496,670 |
|
|
$30,496,670 |
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
STATEMENTS OF OPERATIONS
|
|
Period
From
Inception
(February 12, 1999)
Through
December 31, 1999
|
|
Three
Months
Ended
March 31, 2000
|
|
|
|
|
(unaudited) |
Revenue |
|
$
51,541 |
|
|
$ 216,791 |
|
Operating
expenses: |
|
|
|
|
|
|
Costs of revenue (excluding $5,942 and $41,789 of
stock-based
compensation,
respectively) |
|
107,605 |
|
|
205,615 |
|
Sales and marketing (excluding $97,552 and $176,170
of stock-based
compensation,
respectively) |
|
2,397,405 |
|
|
10,576,301 |
|
Research and development (excluding $43,190 and
$128,199 of stock-
based compensation, respectively) |
|
515,993 |
|
|
681,116 |
|
General and administrative (excluding $2,584,831 and
$1,048,935 of
stock-based compensation,
respectively) |
|
636,171 |
|
|
1,577,297 |
|
Stock-based compensation |
|
2,731,515 |
|
|
1,395,093 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
6,388,689 |
|
|
14,435,422 |
|
|
|
|
|
|
|
|
Operating loss |
|
(6,337,148 |
) |
|
(14,218,631 |
) |
Interest
income |
|
280,109 |
|
|
403,978 |
|
|
|
|
|
|
|
|
Net loss |
|
$ (6,057,039 |
) |
|
$(13,814,653 |
) |
|
|
|
|
|
|
|
Net loss
per share, basic and diluted |
|
$
(2.66 |
) |
|
$
(2.24 |
) |
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted |
|
2,344,874 |
|
|
6,223,990 |
|
|
|
|
|
|
|
|
Unaudited
pro forma net loss per share, basic and diluted |
|
$
(0.58 |
) |
|
$
(0.51 |
) |
|
|
|
|
|
|
|
Unaudited
pro forma weighted average common shares outstanding, basic
and diluted |
|
10,446,037 |
|
|
27,210,518 |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
STATEMENTS OF STOCKHOLDERS DEFICIT
|
|
Common
Stock
|
|
Additional
Paid-in Capital
|
|
Deferred
Stock-Based
Compensation
|
|
Accumulated
Deficit
|
|
Total
Stockholders
Deficit
|
Issuance
of 9,859,246 shares of
common stock |
|
$ 9,859 |
|
$
|
|
|
$
|
|
|
$
(4,930 |
) |
|
$
4,929 |
|
Exercise
of stock options for 25,000
shares |
|
25 |
|
|
|
|
|
|
|
(12 |
) |
|
13 |
|
Deferred
stock-based compensation |
|
|
|
8,117,657 |
|
|
(8,117,657 |
) |
|
|
|
|
|
|
Amortization of deferred
compensation |
|
|
|
|
|
|
2,731,515 |
|
|
|
|
|
2,731,515 |
|
Accretion
of preferred stock to
redemption value |
|
|
|
(170,921 |
) |
|
|
|
|
|
|
|
(170,921 |
) |
Net
loss |
|
|
|
|
|
|
|
|
|
(6,057,039 |
) |
|
(6,057,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1999 |
|
9,884 |
|
7,946,736 |
|
|
(5,386,142 |
) |
|
(6,061,981 |
) |
|
(3,491,503 |
) |
Value of
preferred stock beneficial
conversion feature |
|
|
|
3,128,876 |
|
|
|
|
|
|
|
|
3,128,876 |
|
Exercise
of stock options for 166,292
shares |
|
167 |
|
15,549 |
|
|
|
|
|
|
|
|
15,716 |
|
Deferred
stock-based compensation,
net of option
cancellations |
|
|
|
14,181,169 |
|
|
(14,181,169 |
) |
|
|
|
|
|
|
Amortization of deferred
compensation |
|
|
|
|
|
|
1,395,093 |
|
|
|
|
|
1,395,093 |
|
Accretion
of preferred stock to
redemption value |
|
|
|
(107,214 |
) |
|
|
|
|
|
|
|
(107,214 |
) |
Net
loss |
|
|
|
|
|
|
|
|
|
(13,814,653 |
) |
|
(13,814,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2000
(unaudited) |
|
$10,051 |
|
$25,165,116 |
|
|
$(18,172,218 |
) |
|
$(19,876,634 |
) |
|
$(12,873,685 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
STATEMENTS OF CASH FLOWS
|
|
Period
From
Inception
(February 12, 1999)
Through
December 31, 1999
|
|
Three
Months
Ended
March 31, 2000
|
|
|
|
|
(unaudited) |
Cash
flows from operating activities: |
|
|
|
|
|
|
Net loss |
|
$ (6,057,039 |
) |
|
$(13,814,653 |
) |
Adjustments to reconcile net loss to net cash used
in operating
activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
95,526 |
|
|
266,001 |
|
Stock-based compensation |
|
2,731,515 |
|
|
1,395,093 |
|
Changes in operating assets and
liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
(7,475 |
) |
|
(147,845 |
) |
Prepaid expenses and other
assets |
|
(684,913 |
) |
|
(2,583,892 |
) |
Loan receivable from related
party |
|
(133,634 |
) |
|
|
|
Accounts payable |
|
1,405,508 |
|
|
1,055,832 |
|
Accrued expenses and other
liabilities |
|
396,574 |
|
|
(46,399 |
) |
|
|
|
|
|
|
|
Net cash used in operating
activities |
|
(2,253,938 |
) |
|
(13,875,863 |
) |
|
|
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
|
|
|
Purchases of property and equipment |
|
(1,649,569 |
) |
|
(2,229,913 |
) |
|
|
|
|
|
|
|
Net cash used in investing
activities |
|
(1,649,569 |
) |
|
(2,229,913 |
) |
|
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
|
|
|
Proceeds from issuance of redeemable convertible
preferred stock |
|
40,659,583 |
|
|
2,749,998 |
|
Proceeds from issuance of common stock |
|
4,942 |
|
|
15,716 |
|
|
|
|
|
|
|
|
Net cash provided by financing
activities |
|
40,664,525 |
|
|
2,765,714 |
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents |
|
36,761,018 |
|
|
(13,340,062 |
) |
Cash and
cash equivalents, beginning of period |
|
|
|
|
36,761,018 |
|
|
|
|
|
|
|
|
Cash and
cash equivalents, end of period |
|
$36,761,018 |
|
|
$23,420,956 |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
NOTES TO
FINANCIAL STATEMENTS
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH
31, 2000 IS UNAUDITED)
Note
1. Description of Business
SupplierMarket.com, Inc. (the Company) is a
business-to-business, Internet-based marketplace serving the
direct materials market. Our marketplace allows participants to
buy and sell direct materials across a wide variety of industrial
segments. We feature an anonymous bidding event with a
competitive, reverse auction.
