-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q+cupwBeQPV8X8omq4K2zpztweMsOT/qhySsVsLtQIKH0fwkqvK6RS67MQaYkDcu ++yd/eh1swPLe8d+Jf646Q== 0000950135-99-002048.txt : 19990423 0000950135-99-002048.hdr.sgml : 19990423 ACCESSION NUMBER: 0000950135-99-002048 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19990422 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ONESOURCE INFORMATION SERVICES INC CENTRAL INDEX KEY: 0001079880 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 043204522 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-73263 FILM NUMBER: 99598961 BUSINESS ADDRESS: STREET 1: 150 CAMBRIDGE PARK DRIVE CITY: CAMBRIDGE STATE: MA ZIP: 02140 BUSINESS PHONE: 6174417000 MAIL ADDRESS: STREET 1: 150 CAMBRIDGE PARK DRIVE CITY: CAMBRIDGE STATE: MA ZIP: 02140 S-1/A 1 ONESOURCE INFORMATION SERVICES, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1999 REGISTRATION NO. 333-73263 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ONESOURCE INFORMATION SERVICES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 7375 04-3204522 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------ 150 CAMBRIDGEPARK DRIVE CAMBRIDGE, MA 02140 617-441-7000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ DANIEL J. SCHIMMEL, PRESIDENT AND CHIEF EXECUTIVE OFFICER ONESOURCE INFORMATION SERVICES, INC. 150 CAMBRIDGEPARK DRIVE CAMBRIDGE, MA 02140 617-441-7000 (NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: LAWRENCE S. WITTENBERG KEVIN F. BLATCHFORD TESTA, HURWITZ & THIBEAULT, LLP SIDLEY & AUSTIN 125 HIGH STREET ONE FIRST NATIONAL PLAZA BOSTON, MASSACHUSETTS 02110 CHICAGO, ILLINOIS 60603 TEL: (617) 248-7000 TEL: (312) 853-7000 FAX: (617) 248-7100 FAX: (312) 853-7036
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date hereof. 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, check the following box. [X] ------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION FEE(3) SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) ------------------------ - --------------------------------------------------------------------------------------------------------------------------------- Common stock, $0.01 par value...................... 4,181,400 $12.00 $50,176,800 $13,949.15 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) Includes 545,400 shares which the underwriters may purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of determining the registration fee. (3) Includes $11,259.00 previously paid. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED APRIL 22, 1999 PROSPECTUS 3,636,000 SHARES ONE SOURCE LOGO COMMON STOCK OneSource Information Services, Inc. is offering 2,500,000 shares of its common stock and the selling stockholders are offering 1,136,000 shares of OneSource's common stock owned by them. We will not receive any of the proceeds from the selling stockholders' sale of their shares. This is our initial public offering and no public market currently exists for our shares. We expect the initial public offering price to be between $10.00 and $12.00 per share. We will list the common stock on the Nasdaq National Market under the symbol "ONES." INVESTING IN OUR COMMON STOCK INVOLVES RISKS. FOR MORE INFORMATION, SEE "RISK FACTORS" COMMENCING ON PAGE 7. --------------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- PER SHARE TOTAL - ----------------------------------------------------------------------------------------------- Public Offering Price................................ $ $ Underwriting Discount................................ $ $ Proceeds to OneSource Information Services, Inc...... $ $ Proceeds to Selling Stockholders..................... $ $ - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
The underwriters may also purchase up to an additional 545,400 shares at the public offering price, less the underwriting discount, from the selling stockholders within 30 days from the date of this prospectus to cover over-allotments. WILLIAM BLAIR & COMPANY U.S. BANCORP PIPER JAFFRAY ADAMS, HARKNESS & HILL, INC. The date of this prospectus is , 1999 3 [The inside front cover depicts four computer screen shots of the OneSource Business Browser. The heading on the page is "Ready-To-Use Business Information." The top three computer screen shots depict the Global Business Browser, the European Business Browser, and the UK Business Browser. The fourth computer screen shot depicts Market Forecasts and contains a chart graphic. There are four ellipses on the page that briefly describe the potential uses of the business information contained in the Business Browser products, including: "Profile a Company"; "Prospect for New Customers"; "Track Competitors"; and "Research an Industry". The OneSource logo is in the lower right hand corner of the page.] [FOUR COLOR ART WORK] 4 - -------------------------------------------------------------------------------- PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. It is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully. THE COMPANY OneSource provides Web-based business and financial information to professionals who need quick access to reliable corporate, industry and market intelligence. Our Business Browser product line integrates comprehensive and up-to-date business and financial information on over one million public and private companies from more than 25 information providers drawing upon over 2,500 sources of content. These sources include both textual information, such as news, trade press, SEC filings, executive biographies and analyst reports, and numeric information, such as company financial results, stock quotes and industry statistics. Our customers access this information over the Internet using standard Web browsers at a fixed annual subscription price. According to Simba Information Inc., the market for all Web-based and on-line business information services was nearly $24.8 billion in 1997 and is projected to grow to almost $39.8 billion in 2002. This reflects a compound annual growth rate of 9.9%. Simba also reported that the primary market segment in which OneSource participates--Web-based and on-line financial news, current awareness and research services--was $5.4 billion in 1997 and is projected to grow to $9.8 billion in 2002. This reflects a compound annual growth rate of 12.6%. Recent industry growth has been driven by corporations and other enterprises recognizing that productivity and competitiveness depend on extensive knowledge of external information, including information about industries, customers, competitors, prospects, business trends, breaking news and market data. OneSource focuses on the functional uses of the business and financial information it delivers. The Business Browser product line has been designed for use not only by traditional users of business information, but also throughout an organization, including sales, marketing, finance and management professionals. We apply our knowledge of how business professionals use information to transform raw, disparate data into meaningful, actionable information. We focus on integrating and presenting information so that interpretation, manipulation and analysis can be performed more easily by the end user. Because our products are based on standard Web technology, our customers require minimal installation and systems support, and users, after minimal training, have full access to the products at any time from anywhere via the Internet. Our products are designed to address information needs of leading professional and financial services firms, technology companies and other large organizations. Representative customers include American Express, Bain & Company, BankAmerica, Boeing, British Telecom, Deloitte & Touche, Ernst & Young, Harvard Business School, KPMG Peat Marwick, MCI/WorldCom, Merrill Lynch, Oracle and SAP. OneSource's fixed annual pricing strategy is designed to be particularly attractive to large organizations. The annual subscription price for the Business Browser product line declines on a per-user basis as the total number of users increases. The fixed-price model encourages professionals to use the products as needed without concern with additional, usage-based charges, and a declining marginal price per user encourages customers to distribute the products widely throughout their organizations. - -------------------------------------------------------------------------------- 3 5 - -------------------------------------------------------------------------------- At March 31, 1999, 460 organizations subscribed to our Web-based Business Browser product line, up from 279 at March 31, 1998. On average, our customers for Web-based products at March 31, 1999 had an annualized contract value of $61,604 per customer, compared to $42,489 per customer at March 31, 1998. The annualized value of Business Browser customer contracts was $25.9 million at December 31, 1998, having grown from $9.0 million at the end of 1997. Of this $25.9 million, $14.2 million was attributable to those customers that were under contract at both December 31, 1997 and 1998. The renewal rate of the Business Browser product line for 1998 was 90% calculated on a dollar basis. For more information regarding annualized contract value, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our goal is to become a leading Web-based provider of business and financial information to professionals worldwide. Our strategy to accomplish this objective includes: - focusing on the information needs of professionals in large organizations - expanding our customer base through our sales and marketing efforts - leveraging our existing customer base by expanding the number of users per customer and upgrading those customers to new or enhanced products - continually expanding the content and functionality of our products and designing additional products - selectively seeking possible strategic acquisitions and alliances THE OFFERING Shares offered by OneSource.............. 2,500,000 Shares offered by the selling stockholders........................... 1,136,000 Shares outstanding immediately after the offering............................... 9,926,500 Shares reserved for issuance with respect to outstanding options and warrants.... 4,393,005 Use of proceeds.......................... Repayment of outstanding debt, payments to terminate management fee arrangements and general corporate purposes, including working capital and possibly to acquire or invest in complementary businesses, products or technologies Proposed Nasdaq National Market symbol... ONES
- -------------------------------------------------------------------------------- 4 6 - -------------------------------------------------------------------------------- SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE, SHARE AND NUMBER OF CUSTOMERS DATA) The summary financial data set forth below should be read in conjunction with the Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Pro Forma As Adjusted column included in Balance Sheet Data adjusts the numbers in the Actual column to give effect to: - the reclassification of the Class P common stock as described in "Reclassification" - the sale of 2,500,000 shares of common stock by OneSource in this offering at the assumed initial public offering price of $11.00 per share after deducting the estimated underwriting discount and offering expenses as if the sale had been completed on March 31, 1999 - the use of the estimated net proceeds to OneSource as described in "Use of Proceeds" - the issuance of 15,696 shares pursuant to the partial exercise of a warrant by a selling stockholder as described in "Capitalization"
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------- --------------------- 1996 1997 1998 1998 1999 ------- ------- ----------- ------- ----------- STATEMENT OF OPERATIONS DATA: Web-based product revenues........ $ 15 $ 3,312 $ 16,058 $ 2,628 $ 6,903 CD Rom product revenues(1)........ 30,419 27,072 14,370 5,322 1,240 ------- ------- ----------- ------- ----------- Total revenues.................. 30,434 30,384 30,428 7,950 8,143 ======= ======= =========== ======= =========== Gross profit...................... 17,895 17,539 16,773 4,684 4,686 Operating expenses................ 19,488 18,943 21,737 5,315 5,505 ------- ------- ----------- ------- ----------- Loss from operations.............. (1,593) (1,404) (4,964) (631) (819) Interest income (expense), net.... (733) (930) (595) (244) (93) Gain on sale of product line...... -- 501 12,797 -- -- Other income...................... 393 -- -- -- 500 ------- ------- ----------- ------- ----------- Income (loss) before income taxes........................... (1,933) (1,833) 7,238 (875) (412) ======= ======= =========== ======= =========== Net income (loss)................. $(1,933) $(1,833) $ 6,988 $ (875) $ (412) ======= ======= =========== ======= =========== Unaudited pro forma earnings per share:(2) Basic........................... $ 0.91 $ (0.05) Diluted......................... $ 0.66 $ (0.05) Weighted average common shares outstanding: Basic........................ 7,644,012 7,706,409 Diluted...................... 10,566,326 7,706,409
- -------------------------------------------------------------------------------- 5 7 - --------------------------------------------------------------------------------
MARCH 31, 1999 ---------------------------- PRO FORMA ACTUAL AS ADJUSTED ------------ ------------ BALANCE SHEET DATA: Cash and cash equivalents................................... $ 6,739 $20,914 Working capital (deficit)................................... (3,001) 10,956 Total assets................................................ 20,723 34,549 Total debt (including capital lease obligations)............ 6,850 580 Deferred revenues........................................... 15,293 15,293 Total stockholders' equity (deficit)........................ (6,655) 13,572
DECEMBER 31, MARCH 31, --------------------------- ----------------- 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- OTHER DATA FOR WEB-BASED PRODUCTS: Annualized contract value................ $ 412 $ 8,973 $25,920 $11,854 $28,338 Number of customers...................... 11 233 445 279 460 Average annualized contract value per customer............................... $ 37.4 $ 38.5 $ 58.2 $ 42.5 $ 61.6
- ------------ (1) In 1997 and 1998, OneSource divested two CD Rom product lines. Revenues attributable to these divested product lines, which are included in the statement of operations data through the divestiture date, were $6,415,000, $6,630,000, $2,612,000 and $1,554,000 in the years ended December 31, 1996, 1997 and 1998 and for the three months ended March 31, 1998, respectively. (2) Unaudited pro forma basic and diluted earnings per share of common stock for the year ended December 31, 1998 and for the three months ended March 31, 1999 have been calculated based on net income attributable to all classes of common stock and assuming the reclassification had occurred at January 1, 1998 and January 1, 1999, respectively. ------------------------------- OneSource was incorporated in Delaware on July 21, 1993 under the name Datext Holding Corporation. Our principal executive offices are located at 150 CambridgePark Drive, Cambridge, MA 02140, and our telephone number is (617) 441-7000. --------------------------- OneSource(TM), Business Browser(TM), OneSource Business Browser(TM), Business Browser AppLink(TM), AppLink(TM), and the OneSource logo are our trademarks. Other trademarks and tradenames in this prospectus are the property of their respective owners. --------------------------- Unless the context otherwise requires, any reference to "OneSource" in this prospectus means OneSource Information Services, Inc. and its subsidiary. Unless otherwise indicated, all information contained in this prospectus: - reflects the merger on February 26, 1999 of OneSource Information Services, Inc. into its parent, OneSource Holding Corporation, and the name change of OneSource Holding Corporation to OneSource Information Services, Inc. - reflects a 2.035 for one stock split to be effected before the completion of this offering - reflects the reclassification of the Class P common stock which will occur immediately prior to the completion of this offering - assumes no exercise of the underwriters' over-allotment option - -------------------------------------------------------------------------------- 6 8 RISK FACTORS You should consider carefully the risks described below before you decide to buy our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we do not presently know about or that we currently believe are immaterial may also adversely impact our business operations. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In this case, the trading price of our common stock could fall, and you may lose all or part of the money you paid to buy our common stock. This prospectus also contains forward-looking statements that involve substantial risks and uncertainties. Our actual results, performance or achievements could differ significantly from those expressed in or implied by these forward-looking statements as a result of several factors, including the risks we face, as more fully described below in this section and elsewhere in this prospectus. WE HAVE A LIMITED OPERATING HISTORY WITH BUSINESS BROWSER ON WHICH TO EVALUATE OUR PROSPECTS We began operations as an independent company in 1993. We began to migrate our business to the Web from CD Rom-based products in early 1996, and launched the Web-based Business Browser product line in December 1996. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies transitioning to a new product line, particularly companies in the new and rapidly evolving market for Internet and Web-based business information products. OUR BUSINESS BROWSER PRODUCTS HAVE NOT BEEN PROFITABLE AND MAY NOT BECOME PROFITABLE IN THE FUTURE We incurred losses from operations of approximately $1.6 million in 1996, $1.4 million in 1997, $5.0 million in 1998 and $0.8 million in the three months ended March 31, 1999. In addition, we have not reached the critical mass of users of Web-based products which we believe is necessary to leverage effectively our royalty payments and infrastructure expenses and become profitable. As of March 31, 1999, we had an accumulated deficit of $10.9 million. WE RELY ON OUR BUSINESS BROWSER PRODUCT LINE, AND WE WILL NOT SUCCEED UNLESS DEMAND FOR OUR BUSINESS BROWSER PRODUCTS CONTINUES TO GROW Subscription revenues from our Business Browser product line accounted for 53% of total revenues in 1998 and 11% in 1997. These subscription revenues accounted for 83% of our total annualized contract value at the end of 1998 and 29% at the end of 1997. We are currently phasing out CD Rom products that are not part of the Business Browser product line. As a result, our future financial condition will depend heavily on the success or failure of our Business Browser product line. Business Browser products were introduced in December 1996 and it is difficult to predict demand and market acceptance for these products in the new and rapidly evolving Web-based business information services market. If the demand for Business Browser products does not grow, whether due to competition, lack of market acceptance, failure of Internet or 7 9 Web use to grow in general, technological change or other factors, our business would suffer significantly. ANNUALIZED CONTRACT VALUE MAY NOT BE AN ACCURATE INDICATION OF OUR PERFORMANCE We use "annualized contract value" as a measurement for normalized period-to-period comparisons to indicate business volume and growth. Our presentation and calculation of annualized contract value may not be comparable to similarly titled measures used by other companies. It is not an absolute indicator and we cannot guarantee that any annualized contract value will be ultimately realized as revenues. COMPETITION IN OUR INDUSTRY IS INTENSE AND MANY OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE DO; THIS COMPETITION MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS The business information services industry is intensely competitive. We face direct or indirect competition from the following types of companies: - large, well-established business and financial information providers such as Dow Jones, Dialog, Lexis-Nexis, Pearson, Reuters, Thomson, Primark and McGraw-Hill - on-line information services or Websites targeted to specific markets or applications, such as NewsEdge, Factset and Bloomberg - providers of sales, marketing and credit information such as Dun & Bradstreet - Web retrieval, Web "portal" companies and other free or low-cost mass market on-line services such as Excite, Infoseek, Lycos, Yahoo! and AOL/Netscape - free or low-cost specialized business and financial information Websites such as Hoovers.com, Marketwatch.com, Multex.com and TheStreet.com Based on reported operating results, industry reports and other publicly available information, we believe that many of our existing competitors, as well as a number of prospective competitors, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in user requirements, or to devote greater resources to the development, promotion and sale of their products than we can. These competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees, customers and information providers. Our competitors also may develop products that are equal or superior to our products or that achieve greater market acceptance than our products. 8 10 FREE INFORMATION MAY LESSEN THE DEMAND FOR BUSINESS BROWSER Some of our competitors offer financial and business information free of charge with the goal of achieving high enough usage to facilitate the sale of substantial amounts of advertising. To the extent these types of competitors offer products free of charge that are similar to ours, it would have a material adverse impact on our business, financial condition and results of operations. In addition, extensive free information is available in the public domain. Sources of this information include government agencies, libraries and sources on the Internet. INCREASED COMPETITION COULD RESULT IN PRICE REDUCTIONS, REDUCED GROSS MARGINS AND LOSS OF MARKET SHARE There are relatively low barriers to entry to the Web-based information market and we may face additional competition from new entrants. We also expect that competition may increase as a result of industry consolidation. It is possible that new competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share. Any of these would have a material adverse effect on our business, financial condition and results of operations. IF OUR INFORMATION PROVIDERS STOPPED DOING BUSINESS WITH US, WE COULD NOT CONTINUE TO SELL BUSINESS BROWSER We do not own or create the original content distributed through our products. We depend entirely on information providers to supply information and data feeds to us on a timely basis. Our products could experience interruptions due to any failure or delay in the transmission or receipt of this information. Many of our information providers compete with one another and, in some cases, with us, for users. We do not have exclusive distribution arrangements with any of our information providers. Accordingly, all of our information providers can distribute their content themselves directly or through our competitors. Business decisions made by our information providers could adversely affect the availability or pricing of their information to us. Our arrangements with our information providers generally extend for one-year periods, which automatically renew unless terminated by notice given at least three months prior to the end of the term. In the event of a breach by us, the contracts can be terminated on relatively short notice. An information provider may be difficult to replace and the loss of one or more significant information providers could decrease the quality, quantity or mix of the information distributed through our products. This could make our products less competitive. If information providers terminate their relationships with us, our business and delivery of our products may be disrupted. 