The Company was formed on February 12, 1999 under the laws
of the state of Delaware. During the period from inception through
October 1999, the Company was a development stage enterprise and
did not have any revenue. During this period, the Companys
operating activities related to the design and development of our
Internet-based marketplace, the development of our corporate
infrastructure and the establishment of relationships with buyers
and suppliers of direct materials. The Company began providing
business-to-business online bidding events in October 1999 through
the launch of its Internet-based marketplace.
The Company expects to experience continuing operating
losses and negative cash flows as management executes its current
business plan. At December 31, 1999, the Company had cash and cash
equivalents totaling approximately $36,800,000. In June 1999, the
Company completed its Series A preferred stock offering and
received net proceeds of approximately $6,100,000. In November
1999, the Company conducted a Series B preferred stock offering
and received net proceeds of approximately $34,600,000. The
Companys Board of Directors has authorized the filing of a
registration statement with the Securities and Exchange Commission
that would permit the Company to sell shares of the Companys
common stock in a proposed initial public offering. Management
believes that it has sufficient funds, excluding any proceeds from
this offering, to sustain its current business plan through March
31, 2001.
Note
2. Summary of Significant Accounting
Policies
|
Unaudited Interim Financial Data
|
The financial information as of March 31, 2000 and for the
three months ended March 31, 2000 is unaudited. In the opinion of
management, the interim financial information includes all
adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the results for the interim
period. The results of operations for the three months ended March
31, 2000 are not necessarily indicative of the results to be
expected for any future period.
|
Cash
and cash equivalents
|
The Company considers all unrestricted, highly liquid
investments with initial maturities of less than three months to
be cash equivalents. Such investments are carried at cost, which
approximates fair value.
Property and equipment are recorded at cost and depreciated
using the straight-line method over their estimated useful lives
ranging from three to five years. Upon sale or retirement, the
cost and related accumulated depreciation are eliminated from the
respective accounts, and the resulting gain or loss is included in
income or loss for the period. Repair and maintenance expenditures
are expensed as incurred. Depreciation expense was approximately
$48,000 for the period from inception (February 12, 1999) through
December 31, 1999.
SUPPLIERMARKET.COM, INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
The Company generates revenue from transaction fees earned
on bidding events that result in a buyer selecting a supplier to
fulfill its request for quotation. Revenue is recognized when all
of the following criteria have been met: the Company has rendered
its service to the supplier; the Company has an enforceable right
to collect from the supplier; collection of the transaction fee is
reasonably assured; and, the amount of the transaction fee is
fixed or determinable. Transaction fee revenue is recognized when
the buyer has selected a supplier, the supplier has agreed to the
payment terms, the supplier has issued a purchase order for the
transaction fee and payment is not contingent on a future event. A
sales allowance is recorded for transaction fees which are subject
to adjustment for changes in price and volume of material
ultimately delivered to the buyer.
Costs of revenue consist primarily of expenses related to
staffing and operation of the Companys Internet-based
marketplace services and amortization of capitalized web site
development costs.
Advertising costs are expensed at the time the first
advertisement is aired or printed or when the promotion occurs. No
amounts have been deferred on the balance sheet as of December 31,
1999. Advertising expense was approximately $461,000 for the
period from inception (February 12, 1999) through December 31,
1999.
|
Capitalized web site development costs
|
The Company accounts for costs incurred to design and
develop its Internet-based marketplace in accordance with
Statement of Position 98-1, which requires computer software costs
associated with internal use software to be charged to operations
until certain capitalization criteria are met. Costs of
approximately $424,000 were capitalized for the period from
inception (February 12, 1999) through December 31, 1999 and are
being amortized over 18 months. Amortization expense was
approximately $47,000 for the period from inception (February 12,
1999) through December 31, 1999. These costs are included in
property and equipment (Note 4).
Start-up costs are expensed as incurred, and primarily
include costs to establish the Company, new locations or new
operations.
|
Stock-based compensation expense
|
The Company accounts for stock-based employee compensation
arrangements in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and complies
with the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation. Under APB No. 25, compensation
expense is based on the difference, if any, on the date of the
grant between the fair value of the Companys stock and the
exercise price. All stock-based awards to non-employees are
accounted for at their fair value in accordance with SFAS No. 123
and Emerging Issues Task Force Issue No. 96-18.
Basic and diluted net loss per common share is presented in
conformity with SFAS 128, Earnings Per Share. Basic
net loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding
during the period, excluding unvested restricted stock held by
employees. Diluted net loss per share is computed by dividing the
net loss for the period by the weighted average number of common
and potentially dilutive common shares outstanding during the
period. Potentially dilutive common shares consist of the common
shares issuable upon the exercise of stock options and warrants
(using the treasury stock method) and upon the conversion of
convertible preferred stock (using the if-converted method) as
well as unvested restricted stock held by employees. Potentially
dilutive common shares are excluded from the calculation if their
effect is antidilutive.
Pro forma net loss per share is computed assuming the
conversion of all outstanding shares of convertible preferred
stock, which will automatically convert into common stock upon an
initial public offering as if the shares converted at the original
date of issuance.
The following table sets forth the computations of net loss
per share:
|
|
Period
From
Inception (February 12, 1999)
to December 31, 1999
|
|
Three
Months Ended
March 31, 2000
|
|
|
As
Reported
|
|
Pro
Forma
|
|
As
Reported
|
|
Pro
Forma
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
Basic and
diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$(6,057,039 |
) |
|
$(6,057,039 |
) |
|
$(13,814,653 |
) |
|
$(13,814,653 |
) |
Accretion
of preferred stock to
redemption value |
|
(170,921 |
) |
|
|
|
|
(107,214 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to common
shareholders |
|
$(6,227,960 |
) |
|
$(6,057,039 |
) |
|
$(13,921,867 |
) |
|
$(13,814,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding |
|
2,344,874 |
|
|
2,344,874 |
|
|
6,223,990 |
|
|
6,223,990 |
|
Weighted average impact of
conversion of preferred
stock to
common stock |
|
|
|
|
8,101,163 |
|
|
|
|
|
20,986,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
2,344,874 |
|
|
10,446,037 |
|
|
6,223,990 |
|
|
27,210,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
per share, basic and diluted |
|
$
(2.66 |
) |
|
$
(0.58 |
) |
|
$
(2.24 |
) |
|
$
(0.51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period from inception (February 12, 1999) through
December 31, 1999 and for the three months ended March 31, 2000,
respectively, as reported, 23,011,439 and 25,040,527 potentially
dilutive common shares in the form of stock options, warrants and
convertible preferred stock were excluded from the calculation of
net loss per share because their effect was antidilutive. In
addition, 3,919,205 and 3,302,033 shares of restricted stock at
December 31, 1999 and at March 31, 2000, respectively, were
excluded from the calculations of basic net loss per share because
the shares revert to the Company if the related vesting conditions
are not met and from the calculations of diluted net loss per
share because their effect was antidilutive.
Upon the closing of the Companys proposed initial
public offering, all of the shares of redeemable convertible
Series A and Series B preferred stock outstanding as of March 31,
2000 will automatically convert into 21,145,764 shares of the
Companys common stock. The unaudited pro forma presentation
of the balance sheet has been prepared assuming the conversion of
the preferred stock into common stock as of March 31, 2000. All
references to pro forma information in the notes to these
financial statements are unaudited.
SUPPLIERMARKET.COM, INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
|
Fair
value of financial instruments
|
The Companys financial instruments, including cash and
cash equivalents, accounts receivable and accounts payable are
carried at cost, which approximates their fair value because of
the short-term nature of these instruments.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
|
Concentration of credit risk
|
Financial instruments that potentially subject the Company
to a concentration of credit risk consist of cash and cash
equivalents and accounts receivable. Cash and cash equivalents are
deposited with high credit quality financial institutions. The
Companys accounts receivable are derived from revenue earned
from customers located in the U.S. and are denominated in U.S.
dollars. Portions of the Companys accounts receivable
balances are settled through electronic fund transfers. As a
result, the majority of accounts receivable are collected upon
processing of those transactions. As of December 31, 1999, two
customers accounted for 100% of accounts receivable and, during
the period from inception through December 31, 1999, two
additional customers accounted for 100% of revenue.
Deferred taxes are determined based on the difference
between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Valuation
allowances are provided if, based upon the weight of available
evidence, it is more likely than not some or all of the deferred
tax assets will not be realized.
|
Comprehensive income (loss)
|
The Company has adopted SFAS 130, Reporting
Comprehensive Income, effective February 12, 1999. No
material differences exist between net loss and comprehensive
loss.
|
Recent
accounting pronouncements
|
In June 1998, the FASB issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, which
established accounting and reporting standards for derivative
instruments and hedging. It requires entities to recognize all
derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The Company, to date,
has not engaged in derivative or hedging activities, and
accordingly does not believe the adoption of SFAS No. 133 will
have a material impact on the financial reporting and related
disclosures of the Company. The Company will adopt SFAS No. 133 as
required by SFAS No. 137, Deferral of Effective Date of the
FASB Statement No. 133, in 2001.
In December 1999, the Securities and Exchange Commission
released Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements. This bulletin
summarizes certain views of the staff on
applying generally accepted accounting principles to revenue
recognition in financial statements. The staff believes that
revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement
exists; delivery has occurred or services have been rendered; the
sellers price to the buyer is fixed or determinable; and
collectibility is reasonably assured. The Company believes that
its current revenue recognition policy complies with the
Commissions guidelines.
Note
3. Prepaid expenses and other
assets
Prepaid expenses and other assets consist of the
following:
|
|
December 31, 1999
|
|
March
31, 2000
|
Prepaid
advertising |
|
$
|
|
$2,107,618 |
Deposits |
|
156,578 |
|
395,539 |
Deferred
offering costs |
|
|
|
164,985 |
Other
prepaid expenses |
|
528,335 |
|
600,663 |
|
|
|
|
|
|
|
$684,913 |
|
$3,268,805 |
|
|
|
|
|
Note
4. Property and Equipment
Property and equipment consist of the following:
|
|
December 31, 1999
|
|
March
31, 2000
|
Computer
equipment |
|
$ 511,184 |
|
|
$2,355,159 |
|
Purchased
software |
|
437,806 |
|
|
471,606 |
|
Web site
development costs |
|
424,281 |
|
|
476,781 |
|
Office
equipment |
|
161,720 |
|
|
243,025 |
|
Furniture
and fixtures |
|
114,578 |
|
|
332,911 |
|
|
|
|
|
|
|
|
|
|
1,649,569 |
|
|
3,879,482 |
|
Less: accumulated depreciation and
amortization |
|
(95,526 |
) |
|
(361,527 |
) |
|
|
|
|
|
|
|
|
|
$1,554,043 |
|
|
$3,517,955 |
|
|
|
|
|
|
|
|
Depreciation and amortization expense was approximately
$96,000 and $266,000 for the period from inception through
December 31, 1999 and for the three months ended March 31, 2000,
respectively.