9 11 This could result in a loss of customers or requests for refunds. OUR PRIMARY COSTS ARE ROYALTY PAYMENTS TO INFORMATION PROVIDERS Any increase in the royalty rates we negotiate with our information providers could have an adverse effect on our gross profits, financial condition and results of operations. IF OUR WEBSITE SERVICE IS DISRUPTED, OUR CUSTOMERS COULD LOSE ACCESS TO BUSINESS BROWSER AND OUR REPUTATION COULD BE HARMED Our on-line site is located at a dedicated hosting facility and we do not currently have a shadow site fully equivalent to the live on-line site. Any damage to the hosting facility or the equipment there, such as damage by fire or power loss, or loss of telecommunications could disrupt the delivery of our products. In addition, our users depend on Internet service providers, on-line service providers and other Website operators for access to our products. Each of them has experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our on-line architecture. These types of occurrences could cause users to perceive our products as not functioning properly and therefore cause them to use other methods to obtain their business and financial information. The number of Business Browser users has increased since its introduction in December 1996 and we are seeking to further increase our user base. This has led to increased usage and increased demands on our on-line architecture. Any downtime or slow response times may damage our reputation and make it more difficult to attract new users. OUR MARKET IS NEW AND RAPIDLY EVOLVING; AS A RESULT, WE MAY NOT BE ABLE TO ACCURATELY PREDICT AND RESPOND TO MARKET DEVELOPMENTS The market for Web-based distribution of electronic business and financial information has only recently begun to develop and it is rapidly evolving. This makes it difficult to predict demand and market acceptance for our products. We cannot guarantee that the market for our products will grow or that our products will become widely accepted. If the market for our products does not develop as quickly as we expect or if our products are not accepted by customers, our future financial results will be adversely affected. A significant increase in the number of customers and development of new product offerings could also require the expenditure of significant amounts of money, time and other resources. This could strain our personnel and financial resources. OUR PERFORMANCE WILL DEPEND ON THE CONTINUED GROWTH AND COMMERCIAL ACCEPTANCE OF THE INTERNET Our business would be adversely affected if the number of professionals using the Web does not continue to grow. This growth may be inhibited by a number of factors, such as: - inadequate network infrastructure - inconsistent quality of service 10 12 - lack of cost-effective, high-speed service - security concerns Even if Web use grows, the Internet infrastructure may not be able to support adequately future growth and its reliability and quality of service may suffer. In addition, numerous Websites have experienced service interruptions due to outages and other delays occurring internally and throughout the Internet network infrastructure. If these outages or delays occur frequently in the future, Web usage, as well as usage of our products, could grow more slowly or decline. GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB COULD HURT OUR BUSINESS Currently, there are few laws or regulations that specifically regulate communications or commerce on the Web. However, laws and regulations may be adopted that address issues such as user privacy, pricing and the characteristics and quality of products and services. For example, the Telecommunications Act sought to prohibit the transmission of certain types of information and content over the Web. In addition, several telecommunications companies have petitioned the Federal Communications Commission to regulate Internet and on-line service providers in a manner similar to long distance telephone carriers and to impose access fees on such providers. This could increase the cost of transmitting data over the Internet. Moreover, it may take years to determine the extent to which existing laws relating to issues such as property ownership, libel and personal privacy apply to the Web. Finally, state tax laws and regulations relating to the provision of products and services over the Internet are still developing. If individual states impose taxes on products and services provided over the Web, the cost of our products may increase and we may not be able to increase the price we charge for our products to cover these costs. Any new laws or regulations or new interpretations of existing laws and regulations relating to the Web could adversely affect our business. OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY We believe that our success depends, in large part, on protecting our intellectual property in the United States and in foreign countries. Other than our trademarks, most of our intellectual property consists of proprietary or confidential information that is not subject to patent or similar protection. Competitors may independently develop similar or superior products, software or business models. We cannot guarantee that we will be able to protect our intellectual property. There is no way to assure that unauthorized third parties will not try to copy our products or business model or use our confidential information to develop 11 13 competing products. Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses are uncertain and still evolving. As a result, we cannot predict the future viability or value of our proprietary rights and those of other companies within the industry. We also cannot guarantee that our business activities and products will not infringe upon the proprietary rights of others, or that other parties will not assert infringement claims against us. Any infringement claims and any resulting litigation, should it occur, could subject us to significant liability for damages and could result in invalidation of our proprietary rights. Even if we eventually won any resulting litigation, it could be time-consuming and expensive to defend, and could result in the diversion of our management's time and attention. WE COULD BE SUBJECT TO LEGAL LIABILITY FOR DISTRIBUTING INFORMATION ON OUR WEBSITE We may be subjected to claims based on negligence or other theories relating to the information we distribute. Similarly, we may be subjected to claims for defamation or copyright or trademark infringement relating to the information we provide in our products. These types of claims have been brought, sometimes successfully, against on-line services as well as print publications in the past. We also could be subjected to claims based upon the content that is accessible from our products through links to other Websites. These types of claims could be time-consuming and expensive to defend, and could result in the diversion of our management's time and attention. In addition, if our products provide faulty or inaccurate information, or fail to provide all the information a user expects, we could be subject to legal liability. Our insurance and contractual provisions with users and information providers may not protect us against these types of claims. IF OUR SOFTWARE IS DEFECTIVE, IT MIGHT BE COSTLY TO CORRECT; WE COULD GET SUED AND OUR REPUTATION COULD BE HARMED Complex software like the software we develop for our products may contain errors or defects, especially when first implemented, that may be very costly to correct. Defects or errors also could result in downtime and our business could suffer significantly from potential adverse customer reaction, negative publicity and harm to our reputation. 12 14 WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS, WHICH MAKES IT DIFFICULT FOR INVESTORS TO MAKE RELIABLE PERIOD-TO-PERIOD COMPARISONS AND CONTRIBUTES TO VOLATILITY IN THE MARKET PRICE FOR OUR COMMON STOCK Our quarterly revenues, gross profits and results of operations have fluctuated significantly in the past and we expect them to continue to fluctuate significantly in the future. In addition, we believe that an important measure of our business is the annualized contract value at the end of each period, which also may fluctuate. Causes of such fluctuations have included and may include, among other factors: - changes in demand for our products - the dollar value and timing of both new and renewal subscriptions - competition (particularly price competition) - increases in selling and marketing expenses, as well as other operating expenses - technical difficulties or system downtime affecting our products on the Web generally - economic conditions specific to the Web, as well as general economic conditions - consolidation of our customers In addition, a substantial portion of our expenses, including most product development and selling and marketing expenses, must be incurred in advance of revenue generation. If our projected revenue does not meet our expectations, then we are likely to experience an even larger shortfall in our operating profit (loss) relative to our expectations. Any one or more of these factors could affect our business, financial condition and results of operations, and this makes the prediction of results of operations on a quarterly basis unreliable. As a result, we believe that period-to-period comparisons of our historical results of operations and annualized contract values are not necessarily meaningful and that you should not rely on them as an indication for future performance. Also, due to these and other factors, it is possible that our quarterly results of operations (including the annualized contract value) may be below the expectations of public market analysts and investors. If this happens, the price of our common stock would likely decrease. WE WOULD HAVE DIFFICULTY REPLACING KEY PERSONNEL WHOSE SERVICES ARE IMPORTANT TO OUR SUCCESS Our future success depends on the continued services of a number of key employees, including Daniel J. Schimmel, our President and Chief Executive Officer, James A. Becker, our Vice President, Global Strategic Web Applications Team, Philip J. Garlick, our Vice President, Global Enterprise Sales and Marketing, Mark C. VanDine, our Vice President, Engineering and Roy D. Landon, our Vice President, Finance 13 15 and Administration. We also depend on a limited number of engineers to monitor the performance and availability of our complex network and to perform the necessary updates and repairs. We do not have employment contracts with our key personnel. If any of our key employees leave, the loss of their technological knowledge and industry expertise would seriously impede the development of new products and services and our ability to manage our business. The loss of one or a group of our key employees could adversely affect our future financial results. THERE IS INTENSE COMPETITION FOR QUALIFIED PERSONNEL NECESSARY TO THE SUCCESS OF OUR BUSINESS Our future performance also depends upon our ability to attract and retain highly-qualified technical, sales and managerial personnel. Qualified personnel are in great demand throughout the software and Internet industries and there is intense competition for such personnel. In addition, competition for qualified personnel may lead to increased costs for personnel. If we do not succeed in retaining our personnel or in attracting new employees, our business could suffer significantly. WE ARE SUBJECT TO RISKS OF OPERATING INTERNATIONALLY Revenue from customers located outside North America accounted for 23% in 1998, 20% in 1997 and 17% in 1996 of our total revenue for those years. Over time, we expect revenue from international operations, principally in Europe, to increase as a percentage of our total revenue. As a result, we may be exposed to a number of risks customary for international operations, including: - difficulties relating to managing an international sales force - the burdens of complying with a wide variety of foreign laws - the uncertainty of laws and enforcement in certain countries relating to the protection of intellectual property - multiple and possibly overlapping tax structures - economic or political changes in international markets - currency and exchange rate fluctuations - adverse tax consequences of returning any earnings of our foreign operations back to the United States To date, we have not used risk management techniques or "hedged" the risks associated with fluctuations in foreign exchange rates. WE ARE SUBJECT TO RISKS ASSOCIATED WITH YEAR 2000 PROBLEMS Many existing computer systems and software products do not properly recognize dates after December 31, 1999. This "Year 2000" problem could result in miscalculations, data corruption, system failures or disruptions of operations. We are subject to potential Year 2000 problems affecting telecommunication 14 16 services, customers, our products, our internal systems and the systems of our hosting facility and our information providers, any of which could have a material adverse effect on our business, financial condition and results of operations. We also have identified third-party software as non-compliant, and several internal systems need to be addressed as part of our relocation in June 1999. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness Disclosure Statement." Furthermore, as we approach the Year 2000, customers may be forced to devote greater resources to comply with Year 2000 requirements and as a result purchase fewer products from us, which would have an adverse effect on our net revenues. OUR EXISTING OFFICERS AND DIRECTORS, RATHER THAN OUTSIDE STOCKHOLDERS, WILL CONTINUE TO CONTROL ONESOURCE Following this offering, our officers and directors, together with their affiliated entities, will beneficially own approximately 67% of our outstanding shares of common stock. As a result, these stockholders acting together will be able to take any of the following actions without the approval of our public stockholders: - elect our directors - amend our charter or approve a merger, sale of assets or other major corporate transaction - defeat any non-negotiated takeover attempt that may be beneficial to our public stockholders - otherwise control the outcome of all matters submitted for a stockholder vote THE OFFERING WILL BENEFIT WILLIAM BLAIR & COMPANY, L.L.C., ONE OF THE UNDERWRITERS William Blair Venture Partners III Limited Partnership, one of the selling stockholders and an affiliate of William Blair, will receive approximately $8.0 million or 20% of the gross proceeds of this offering with respect to the sale of common stock offered by this prospectus. In addition, William Blair Venture Partners owns 329,669 shares of Class P common stock and will participate in the reclassification. We have also agreed to pay William Blair Venture Partners a $0.5 million fee upon the closing of this offering to terminate an oral management agreement between us. Accordingly, this offering will provide significant benefits to William Blair Venture Partners. For more information, see "Certain Transactions." THE RULES OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS REQUIRE THE USE OF A QUALIFIED INDEPENDENT UNDERWRITER IN THIS OFFERING The rules of the NASD provide that no NASD member may participate in a public offering of an affiliated issuer's securities unless a qualified independent underwriter has been engaged on the terms provided in the rules. William Blair Venture Partners, one of the selling stockholders, is an affiliate 15 17 of William Blair and, therefore, William Blair may be defined as an affiliate of ours. In addition, Mr. Newmark, a principal of William Blair, currently serves on our board of directors as the representative of William Blair Venture Partners. In view of our affiliation with William Blair, U.S. Bancorp Piper Jaffray Inc. has agreed to act as the qualified independent underwriter in this offering. In its capacity as the qualified independent underwriter, U.S. Bancorp Piper Jaffray has participated in the preparation of the prospectus and conducted due diligence as part of such preparation. The initial public offering price for the common stock can be no higher than that recommended by U.S. Bancorp Piper Jaffray acting as the qualified independent underwriter. THE OFFERING WILL BENEFIT SELLING STOCKHOLDERS The selling stockholders will receive substantial proceeds and other benefits in connection with this offering. In addition, a selling stockholder and an affiliate of another selling stockholder will each receive a payment of $0.5 million out of OneSource's net proceeds to terminate a management fee arrangement. For more information, see "Certain Transactions." The offering will also establish a public market for the common stock and provide significantly increased liquidity to our existing stockholders and optionholders. THERE IS NO TRADING MARKET FOR OUR COMMON STOCK; ITS FUTURE MARKET VALUE IS UNCERTAIN Before this offering, there was no public market for our common stock. We and the underwriters will determine the initial public offering price of our common stock based on negotiations between us concerning the proper valuation of our common stock. Nevertheless, after this offering, you may not be able to resell your shares at or above the initial public offering price due to a number of factors, including: - actual or anticipated fluctuations in our operating results or annualized contract values - changes in expectations as to our future financial performance - changes in securities analysts' financial estimates - the operating and stock price performance of our competitors and other comparable companies In addition, the stock market in general, and the stocks of Web-based businesses in particular, have experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance. You should read the "Underwriting" section for a more complete discussion of the factors that the 16 18 underwriters and we considered in determining the initial public offering price. OTHER SHARES MAY BE SOLD IN THE FUTURE; THIS COULD DEPRESS THE MARKET PRICE FOR OUR COMMON STOCK After this offering, we will have 9,926,500 shares of common stock outstanding and will have reserved an additional 5,293,005 shares of common stock for issuance pursuant to our stock option and purchase plans and outstanding warrants. We intend to register for resale the shares of common stock reserved for issuance under our stock option and stock purchase plans approximately 90 days after the date of this prospectus. The federal securities laws impose restrictions on the ability of stockholders who acquired their shares prior to the offering to resell their shares. In addition, our officers and directors have agreed not to sell their shares for a period of 180 days after the date of this prospectus. If a large number of our shares of common stock are sold following this offering, the price of our common stock would likely decrease. PURCHASERS OF OUR COMMON STOCK IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION The initial public offering price of our common stock is substantially higher than the net tangible book value per share of common stock will be after the offering. The net tangible book value per share of common stock is calculated by subtracting total liabilities from total tangible assets and dividing by the number of shares outstanding. Purchasers of common stock offered by OneSource will pay total consideration that represents approximately 85% of all consideration ever received by us for our stock but they will own approximately 25% of our outstanding common stock. OUR ANTI-TAKEOVER PROVISIONS MAY HAVE ADVERSE EFFECTS Our restated certificate of incorporation and amended and restated by-laws contain anti-takeover provisions that could have the effect of delaying or preventing changes in our management, even if such changes would benefit our public stockholders. For example, following the closing of this offering, the board of directors may issue up to one million shares of preferred stock without any further vote or action by the stockholders. The preferred stock could have voting, liquidation, dividend and other rights superior to those of the common stock, and, therefore, any issuance of preferred stock could adversely affect your rights as a common stockholder. These factors could cause the market price of the common stock to decrease. 17 19 RECLASSIFICATION Prior to the consummation of this offering, OneSource will reclassify all of its outstanding shares of capital stock into a single class of common stock and will authorize a single class of undesignated preferred stock. Each share of Class P common stock will be reclassified into shares of common stock. Each share of Class P common stock is entitled to a payment upon any distribution by OneSource to holders of its capital stock in an amount equal to the original cost of such share plus a preferential amount which accrues on a daily basis at a rate of 12% per annum on such cost, compounded quarterly. As of March 31, 1999, the aggregate preference amount of the outstanding Class P common stock was $3.3 million, based on an original cost per share of $4.91. In connection with the reclassification, each outstanding share of Class P common stock will be reclassified into one share of common stock plus an additional number of shares of common stock determined by dividing the applicable preference amount for such share by the value of a share of common stock based on the initial public offering price in the offering. Based on an assumed initial public offering price of $11.00 per share and the aggregate preference amount at March 31, 1999, an aggregate of 1,021,230 shares of common stock would be issued upon the reclassification of all shares of Class P common stock and 304,111 shares of common stock would be repurchased. Fractional shares otherwise issuable will be rounded down to the nearest whole number. OneSource intends to repurchase all of the shares of common stock issued with respect to the preference amount at the initial public offering price prior to the completion of this offering. 18 20 USE OF PROCEEDS We estimate our net proceeds from the issuance and sale of the 2,500,000 shares of common stock being offered by OneSource to be approximately $24.8 million, at an assumed initial public offering price of $11.00 per share, after deducting the estimated underwriting discount and offering expenses. We will not receive any proceeds from the sale of the common stock by the selling stockholders. The principal purposes of this offering are to: - repay debt - terminate current management fee arrangements - obtain working capital - establish a public market for our common stock and increase our visibility in the marketplace - facilitate future access to public capital markets - provide liquidity to existing stockholders and optionholders We intend to use approximately $6.8 million of the net proceeds to us to repay principal and interest on a note issued by OneSource to Lotus Development Corporation in connection with the purchase of OneSource's business from Lotus in 1993. The note bears interest at the rate of 8% per year and is due September 8, 2000, unless accelerated upon the occurrence of any one of several events. The completion of this offering would require OneSource to repay a significant portion of the note if we do not repay it in full. We also intend to pay $0.5 million to each of William Blair Venture Partners III Limited Partnership and an affiliate of Information Partners Capital Fund, L.P. to terminate management fee arrangements. For more information, see "Certain Transactions." We intend to use the remaining net proceeds for general corporate purposes, including working capital, and we may also use a portion of the net proceeds to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. While we discuss potential acquisitions and investments from time to time, we currently have no commitments or agreements for any such acquisitions or investments. Pending these uses, our remaining net proceeds of the offering will be invested in short-term, interest-bearing, investment-grade securities, certificates of deposit or direct or guaranteed obligations of the United States. DIVIDEND POLICY We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. 19 21 CAPITALIZATION The left-hand column in the following table sets forth OneSource's capitalization as of March 31, 1999. The middle column gives pro forma effect to the reclassification of OneSource's Class P common stock into common stock and the filing of our restated certificate of incorporation, each prior to the completion of this offering. The right-hand column sets forth OneSource's pro forma capitalization as of March 31, 1999, as further adjusted to reflect all of the following as if they occurred on March 31, 1999: - the sale of 2,500,000 shares of common stock by OneSource in this offering at an assumed initial public offering price of $11.00 per share - the use of approximately $6.8 million of the estimated net proceeds to repay a note payable to Lotus - the use of $1.0 million to pay a fee for terminating management fee arrangements - the exercise of an outstanding warrant to purchase 15,696 shares of common stock at $0.06 per share by a selling stockholder - the repurchase of common stock issued in respect of the preference amount on the Class P common stock in the reclassification You should read the data set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto appearing elsewhere in this prospectus.