Note
5. Accrued Expenses
Accrued expenses consist of the following:
|
|
December 31, 1999
|
|
March
31, 2000
|
Accrued
payroll and related costs |
|
$114,422 |
|
$160,539 |
Accrued
commissions |
|
106,750 |
|
145,912 |
Accrued
other expenses |
|
175,402 |
|
43,724 |
|
|
|
|
|
|
|
$396,574 |
|
$350,175 |
|
|
|
|
|
SUPPLIERMARKET.COM, INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
Note
6. Lines of Credit
In September 1999, the Company entered into working capital
and equipment lines of credit with its bank. The working capital
line of credit provided for borrowings up to a maximum of
$500,000. The equipment line of credit agreement allowed for
borrowings of up to $1,000,000. Borrowings under these facilities
were payable in 36 equal monthly installments of principal and
interest. The underlying notes were secured by substantially all
of the assets of the Company. Interest on the working capital line
was charged at the prime rate plus 1% (9.5% as of December 31,
1999). Interest on the equipment line was charged at the 36-month
U.S. Treasury rate plus 245 basis points (8.71% as of December 31,
1999). As of December 31, 1999, there were no amounts outstanding
under either facility. These facilities were terminated by the
Company on February 17, 2000.
In connection with these agreements, the Company issued a
detachable warrant, which permits the holder to purchase 50,000
shares of the Companys Series A Redeemable Convertible
Preferred stock at an exercise price of $0.93 per share. The
warrant is exercisable immediately and expires on September 21,
2006. The fair value of the warrant at the date of issuance was
not material to the Companys financial
statements.
Note
7. Income Taxes
The Company had no income tax provision during the period
from inception through December 31, 1999 since the Company had a
net taxable loss during this period.
Deferred tax assets and liabilities consist of the following
as of December 31, 1999:
Net
operating losses |
|
$1,712,606 |
|
Stock-based compensation |
|
935,617 |
|
Research
and development tax credits and other |
|
81,580 |
|
|
|
|
|
Net
deferred tax assets |
|
2,729,803 |
|
Valuation
allowance |
|
(2,729,803 |
) |
|
|
|
|
Net
deferred tax assets |
|
$
|
|
|
|
|
|
In assessing the realizability of net deferred tax assets,
management considers whether it is more likely than not that some
portion of the net deferred tax assets will not be realized. The
ultimate realization of net deferred tax assets is dependent upon
the generation of future taxable income during the periods in
which temporary differences representing net future deductible
amounts become deductible. Management has established a full
valuation allowance against the net deferred tax assets at
December 31, 1999, since it is more likely than not that these
future tax benefits will not be realized.
As of December 31, 1999, the Company had available federal
and state net operating loss carryforwards of $4,200,000 and
$4,100,000, respectively. These net operating loss carryforwards
may be used to offset future federal and state income taxes
through 2019 and 2009, respectively. However, changes in the
Companys ownership as defined in the Internal Revenue Code,
may limit the Companys ability to utilize the net operating
loss and tax credit carryforwards.
SUPPLIERMARKET.COM, INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
Note
8. Stockholders
Equity
|
Redeemable Convertible Preferred Stock
|
The Company has authorized 22,652,913 shares of preferred
stock. The Company designated 6,612,873 of these shares as Series
A Convertible Preferred Stock, par value $0.001 (Series
A) and 16,040,040 of these shares as Series B Convertible
Preferred Stock, par value $0.001 (Series B). In July
and August 1999, the Company sold 6,562,873 Series A shares at
$0.93 per share. Proceeds from the offering totaled $6,041,000,
net of offering costs of approximately $40,000. In November 1999,
the Company sold 14,863,770 Series B shares at $2.34 per share.
Proceeds from the offering totaled $34,619,000, net of offering
costs of approximately $131,000.
The Companys Series A and Series B preferred stock are
convertible into common stock upon a conversion ratio of
one-to-two and two-to-one, respectively, which is subject to
adjustment as defined in the Companys Amended and Restated
Certificate of Incorporation. All series of preferred stock will
be converted automatically into an appropriate number of common
stock immediately upon the closing of an initial public offering
pursuant to an effective registration statement under the
Securities Act of 1933, as amended. The holders of Series A and
Series B preferred stock each have the right to elect two
directors, for a total of four directors. The holders of the
Series A and Series B preferred stock have a liquidation
preference over the holders of common stock equal to the purchase
price of the preferred stock, adjusted for certain events as
defined in the Amended and Restated Certificate of Incorporation,
and have certain anti-dilution protection.
The Company is required to redeem the Series A and Series B
redeemable convertible preferred stock from the holders upon
receipt of request from holders of shares representing a majority
of the then outstanding shares of preferred stock. Redemption
could first be required by the holders on June 28, 2004 for Series
A and on November 18, 2004 for Series B and later upon the first
anniversaries thereof. The redemption price is equal to the
purchase price of the preferred stock plus accrued, unpaid
dividends at the redemption date.
The Company has granted preemptive rights to the holders of
Series A and Series B preferred stock. In the event that the
Company seeks to raise additional capital, these rights allow
holders, under certain circumstances, to maintain their percentage
ownership of the Company. All preemptive rights terminate upon an
initial public offering of the Companys common
stock.
|
Issuance of Additional Preferred Stock
|
In January and February 2000, the Company issued 1,176,270
shares of Series B preferred stock for net proceeds of $2,750,000.