MARCH 31, 1999 ------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- Current portion of capital lease obligations.............. $ 401 $ 401 $ 401 ======== ======== ======== Long-term debt and capital lease obligations.............. 6,449 6,449 179 -------- -------- -------- Stockholders' equity (deficit): Preferred stock, $0.01 par value; 1,000,000 shares authorized, no shares issued or outstanding, actual, pro forma and pro forma as adjusted.................. -- -- -- Class P common stock, $0.01 par value; 1,250,000 shares authorized, 717,119 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted.................. 3,524 -- -- Common stock, $0.01 par value; 20,000,000 shares authorized, 6,693,685, 7,714,915 and 9,926,500 shares issued and outstanding, actual, pro forma and pro forma as adjusted.................................... 67 77 99 Additional paid-in capital.............................. 1,176 4,690 26,148 Unearned compensation................................... (464) (464) (464) Accumulated deficit..................................... (10,856) (10,856) (12,109) Accumulated other comprehensive loss.................... (102) (102) (102) -------- -------- -------- Total stockholders' equity (deficit)................. $ (6,655) $ (6,655) $ 13,572 -------- -------- -------- Total capitalization............................ $ 206 $ 206 $ 13,751 ======== ======== ========
The number of shares of common stock issued and outstanding, pro forma as adjusted, excludes 4,393,005 shares of common stock issuable upon the exercise of stock options and 20 22 warrants outstanding at a weighted average exercise price of $1.95, and an aggregate of 900,000 shares reserved for future stock option grants and purchases under OneSource's equity compensation plans. For more information, see "Management--Equity Plans" and Notes 7 and 8 to the Consolidated Financial Statements. DILUTION Purchasers of our common stock in this offering will incur immediate and substantial dilution because the assumed initial public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of common stock will be after this offering. The pro forma net tangible book value deficit of OneSource as of March 31, 1999 was $(6.7) million, or $(0.86) per share. Pro forma net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares of common stock outstanding after giving effect to the reclassification of Class P common stock into common stock. After giving effect to the sale of the 2,500,000 shares of common stock offered by OneSource and the application of the estimated net proceeds to OneSource, the pro forma net tangible book value of OneSource as of March 31, 1999, would have been $13.6 million, or $1.37 per share. This represents an immediate increase in pro forma net tangible book value of $2.23 per share to existing stockholders and an immediate "dilution" of $9.63 per share to investors purchasing common stock in this offering. The following table illustrates this per share dilution: Assumed initial public offering price....................... $11.00 Pro forma net tangible book value deficit per share as of March 31, 1999......................................... $(0.86) Increase per share attributable to new investors.......... 2.23 ------ Pro forma net tangible book value per share after this offering.................................................. 1.37 ------ Dilution per share to new investors......................... $ 9.63 ======
The following table summarizes the difference between the number of shares of common stock purchased from OneSource, the total consideration paid to OneSource, and the average price per share paid by existing stockholders and by new investors:
SHARES PURCHASED TOTAL CONSIDERATION --------------------- ---------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- ------------- Existing stockholders.............. 7,426,500 74.8% $ 4,768,000 14.8% $ 0.64 New investors...................... 2,500,000 25.2 27,500,000 85.2 $11.00 ---------- ----- ----------- ----- Total......................... 9,926,500 100.0% $32,268,000 100.0% ========== ===== =========== =====
The foregoing tables assume no exercise of the options or the warrants outstanding to purchase an additional 4,393,005 shares of common stock at a weighted average exercise price of $1.95 per share. To the extent these options or warrants are exercised, there will be further dilution to new shareholders in the net tangible book value of their shares. For more information, see "Management--Equity Plans." In addition, the second table does not reflect the sale of 1,136,000 shares by the selling stockholders in this offering. These sales will reduce the shares held by existing shareholders to 63.4% of the total shares of common stock to be outstanding after this offering, and will increase the number of shares to be purchased by the new shareholders to 36.6% of the total shares of common stock to be outstanding after this offering. For more information, see "Principal and Selling Stockholders." 21 23 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below should be read in conjunction with OneSource's Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 1996, 1997 and 1998, and the consolidated balance sheet data as of December 31, 1997 and 1998, have been derived from, and are qualified by reference to, OneSource's audited Consolidated Financial Statements and Notes appearing elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 1994 and 1995, and the consolidated balance sheet data as of December 31, 1994, 1995 and 1996, have been derived from OneSource's audited Consolidated Financial Statements that do not appear in this prospectus. Financial data as of March 31, 1998 and 1999, and for the three month periods ended March 31, 1998 and 1999, are derived from unaudited Consolidated Financial Statements appearing elsewhere in this prospectus, and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, that OneSource considers necessary for a fair presentation of its financial position and results of operations for such periods. The historical results are not necessarily indicative of the operating results to be expected in the future.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------------------------- --------------------- 1994 1995 1996 1997 1998 1998 1999 --------- --------- --------- --------- ---------- --------- --------- (UNAUDITED) (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues:(1) Web-based product............ $ -- $ -- $ 15 $ 3,312 $ 16,058 $ 2,628 $ 6,903 CD Rom product............... 30,300 28,957 30,419 27,072 14,370 5,322 1,240 --------- --------- --------- --------- ---------- --------- --------- Total revenues............... 30,300 28,957 30,434 30,384 30,428 7,950 8,143 --------- --------- --------- --------- ---------- --------- --------- Cost of revenues: Web-based product............ -- -- 295 2,401 7,863 1,287 2,970 CD Rom product............... 12,380 11,520 12,244 10,444 5,792 1,979 487 --------- --------- --------- --------- ---------- --------- --------- Total cost of revenues....... 12,380 11,520 12,539 12,845 13,655 3,266 3,457 --------- --------- --------- --------- ---------- --------- --------- Gross profit................... 17,920 17,437 17,895 17,539 16,773 4,684 4,686 --------- --------- --------- --------- ---------- --------- --------- Operating expenses: Selling and marketing........ 11,231 8,705 8,572 9,167 11,577 2,797 2,927 Platform and product development................ 5,512 6,585 7,252 6,375 6,313 1,561 1,718 General and administrative... 6,516 5,163 3,664 3,401 3,847 957 860 --------- --------- --------- --------- ---------- --------- --------- Total operating expenses..... 23,259 20,453 19,488 18,943 21,737 5,315 5,505 --------- --------- --------- --------- ---------- --------- --------- Loss from operations........... (5,339) (3,016) (1,593) (1,404) (4,964) (631) (819) Interest income (expense), net.......................... (515) (633) (733) (930) (595) (244) (93) Gain on sale of product line... -- -- -- 501 12,797 -- -- Other income................... -- -- 393 -- -- -- 500 --------- --------- --------- --------- ---------- --------- --------- Income (loss) before income taxes........................ (5,854) (3,649) (1,933) (1,833) 7,238 (875) (412) Provision (benefit) for income taxes........................ (473) -- -- -- 250 -- -- --------- --------- --------- --------- ---------- --------- --------- Net income (loss).............. (5,381) (3,649) (1,933) (1,833) 6,988 (875) (412) Less: income (loss) attributable to Class P common stock................. (122) 104 335 414 1,367 72 139 --------- --------- --------- --------- ---------- --------- --------- Income (loss) attributable to common stock................. $ (5,259) $ (3,753) $ (2,268) $ (2,247) $ 5,621 $ (947) $ (551) ========= ========= ========= ========= ========== ========= =========
22 24
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------------------------- --------------------- 1994 1995 1996 1997 1998 1998 1999 --------- --------- --------- --------- ---------- --------- --------- (UNAUDITED) Earnings (loss) per share:(2) Class P common stock: Basic and diluted earnings (loss) per share......... $ (0.17) $ 0.14 $ 0.47 $ 0.58 $ 1.91 $ 0.10 $ $0.19 Weighted average Class P common shares outstanding.............. 724,257 723,239 718,966 717,948 717,541 717,948 717,119 Common stock: Basic earnings (loss) per share.................... $ (0.81) $ (0.57) $ (0.35) $ (0.34) $ 0.85 $ (0.14) $ (0.08) Diluted earnings (loss) per share.................... $ (0.81) $ (0.57) $ (0.35) $ (0.34) $ 0.59 $ (0.14) $ (0.08) Weighted average common shares outstanding: Basic.................... 6,525,087 6,522,629 6,486,959 6,545,343 6,640,834 6,620,952 6,685,164 Diluted.................. 6,525,087 6,522,629 6,486,959 6,545,343 9,563,151 6,620,952 6,685,164 Unaudited pro forma earnings per share:(3) Basic...................... $ 0.91 $ (0.05) Diluted.................... $ 0.66 $ (0.05) Weighted average common shares outstanding Basic.................... 7,644,012 7,706,409 Diluted.................. 10,566,326 7,706,409
DECEMBER 31, MARCH 31, ----------------------------------------------------- ---------------------- 1994 1995 1996 1997 1998 1998 1999 ------- ------- -------- -------- ------- ------- ----------- (UNAUDITED) (IN THOUSANDS, EXCEPT NUMBER OF CUSTOMERS DATA) BALANCE SHEET DATA: Cash and cash equivalents............. $ 1,378 $ 966 $ 535 $ 341 $ 8,665 $ 379 $ 6,739 Working capital (deficit)............... (7,431) (7,499) (8,803) (9,792) (2,118) (10,105) (3,001) Total assets.............. 19,396 16,567 16,934 16,644 27,646 14,401 20,723 Total debt (including capital lease obligations)............ 4,755 6,223 6,661 8,171 6,936 8,908 6,850 Deferred revenues......... 13,818 14,160 15,419 15,748 18,022 14,983 15,293 Total stockholders' deficit................. (6,116) (9,757) (11,827) (13,613) (6,311) (14,503) (6,655) OTHER DATA FOR WEB-BASED PRODUCTS (UNAUDITED): Annualized contract value(4)................ $ -- $ -- $ 412 $ 8,973 $25,920 $11,854 $28,338 Number of customers....... -- -- 11 233 445 279 460 Average annualized contract value per customer................ $ -- $ -- $ 37.4 $ 38.5 $ 58.2 $ 42.5 $ 61.6
- ------------ (1) In 1997 and 1998, OneSource divested two CD Rom product lines. Revenues attributable to these divested product lines, which are included in the statement of operations data through the divestiture date, were $5,713,000, $6,002,000, $6,415,000, $6,630,000, $2,612,000 and $1,554,000 in the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and the three months ended March 31, 1998, respectively. (2) You should read Notes 2 and 5 to the Consolidated Financial Statements for further description of the calculation of these items. (3) Unaudited pro forma basic and diluted earnings per share of common stock for the year ended December 31, 1998 and for the three months ended March 31, 1999 have been calculated based on net income attributable to all classes of common stock and assuming the reclassification of OneSource's Class P common stock prior to the 23 25 completion of this offering as if it had occurred at January 1, 1998 and January 1, 1999, respectively. In the reclassification, each share of Class P common stock will be reclassified into one share of common stock plus an additional number of shares of common stock determined by dividing the preference amount for such share by the initial public offering price per share. (4) Annualized contract value represents the invoiced fees for one month for all customer contracts for Web-based products in effect at the measurement date, multiplied by 12, without regard to the actual remaining duration of such contracts. For more information regarding annualized contract value, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview -- Annualized Contract Value." 24 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW -- GENERAL OneSource provides Web-based business and financial information to professionals who need quick access to reliable corporate, industry and market intelligence. OneSource was formed as a division of Lotus in 1987 and became an independent company when it was purchased in a management buy-out in 1993. Until December 1996, our business was to provide business information to the financial community using CD Rom technology as the primary method of distribution. The introduction of Business Browser in December 1996 marked a fundamental shift in our business as we began a transition away from our legacy CD Rom business and toward Web-based products. Revenues from Web-based products accounted for $16.1 million, or 53% of total revenues, for the year ended December 31, 1998 up from $3.3 million, or 11% of total revenues, for the year ended December 31, 1997. In the same period, CD Rom product revenues decreased to $14.4 million, or 47% of total revenues for the year ended December 31, 1998 from $27.1 million, or 89% of total revenues, for the year ended December 31, 1997. As of December 31, 1998, 445 organizations subscribed to our Business Browser product line, and the annualized contract value for these organizations was $25.9 million. During this transition period, we utilized the cash flow from our CD Rom business to fund a portion of the significant expenses incurred to build our Web-based business. These expenses included the following: - platform and product development expenses to develop and enhance our Web-based products, - selling and marketing expenses to hire and train a Web-based sales force and to retrain a portion of our CD Rom-based sales force and - general and administrative expenses to build the necessary infrastructure to support our growing Web-based business. The gross margins on our Web-based business have also been adversely impacted by certain royalty expenses and other costs of revenues which were disproportionately high compared to Web-based revenues which were growing from low initial levels. We believe that our operating margins will improve as we more effectively leverage our Web-based royalty and infrastructure expenses and eliminate costs incurred to support our legacy CD Rom products. In May 1998, we sold our CD-Insurance division to allow us to focus more completely on our new Web-based product line. We recognized a gain of $12.8 million on this sale during 1998. In addition, in connection with the disposition, we licensed certain of our CD Rom software to the acquiror in exchange for $4.0 million of license fees. These license fees will be paid in eight equal quarterly installments beginning January 1, 1999 and running through December 31, 2000 and recognized ratably. These license fees are being recognized as other income. Our revenues for both CD Rom and Web-based products consist of monthly subscription fees from customer contracts. Customer contracts span varying periods of time but are generally for one year, are renewable for like periods, and are payable in advance. Subscription fees 25 27 generally are quoted to clients on an annual basis but are earned as revenues on a monthly basis over the subscription period. Invoices are recorded as accounts receivable until paid and as deferred revenues until earned. Deferred revenues attributable to Web-based products increased 231% to $15.9 million as of December 31, 1998 from $4.8 million as of December 31, 1997. Cost of revenues consists primarily of royalties to information providers and, to a lesser extent, employee salaries and benefits, facilities allocation and related expenses, depreciation associated with computers for data processing and on-line requirements and Web hosting expenses. We enter into contracts with our information providers which are generally for a term of at least one year and are automatically renewable if not canceled with advance notice. These contracts may be terminated under certain circumstances. For more information, see "Risk Factors--If our information providers stopped doing business with us, we could not continue to sell Business Browser." Under these arrangements, royalties are generally paid on a quarterly basis to information providers. Royalties generally are calculated either as a flat percentage of our revenues or as a per-user fee that declines as the number of authorized users of the product increases. In limited cases, we pay a fixed fee per period. Selling and marketing expense consists primarily of employee salaries and benefits and sales commissions paid to our sales force, customer support organization and marketing personnel, as well as facilities allocation and related expenses, direct marketing promotional materials, trade show exhibitions and advertising. Sales commissions are paid when customers are invoiced and are recorded as deferred subscription costs, which are amortized ratably over the term of the contract, typically 12 months, as the associated revenues are recognized. All other selling and marketing costs are expensed as incurred. Platform and product development expense consists primarily of employee salaries and benefits, facilities allocation and related expenses, as well as outside contractor expenses, relating to the development of our "platform" of core software supporting our products and the development of new products based upon that platform. Platform and product development expense includes expenses relating to the editorial staff that implements our KeyID technology to integrate disparate information sources into our Web-based products. General and administrative expense consists primarily of employee salaries and benefits, facilities allocation and related expenses associated with OneSource's management, finance, human resources, management information systems and administrative groups. In addition, we will incur non-recurring charges of approximately $0.2 million in moving and related costs in June 1999 due to the relocation of our headquarters from Cambridge to Concord, Massachusetts and approximately $0.2 million of financial advisory fees. The quarterly management fees of $25,000 paid to each of William Blair Venture Partners and an affiliate of Information Partners Capital will cease in exchange for the payment of a $0.5 million termination fee to each of these parties upon completion of this offering. For more information, see "Certain Transactions." 26 28 OVERVIEW -- ANNUALIZED CONTRACT VALUE One measure of the performance of our business is "annualized contract value." This is a measurement we use for normalized period-to-period comparisons to indicate business volume and growth, both in terms of new customers and upgrades and expansions at existing customers. Our presentation and calculation of annualized contract value may not be comparable to similarly titled measures used by other companies. It is not an absolute indicator and we cannot guarantee that any annualized contract value will be ultimately realized as revenues. Annualized contract value is calculated by multiplying by 12 the total amount of fees invoiced for one month and included in deferred revenues for all customer contracts for Web-based products at the measurement date. Deferred revenues represent amounts invoiced under customer contracts in effect at the measurement date but which have not been recognized as revenues pending delivery of the subscription service. This calculation is illustrated by the table below at each measurement date in the first column as follows: - the second column reflects total deferred revenues as reported in OneSource's consolidated financial statements - the third column reflects the portion of total deferred revenues in the second column pertaining only to Web-based products - the fourth column reflects the portion of deferred revenues for Web-based products in the third column which represents one month of invoiced fees under customer contracts - the fifth column reflects the total annualized contract value which is computed by multiplying the one month of invoiced fees included in deferred revenues in the fourth column by 12