Approximately 386,954 shares were sold to related parties. The
intrinsic value of the associated beneficial conversion feature of
approximately $3,100,000 was initially recorded as additional
paid-in capital and as a reduction in the carrying amount of
preferred stock. This amount will be accreted to increase the
carrying amount of preferred stock using the straight-line method
over the 58 month period until the first required redemption date
of the preferred stock.
The Company has authorized 85,000,000 shares of common
stock. On February 29, 2000, the Company effected a one-for-two
reverse stock split of the common stock. All common share and per
share amounts in the accompanying financial statements, including
stock options and warrants, have been restated to reflect the
effect of this reverse stock split. The preferred shares were not
affected by the reverse stock split; however, the conversion
features discussed above reflect the effect of this reverse stock
split.
SUPPLIERMARKET.COM, INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
The Company has entered into agreements with two officers
of the Company pursuant to which 6,988,500 shares of common stock
were subject to restriction as to the sale or transfer of the
shares until the restrictions have lapsed. In the event these
officers are no longer employed by the Company before the
restrictions lapse, the Company has the right to repurchase any or
all unvested shares at their original issuance price. Under these
stock restriction agreements, 3,493,250 shares of common stock
owned by the two officers were fully vested and no longer subject
to restriction at December 31, 1999. The remaining 3,495,250
shares vest ratably each month through June 2001. Additionally at
December 31, 1999, an employee and an advisor hold in the
aggregate 423,955 shares of common stock subject to similar
restrictions, which lapse over a two to four year
period.
Note
9. Stock Plans
In 1999, the Company adopted the 1999 Stock Option Plan, the
1999 Plan, that provides for the granting of incentive
and nonqualified stock options. The exercise price for incentive
stock options issued under the 1999 Plan are equal to 100% of the
fair market value of the stock on the date of grant, and 110% for
stockholders with 10% or more ownership of the Company, if
applicable, as determined by the Companys Board of
Directors. The exercise price of nonqualified stock options may be
less than the fair market value of the common stock on the date of
grant, as determined by the Board of Directors, but in no case may
the exercise price be less than the statutory minimum. The options
have a term of ten years. Vesting of options granted is set at the
discretion of the Board of Directors, but is generally 12.5% after
six months and then monthly for the next 42 months. The aggregate
number of common shares authorized to be issued under the 1999
Plan is 5,251,924.
Through December 31, 1999, the Company had issued options to
purchase a total of 728,224 shares of common stock to
non-employees, including options to purchase 172,328 shares issued
to a related party, with exercise prices ranging from
$0.001-$0.93. In connection with the grant of these options to
non-employees, the Company recorded deferred compensation of
aproximately $6,400,000 at December 31, 1999. Compensation expense
related to non-employee stock options was $2,500,000 in 1999, of
which $579,000 related to grants to related parties. Compensation
expense related to non-employee stock options was $802,000 for the
three months ended March 31, 2000, of which none related to grants
to related parties.
In connection with the grant of certain stock options to
employees during 1999, the Company recorded deferred compensation
of approximately $2,800,000, representing the difference between
the option exercise price and the subsequently determined fair
value of the common stock at the grant date multiplied by the
1,650,584 shares under option. Such amount is presented as
deferred compensation in stockholders deficit and is
amortized over the vesting periods of the applicable options. The
Company recorded compensation expense of $166,000 in 1999 related
to these options. In the three months ended March 31, 2000, the
Company recorded additional deferred compensation of approximately
$14,200,000 related to the grants to employees of stock options to
purchase 1,822,625 shares.
SUPPLIERMARKET.COM, INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
A summary of the options granted under the 1999 Plan
during the period from inception (February 12, 1999) through
December 31, 1999 and for the three months ended March 31, 2000 is
presented below:
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
Granted |
|
2,378,808 |
|
|
$0.31 |
Exercised |
|
(25,000 |
) |
|
0.00 |
Cancelled |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 1999 |
|
2,353,808 |
|
|
0.38 |
Granted |
|
1,822,625 |
|
|
1.86 |
Exercised |
|
(166,273 |
) |
|
0.10 |
Cancelled |
|
(215,400 |
) |
|
0.91 |
|
|
|
|
|
|
Options outstanding at March 31, 2000 |
|
3,794,760 |
|
|
$1.07 |
|
|
|
|
|
|
The following table summarizes information about the options
outstanding as of December 31, 1999:
|
|
Options Outstanding
|
|
Options Exercisable
|
Range
of
Prices
|
|
Number
Outstanding
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
Weighted Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted Average
Exercise Price
|
$0.093-$0.935 |
|
2,353,808 |
|
9.74 |
|
$0.38 |
|
49,921 |
|
$0.093 |
At December 31, 1999, there were 2,873,116 shares available
for future grant under the 1999 Plan. The weighted average fair
value of options granted during 1999 was $6.99.
The Company applies the provisions of APB No. 25 and its
related interpretations in accounting for its stock option plans.
Had the Company accounted for these plans under SFAS No. 123, the
Companys net loss and net loss per share would have been
increased to the following pro forma amounts for the period from
inception through December 31, 1999:
Net loss
attributable to common stockholders: |
|
|
As reported |
|
$(6,227,960 |
) |
|
|
|
|
Pro forma |
|
$(6,274,960 |
) |
|
|
|
|
Net loss
per share, basic and diluted |
|
|
|
As reported |
|
$
(2.66 |
) |
|
|
|
|
Pro forma |
|
$
(2.68 |
) |
|
|
|
|
For the purpose of determining stock-based compensation
expense, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with
the following assumptions used for grants during the period from
inception through December 31, 1999: risk-free interest rate of
6%; no expected dividend yield; expected life of 4.0 years; and an
expected volatility of 0%.
SUPPLIERMARKET.COM, INC.
NOTES TO
FINANCIAL STATEMENTS(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
Note
10. Commitments and
Contingencies
The Company is party to a non-cancelable lease agreement for
its corporate headquarters. Rent expense under this non-cancelable
operating lease totaled approximately $70,000 for the period from
inception (February 12, 1999) through December 31, 1999. Minimum
future lease obligations under the non-cancelable operating lease
in effect at December 31, 1999 are as follows:
Year
Ending December 31, |
|
|
2000 |
|
$ 741,051 |
2001 |
|
761,089 |
2002 |
|
761,089 |
2003 |
|
761,089 |
2004 |
|
761,089 |
|
|
|
Total |
|
$3,785,407 |
|
|
|
Note
11. Loan Receivable from Related
Party
During 1999, the Company loaned approximately $134,000 to
its President which was paid in full in April 2000.
Note
12. Subsequent Events
|
Common
stock purchase warrants
|
The Company has executed non-binding letters of intent with
several strategic partners (Partners) whereby the
Partners receive consideration, in the form of common stock
purchase warrants, in exchange for utilizing the Companys
service for their direct materials purchasing. It is expected that
the majority of the warrants, if issued, will vest during the
final three calendar quarters of 2000 and each calendar quarter of
2001,contingent upon the quarterly volume of each Partners
RFQs submitted to the Companys marketplace which result in
an executed purchase order between the Company and the supplier
for the RFQ.
[INSIDE
BACK COVER PAGE OF PROSPECTUS]
Graphic
features large arrows pointing into the middle of the page from
the upper-right corner of the page and from the lower-left corner
of the page. Both arrows point to the SupplierMarket.com logo and
the following text in the middle of the page: People buy
parts. People sell parts. This is where they
meet.
[BACK
COVER]
Graphic of
SupplierMarket.com logo.
PART
II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and
Distribution.
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, payable by the
registrant in connection with the sale of the securities being
registered. All amounts are estimates except the SEC registration
fee, the NASD fee and the Nasdaq National Market listing
fee.
SEC
registration fee |
|
$ 33,500 |
NASD
filing fee |
|
13,150 |
Nasdaq
National Market listing fee |
|
95,000 |
Printing |
|
80,000 |
Legal
fees and expenses |
|
450,000 |
Accounting fees and expenses |
|
250,000 |
Blue sky
fees and expenses |
|
7,000 |
Transfer
agent and registrar fees |
|
15,000 |
Miscellaneous |
|
6,350 |
|
|
|
Total |
|
$950,000 |
|
|
|
Item
14. Indemnification of Directors and
Officers.
Section 145 of the Delaware General Corporation Law
authorizes a court to award, or a corporations board of
directors to grant, indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as
amended (the Securities Act).
As permitted by the Delaware General Corporation Law, the
Registrants certificate of incorporation includes a
provision that eliminates the personal liability of its directors
for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the directors
duty of loyalty to the Registrant or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under section 174
of the Delaware General Corporation Law (regarding unlawful
dividends and stock purchases) or (iv) for any transaction from
which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the
by-laws of the Registrant provide that (i) the Registrant is
required to indemnify its directors, officers, employees and
agents to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (ii)
the Registrant is required to advance expenses, as incurred, to
its directors, officers, employees and agents in connection with a
legal proceeding to the fullest extent permitted by the Delaware
General Corporation Law, subject to certain very limited
exceptions and (iii) the rights conferred in the by-laws are not
exclusive. At present, the Registrant is not aware of any pending
or threatened litigation or proceeding involving a director,
officer, employee or agent of the Registrant which may result in
claims for indemnification.
Reference is also made to Section 7 of the Underwriting
Agreement, which provides for the indemnification of officers,
directors and controlling persons of the Registrant against
certain liabilities. The indemnification provisions in the
Registrants certificate of incorporation, by-laws and the
Indemnification Agreements entered into between the Registrant and
each of its directors and executive officers may be sufficiently
broad to permit indemnification of the Registrants directors
and executive officers for liabilities arising under the
Securities Act.
The Registrant, with approval from the Registrants
board of directors, expects to obtain directors and
officers liability insurance.
Reference is made to the following documents filed as
exhibits to this Registration Statement regarding relevant
indemnification provisions described above and elsewhere
herein:
Document
|
|
Exhibit
Number
|
Form of
Underwriting Agreement |
|
1.1 |
Amended
and Restated Certificate of Incorporation |
|
3.1 |
Form of
Third Amended and Restated Certificate of
Incorporation |
|
3.4 |
By-laws |
|
3.5 |
Form of
Amended and Restated By-laws |
|
3.6 |
Item
15. Recent Sales of Unregistered
Securities.
From our inception in February 1999, we have issued the
securities listed below in reliance on exemptions from the
securities laws. In each instance we have identified those
purchasers of securities who are officers, directors, 5%
stockholders or immediate family members of the
foregoing.