ONE MONTH OF INVOICED TOTAL WEB-BASED FEES IN DEFERRED DEFERRED DEFERRED ANNUALIZED MEASUREMENT DATE REVENUES REVENUES REVENUES CONTRACT VALUE ---------------- -------- --------- ----------- -------------- (IN THOUSANDS) December 31, 1996............................ $15,419 $ 316 $ 34.3 $ 411 December 31, 1997............................ 15,748 4,756 747.8 8,973 December 31, 1998............................ 18,022 15,935 2,160.0 25,920 March 31, 1998............................... 14,983 6,004 987.8 11,854 March 31, 1999............................... 15,293 14,205 2,361.5 28,338
We have increased annualized contract value attributable to Web-based products 189% to $25.9 million as of December 31, 1998 from $9.0 million as of December 31, 1997. The number of Web-based customers has increased 91%, to 445 at December 31, 1998 from 233 at December 31, 1997. At the same time, the average annualized contract value of all Web-based product customers has increased 51%, to $58,248 per customer at December 31, 1998 from $38,512 per customer at December 31, 1997. The average annualized contract value for the customers that were under contract at both December 31, 1997 and 1998 grew to $76,143 per customer at December 31, 1998 from $38,512 per customer at December 31, 1997. This growth was attributable to an increase in the number of user seats purchased by customers and the addition of new products. 27 29 The renewal rate of the Business Browser product line for 1998 was 90% calculated on a dollar basis. The renewal rate is measured by comparing a customer's annualized contract value at December 31, 1998 to its annualized contract value at December 31, 1997. The set of customers measured are those who had subscriptions in effect at December 31, 1997. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of total revenues represented by each line item in OneSource's consolidated statement of operations. We can give no assurance that the indicated trends in revenues or operating results will continue in the future.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------- ------------ 1996 1997 1998 1998 1999 ----- ----- ----- ---- ---- (PERCENTAGE OF TOTAL REVENUES) Revenues: Web-based product............................... --% 11% 53% 33% 85% CD Rom product.................................. 100 89 47 67 15 --- --- ---- --- ---- Total revenues............................... 100 100 100 100 100 --- --- ---- --- ---- Cost of revenues: Web-based product............................... 1 8 26 16 36 CD Rom product.................................. 40 34 19 25 6 --- --- ---- --- ---- Total cost of revenues....................... 41 42 45 41 42 --- --- ---- --- ---- Gross profit...................................... 59 58 55 59 58 Operating expenses: Selling and marketing........................... 28 30 38 35 36 Platform and product development................ 24 21 21 20 21 General and administrative...................... 12 11 12 12 11 --- --- ---- --- ---- Loss from operations.............................. (5) (4) (16) (8) (10) Interest income (expense), net.................... (2) (3) (2) (3) (1) Gain on sale of product line...................... -- 1 42 -- -- Other income...................................... 1 -- -- -- 6 --- --- ---- --- ---- Income (loss) before income taxes................. (6) (6) 24 (11) (5) Provision for income taxes........................ -- -- 1 -- -- Net income (loss)................................. (6)% (6)% 23% (11)% (5)% === === ==== === ====
COMPARISON OF RESULTS FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998 Revenues. Total revenues increased 2% to $8.1 million for the quarter ended March 31, 1999 from $8.0 million for the quarter ended March 31, 1998. During the first quarter of 1998, CD Rom product revenues included revenues attributable to our CD-Insurance division, which was sold in May 1998. Revenues from this product line were $1.5 million for the quarter ended 28 30 March 31, 1998. Excluding these revenues from total revenues for the quarter ended March 31, 1998, total revenues for the quarter ended March 31, 1999 increased by 25%. Web-based product revenues increased 163% to $6.9 million for the quarter ended March 31, 1999 from $2.6 million for the quarter ended March 31, 1998. The increase was attributable to the addition of new customers, an increase in the number of user seats purchased by existing customers and the sale of new products to existing customers. At the same time, CD Rom product revenues decreased by 77% to $1.2 million in the first quarter of 1999 from $5.3 million in the first quarter of 1998 as OneSource continues to transition away from its legacy CD Rom business. Cost of Revenues. Total cost of revenues increased 6% to $3.5 million for the quarter ended March 31, 1999 from $3.3 million for the quarter ended March 31, 1998. As a percentage of total revenues, total cost of revenues increased to 42% for the quarter ended March 31, 1999 from 41% for the quarter ended March 31, 1998. The increase in total cost of revenues was principally due to increased royalty expense for our Web-based products. It was offset partially by a decrease in our costs of revenues relating to the CD Rom product line. Cost of Web-based product revenues increased 131% to $3.0 million for the quarter ended March 31, 1999 from $1.3 million for the quarter ended March 31, 1998. As a percentage of Web-based product revenues, cost of Web-based product revenues decreased to 43% for the quarter ended March 31, 1999 from 49% for the quarter ended March 31, 1998, due to an increase in our customer base and expansion of existing customers, which enabled OneSource to better leverage royalty payments and infrastructure expenses. Cost of CD Rom product revenues decreased 75% to $0.5 million for the quarter ended March 31, 1999 from $2.0 million for the quarter ended March 31, 1998. This decrease was due to decreased revenues reflecting our shift away from the CD Rom product line. As a percentage of CD Rom product revenues, costs of CD Rom product revenues increased to 39% for the quarter ended March 31, 1999 from 37% for the quarter ended March 31, 1998. Selling and Marketing Expense. Selling and marketing expense increased 5% to $2.9 million for the quarter ended March 31, 1999 from $2.8 million for the quarter ended March 31, 1998, principally due to increased expenses incurred to hire new sales personnel and to train new and existing personnel in connection with our Business Browser product line. Selling and marketing expense increased as a percentage of total revenues to 36% for the quarter ended March 31, 1999 from 35% for the quarter ended March 31, 1998. Platform and Product Development Expense. Platform and product development expense increased 10% to $1.7 million for the quarter ended March 31, 1999 from $1.6 million for the quarter ended March 31, 1998. Platform and product development expense increased as a percentage of total revenues to 21% for the quarter ended March 31, 1999 from 20% for the quarter ended March 31, 1998. The increase was due principally to increased headcount to meet new product demands. General and Administrative Expenses. General and administrative expense decreased 10% to $0.9 million for the quarter ended March 31, 1999 from $1.0 million for the quarter ended March 31, 1998. This decrease was the result of personnel relocation expenses included in the first quarter of 1998. General and administrative expense decreased as a percentage of total 29 31 revenues to 11% for the quarter ended March 31, 1999 from 12% for the quarter ended March 31, 1998. Interest Expense, Net. Interest expense, net of interest income, decreased 62% to $0.1 million for the quarter ended March 31, 1999 from $0.2 million for the quarter ended March 31, 1998 due primarily to an increase in interest income related to invested cash balances from the sale of the CD-Insurance division in May 1998 and the reduction of interest expense related to working capital borrowings. Other Income. Other income increased $0.5 million for the quarter ended March 31, 1999 and was attributable to a software license agreement in connection with the sale of our CD-Insurance division for support services provided during the period. COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 Revenues. Total revenues remained at approximately the same level of $30.4 million for each of the years ended December 31, 1998 and 1997. In May 1998, OneSource sold its CD-Insurance division. Revenues from this product line were $2.6 million for the year ended December 31, 1998 compared to $6.6 million for the year ended December 31, 1997. Excluding these revenues from total revenues for each period, total revenues for the year ended December 31, 1998 increased by 17%. Web-based product revenues increased by 385% to $16.1 million for the year ended December 31, 1998 from $3.3 million for the year ended December 31, 1997. The increase was attributable to new customers, an increase in the number of user seats purchased by existing customers and the sale of new products to existing customers. At the same time, CD Rom product revenues decreased by 47% to $14.4 million in 1998 from $27.1 million in 1997 as OneSource continued its transition away from its legacy CD Rom business. Cost of Revenues. Total cost of revenues increased 6% to $13.7 million for the year ended December 31, 1998 from $12.8 million for the year ended December 31, 1997. As a percentage of total revenues, total cost of revenues increased to 45% in 1998 from 42% in 1997. The increase in total cost of revenues was principally due to increased royalty expense for our Web-based products. It was offset partially by a decrease in our costs of revenues relating to the CD Rom product line. Cost of Web-based product revenues increased 227% to $7.9 million for the year ended December 31, 1998 from $2.4 million for the year ended December 31, 1997. As a percentage of Web-based product revenues, cost of