1.
|
On June
2, 1999, we issued 4,659,000 shares of common stock to Jonathan
Burgstone, 4,659,000 shares of common stock to Asif Satchu,
292,000 shares of common stock to one employee and 100,000
shares of common stock to one other investor for aggregate
consideration of $4,855. We relied on Section 4(2) of the
Securities Act for the determination that this issuance, our
initial capitalization, was exempt from
registration.
|
2.
|
On June
18, 1999, we issued 149,246 shares to one employee for aggregate
consideration of $75. We relied on Section 4(2) of the
Securities Act for the determination that this issuance, part of
our initial capitalization, was exempt from
registration.
|
3.
|
On June
28, 1999, we issued 4,317,324 shares of Series A preferred stock
to three entities affiliated with Battery Ventures for aggregate
consideration of $4,000,001. We relied on Section 4(2) of the
Securities Act for the determination that this issuance was
exempt from registration. The issuance met the requirements of
Rule 506, and neither we nor anyone acting on our behalf offered
the securities by general solicitation as prohibited by Rule
502.
|
4.
|
On July
22, 1999, we issued 1,618,997 shares of Series A preferred stock
to five entities affiliated with Sequoia Capital for aggregate
consideration of $1,500,001. We relied on Section 4(2) of the
Securities Act for the determination that this issuance was
exempt from registration. The issuance met the requirements of
Rule 506 as all investors represented to us that they were
accredited investors as defined in Rule 501, and
neither we nor anyone acting on our behalf offered the
securities by general solicitation as prohibited by Rule
502.
|
5.
|
On August
17, 1999, we issued 68,357 shares of Series A preferred stock to
Peter Lamm, 68,357 shares of Series A preferred stock to Reza
Satchu and 489,838 shares of Series A preferred stock to 18
other investors for aggregate consideration of $580,500. We
relied on Section 4(2) of the Securities Act for the
determination that this issuance was exempt from registration.
The issuance met the requirements of Rule 506 as all investors
represented to us that they were accredited
investors as defined in Rule 501, and neither we nor
anyone acting on our behalf offered the securities by general
solicitation as prohibited by Rule 502.
|
6.
|
On
September 21, 1999, we issued a warrant to purchase 50,000
shares of Series A preferred stock to Silicon Valley Bank for
aggregate consideration of $1.00. We relied on Section 4(2) of
the Securities Act for the determination that this issuance was
exempt from registration.
|
7.
|
On
November 18, 1999, we issued 2,138,672 shares of Series B
preferred stock to three entities affiliated with Battery
Ventures, 1,283,203 shares of Series B preferred stock to five
entities affiliated with Sequoia
Capital, 3,421,875 shares of Series B preferred stock to Aurora
Investments, LLC, 3,421,875 shares of Series B preferred stock
to Fenway Partners Capital Fund II, L.P., and 4,598,145 shares
of Series B preferred stock to eight other investors for
aggregate consideration of $34,750,003. We relied on Section
4(2) of the Securities Act for the determination that this
issuance was exempt from registration. The issuance met the
requirements of Rule 506 as all investors represented to us that
they were accredited investors as defined in Rule
501, and neither we nor anyone acting on our behalf offered the
securities by general solicitation as prohibited by Rule
502.
|
8.
|
On
January 21, 2000, we issued 78,630 shares of Series B preferred
stock to Peter Lamm, 78,630 shares of Series B preferred stock
to Reza Satchu, 17,109 shares of Series B preferred stock to
Marco Iansiti, 99,322 shares of Series B preferred stock to
Rustom and Zarina Satchu and 737,985 shares of Series B
preferred stock to 27 other investors for aggregate
consideration of $2,365,197. We relied on Section 4(2) of the
Securities Act for the determination that this issuance was
exempt from registration. The issuance met the requirements of
Rule 506 as all investors represented to us that they were
accredited investors as defined in Rule 501, and
neither we nor anyone acting on our behalf offered the
securities by general solicitation as prohibited by Rule
502.
|
9.
|
On
February 16, 2000, we issued 56,632 shares of Series B preferred
stock to Karen Andrews, 56,632 shares of Series B preferred
stock to Rustom and Zarina Satchu, 8,555 shares of Series B
preferred stock to a trust revocable by Robert Lanigan and
42,774 shares of Series B preferred stock to one other investor
for aggregate consideration of $384,803. We relied on Section
4(2) of the Securities Act for the determination that this
issuance was exempt from registration. The issuance met the
requirements of Rule 506 as all investors represented to us that
they were accredited investors as defined in Rule
501, and neither we nor anyone acting on our behalf offered the
securities by general solicitation as prohibited by Rule
502.
|
10.
|
As of
March 31, 2000, we had granted options to purchase an aggregate
of 4,312,183 shares of common stock to a number of our employees
and consultants. We have not received consideration from any
grantee of any of our options. As of March 31, 2000, options to
purchase 191,292 shares have been exercised for an aggregate
consideration of $15,729. We relied on Section 4(2) of the
Securities Act and on Rule 701 promulgated under the Securities
Act for the determination that these issuances were exempt from
registration. For issuances to employees (other than executive
officers as described below) and to members of our board of
advisors, the issuances satisfied the requirements of Rule 701
as all such issuances were pursuant to our 1999 Stock Option
Plan. In the event that issuances under our 1999 Stock Option
Plan exceed the limits prescribed by Rule 701, we rely on
Section 4(2) of the Securities Act for issuances of stock
pursuant to option exercises by our executive officers as they
are accredited investors within the meaning of Rule
501. For issuances to our other advisors, we relied on Section
4(2) of the Securities Act. These advisors represented to us
that they were accredited investors as defined in
Rule 501, and neither we nor anyone acting on our behalf offered
the securities by general solicitation as prohibited by Rule
502.
|
The recipients of securities in each transaction described
above represented to us their intentions to acquire the securities
for investment only and not with a view to, or for sale in
connection with, any distribution. We affixed appropriate legends
to the share certificates, warrants and options issued in the
transactions described above. We believe that all recipients had
adequate access, through their relationships with us, to
information about us.
Item
16. Exhibits and Financial Statement
Schedules
(a) Exhibits. The
following exhibits are filed as part of this registration
statement:
Number
|
|
Description
|
1.1* |
|
Form of
Underwriting Agreement. |
3.1** |
|
Amended
and Restated Certificate of Incorporation of the
Registrant. |
3.2** |
|
Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on February 29,
2000. |
3.3** |
|
Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on April 10,
2000. |
3.4** |
|
Form of
Third Amended and Restated Certificate of Incorporation of the
Registrant (to be effective
upon the closing of this offering). |
3.5** |
|
By-laws
of the Registrant. |
3.6** |
|
Form of
Amended and Restated By-laws of the Registrant (to be effective
upon the closing of this
offering). |
4.1* |
|
Form of
Specimen Certificate for Common Stock of the
Registrant. |
4.2** |
|
Amended
and Restated Registration Rights Agreement dated as of November
18, 1999 among the
Registrant, the Purchasers (as defined therein) and the Founders
(as defined therein). |
4.3** |
|
Warrant
to Purchase Stock issued by the Registrant to Silicon Valley
Bank on September 21, 1999. |
5.1* |
|
Opinion
of Ropes & Gray. |
10.1** |
|
Lease
dated December 15, 1999 between the Registrant and Mortimer
Zuckerman and Edward
Linde, as Trustees of Mall Road Trust dated October 11,
1983. |
10.2** |
|
Employment Agreement dated March 1, 2000 between the
Registrant and Asif Satchu |
10.3** |
|
Employment Agreement dated January 24, 2000 between the
Registrant and Jonathan Burgstone. |
10.4** |
|
Amended
and Restated Stock Restriction Agreement dated March 1, 2000
between the Registrant
and Asif Satchu. |
10.5** |
|
Amended
and Restated Stock Restriction Agreement dated January 24, 2000
between the Registrant
and Jonathan Burgstone. |
10.6** |
|
1999
Stock Option Plan. |
10.7** |
|
Service
Agreement dated July 1, 1999 between the Registrant and TriNet
Employer Group, Inc. |
23.1 |
|
Consent
of PricewaterhouseCoopers LLP. |
23.2* |
|
Consent
of Ropes & Gray (included in Exhibit 5.1). |
24.1** |
|
Power of
Attorney (included on signature page). |
27.1** |
|
Financial
Data Schedule. |
*
|
To be
filed by amendment.
|
(b) Financial Statement
Schedules.
Financial statement schedules have been omitted because they
are inapplicable or are not required under applicable provisions
of Regulation S-X or because the information that would otherwise
be included in such schedules is contained in
SupplierMarket.coms financial statements or notes
thereto.
Item
17. Undertakings.
The undersigned Registrant hereby undertakes to provide to
the Underwriters at the closing specified in the Underwriting
Agreement, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described under Item 14 above, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange
Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes
that:
(1) For purposes of determining any liability
under the Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability
under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant has duly caused this amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston,
State of Massachusetts, on the 11th day of May,
2000.
|
By: /S
/ JONATHAN
BURGSTONE
|
Pursuant to the requirements of the Securities Act of
1933, this registration statement has been signed by the following
persons in the capacities indicated on May 11,
2000:
Signature
|
|
Title
|
|
|
/S
/ JONATHAN
BURGSTONE
Jonathan Burgstone |
|
Chief
Executive Officer and Director |
|
|
*
Asif
Satchu |
|
Chairman, President, Secretary and Director |
|
|
*
Brian Bethers |
|
Chief
Financial Officer (Principal Financial and Accounting
Officer) and Treasurer |
|
|
*
Robert Barrett |
|
Director |
|
|
*
Peter Lamm |
|
Director |
|
|
*
Marc
Lipschultz |
|
Director |
|
|
*
Ravi
Mohan |
|
Director |
|
|
*
Marco Iansiti |
|
Director |
|
*
Robert Lanigan |
|
Director |
|
|
*By: /S
/ JONATHAN
BURGSTONE
|
|
Jonathan Burgstone, attorney-in-fact,
pursuant to powers of attorney previously filed as part of
this registration statement |
|
EXHIBIT INDEX
Number
|
|
Description
|
1.1* |
|
Form of
Underwriting Agreement. |
3.1** |
|
Amended
and Restated Certificate of Incorporation of the
Registrant. |
3.2** |
|
Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on February 29,
2000. |
3.3** |
|
Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on April 10,
2000. |
3.4** |
|
Form of
Third Amended and Restated Certificate of Incorporation of the
Registrant (to be effective
upon the closing of this offering). |
3.5** |
|
By-laws
of the Registrant. |
3.6** |
|
Form of
Amended and Restated By-laws of the Registrant (to be
effective upon the closing of this
offering). |
4.1* |
|
Form of
Specimen Certificate for Common Stock of the
Registrant. |
4.2** |
|
Amended
and Restated Registration Rights Agreement dated as of
November 18, 1999 among the
Registrant, the Purchasers (as defined therein) and the Founders
(as defined therein). |
4.3** |
|
Warrant
to Purchase Stock issued by the Registrant to Silicon Valley
Bank on September 21, 1999. |
5.1* |
|
Opinion
of Ropes & Gray. |
10.1** |
|
Lease
dated December 15, 1999 between the Registrant and Mortimer
Zuckerman and Edward
Linde, as Trustees of Mall Road Trust dated October 11,
1983. |
10.2** |
|
Employment Agreement dated March 1, 2000 between the
Registrant and Asif Satchu |
10.3** |
|
Employment Agreement dated January 24, 2000 between the
Registrant and Jonathan Burgstone. |
10.4** |
|
Amended
and Restated Stock Restriction Agreement dated March 1, 2000
between the Registrant
and Asif Satchu. |
10.5** |
|
Amended
and Restated Stock Restriction Agreement dated January 24,
2000 between the Registrant
and Jonathan Burgstone. |
10.6** |
|
1999
Stock Option Plan. |
10.7** |
|
Service
Agreement dated July 1, 1999 between the Registrant and TriNet
Employer Group, Inc. |
23.1 |
|
Consent
of PricewaterhouseCoopers LLP. |
23.2* |
|
Consent
of Ropes & Gray (included in Exhibit 5.1). |
24.1** |
|
Power
of Attorney (included on signature page). |
27.1** |
|
Financial Data Schedule. |
*
|
To be
filed by amendment.
|