Web-based product revenues decreased to 49% in 1998 from 72% in 1997, due to an increase in our customer base. Royalty expense increased as a result of growth in Business Browser product line revenues and number of user seats sold. Cost of CD Rom product revenues decreased 45% to $5.8 million for the year ended December 31, 1998 from $10.4 million for the year ended December 31, 1997. This decrease was due to decreased revenues reflecting our shift away from the CD Rom product line. As a percentage of CD Rom product revenues, cost of CD Rom product revenues increased to 40% in 1998 from 39% in 1997. Selling and Marketing Expense. Selling and marketing expense increased 26% to $11.6 million for the year ended December 31, 1998 from $9.2 million for the year ended December 31, 1997 principally due to increased expenses incurred to hire new sales personnel 30 32 and to train new and existing personnel in connection with our transition to our new Business Browser product line. Selling and marketing expense increased as a percentage of total revenues to 38% in 1998 from 30% in 1997. Platform and Product Development Expense. Platform and product development expense decreased 1% to $6.3 million for the year ended December 31, 1998 from $6.4 million for the year ended December 31, 1997, although as a percentage of total revenues it remained constant at 21%. The decrease was due principally to the decrease in salary expense resulting from the elimination of CD-Insurance product development staff in May 1998 upon the sale of that division and the elimination of several CD Rom product management positions. This decrease in salary expense was offset by increased headcount in the Global Strategic Web Applications Team to meet new product demands. General and Administrative Expense. General and administrative expense increased 13% to $3.8 million for the year ended December 31, 1998 from $3.4 million for the year ended December 31, 1997 principally due to increased headcount in management information systems and human resources for infrastructure required to accommodate the growth in our business. General and administrative expense increased as a percentage of total revenues to 12% in 1998 from 11% in 1997. Interest Expense, Net. Interest expense, net of interest income, decreased 36% to $0.6 million for the year ended December 31, 1998 from $0.9 million for the year ended December 31, 1997 due to an increase in interest income related to invested cash balances from the sale of the CD-Insurance product line in May 1998. Gain on Sale of Product Line. As a result of the sale of the CD-Insurance division, we recorded a gain of $12.8 million. This gain reflects cash proceeds received of $11.0 million together with recognition of deferred revenues of $3.1 million and $0.6 million of deferred subscription costs due to the transfer of related service obligations, net of transaction related expenses. Income Taxes. The income tax provision for the year ended December 31, 1998 was $0.3 million and is directly related to the gain on the sale of the CD-Insurance division. Although the gain on the sale created significant taxable income for 1998, such gain was largely offset by utilizing our net operating loss carryforwards. COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 Revenues. Revenues remained at approximately the same level of $30.4 million for each of the years ended December 31, 1997 and 1996. Web-based product revenues increased to $3.3 million for the year ended December 31, 1997 from $15,000 for the year ended December 31, 1996 due to the addition of new customers. At the same time, CD Rom product revenues decreased by 11% to $27.1 million in 1997 from $30.4 million in 1996 as we began our transition to Web-based products. Cost of Revenues. Total cost of revenues increased 2% to $12.8 million for the year ended December 31, 1997 from $12.5 million for the year ended December 31, 1996. As a percentage of total revenues, total cost of revenues increased marginally to 42% in 1997 from 41% in 1996. This increase in total cost of revenues was due principally to increased royalty expense for our 31 33 Web-based products. It was partially offset by a decrease in our costs of revenues relating to the CD Rom product line. Cost of Web-based product revenues increased to $2.4 million for the year ended December 31, 1997 from $0.3 million for the year ended December 31, 1996 due to a substantial increase in Web-based customers and related royalty expenses. Cost of CD Rom product revenues decreased 15% to $10.4 million for the year ended December 31, 1997 from $12.2 million for the year ended December 31, 1996. This decrease reflected our shift away from the CD Rom product line. As a percentage of CD Rom product revenues, cost of CD Rom product revenues decreased to 39% in 1997 from 40% in 1996. Selling and Marketing Expense. Selling and marketing expense increased 7% to $9.2 million for the year ended December 31, 1997 from $8.6 million for the year ended December 31, 1996 principally due to increased headcount and related expenses. Total selling and marketing expense increased as a percentage of total revenues to 30% in 1997 from 28% in 1996. Platform and Product Development Expense. Platform and product development expense decreased 12% to $6.4 million for the year ended December 31, 1997 from $7.3 million for the year ended December 31, 1996 principally due to the decrease in headcount and related expenses, as well as lower contractor expense. The reduction in headcount was exclusively in the platform development organization as we ceased all development efforts related to the CD Rom platform in 1997 and shifted all resources to Web-based platform and product development. Platform and product development expense decreased as a percentage of total revenues to 21% in 1997 from 24% in 1996. General and Administrative Expense. General and administrative expense decreased 7% to $3.4 million for the year ended December 31, 1997 from $3.7 million for the year ended December 31, 1996 principally due to the decrease in amortization expense of intangibles. The amortization of $9.9 million of intangibles, originally recorded in 1993 at the time of the management buy-out of OneSource from Lotus, ended in 1997 with expense of $25,000 compared to $0.7 million in 1996. Increased salary and related expense, resulting from increased headcount for infrastructure required to meet demands in management information systems, contracting and UK finance management, partially offset the decrease in amortization. General and administrative expense decreased as a percentage of total revenues to 11% in 1997 from 12% in 1996. Interest Expense, Net. Interest expense, net of interest income, increased 27% to $0.9 million for the year ended December 31, 1997 from $0.7 million for the year ended December 31, 1996 due to increased borrowings for working capital requirements in 1997. Gain on Sale of Product Line. In June 1997, we sold our CD-Banking product line for $0.7 million. As a result of the sale, we recorded a gain of $0.5 million which is net of transaction related expenses. 32 34 QUARTERLY RESULTS OF OPERATIONS AND OTHER DATA The following tables set forth a summary of OneSource's unaudited quarterly operating results for each of the eight quarters in the two-year period ended March 31, 1999. This information has been derived from unaudited interim consolidated financial statements that, in the opinion of management, have been prepared on a basis consistent with the Consolidated Financial Statements appearing elsewhere in this prospectus and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of such information when read in conjunction with OneSource's Consolidated Financial Statements and Notes thereto. Our operating results and other data for any quarter are not necessarily indicative of results for any future period.
QUARTER ENDED --------------------------------------------------------------------------------------- 1997 1998 1999 ------------------------------- ------------------------------------------ -------- JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, -------- --------- -------- -------- -------- --------- -------- -------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA (UNAUDITED): Revenues: Web-based product................ $ 369 $ 979 $1,792 $ 2,628 $ 3,419 $ 4,479 $ 5,532 $ 6,903 CD Rom product................... 7,383 6,309 6,032 5,322 4,273 2,725 2,050 1,240 ------ ------ ------ ------- ------- ------- ------- ------- Total revenues..................... 7,752 7,288 7,824 7,950 7,692 7,204 7,582 8,143 ------ ------ ------ ------- ------- ------- ------- ------- Cost of revenues: Web-based product................ 451 718 892 1,287 1,872 2,070 2,634 2,970 CD Rom product................... 2,747 2,523 2,405 1,979 1,643 1,159 1,011 487 ------ ------ ------ ------- ------- ------- ------- ------- Total cost of revenues............. 3,198 3,241 3,297 3,266 3,515 3,229 3,645 3,457 ------ ------ ------ ------- ------- ------- ------- ------- Gross profit....................... 4,554 4,047 4,527 4,684 4,177 3,975 3,937 4,686 ------ ------ ------ ------- ------- ------- ------- ------- Operating expenses: Selling and marketing............ 2,195 2,346 2,458 2,797 2,904 2,861 3,015 2,927 Platform and product development.................... 1,745 1,608 1,478 1,561 1,528 1,638 1,586 1,718 General and administrative....... 749 686 1,037 957 1,051 897 942 860 ------ ------ ------ ------- ------- ------- ------- ------- Total operating expenses....... 4,689 4,640 4,973 5,315 5,483 5,396 5,543 5,505 ------ ------ ------ ------- ------- ------- ------- ------- Loss from operations............... $ (135) $ (593) $ (446) $ (631) $(1,306) $(1,421) $(1,606) $ (819) ====== ====== ====== ======= ======= ======= ======= ======= (PERCENTAGE OF TOTAL REVENUES) Revenues: Web-based product................ 5% 13% 23% 33% 44% 62% 73% 85% CD Rom product................... 95 87 77 67 56 38 27 15 ------ ------ ------ ------- ------- ------- ------- ------- Total revenues..................... 100 100 100 100 100 100 100 100 ------ ------ ------ ------- ------- ------- ------- ------- Cost of revenues: Web-based product................ 6 10 11 16 24 29 35 36 CD Rom product................... 35 35 31 25 22 16 13 6 ------ ------ ------ ------- ------- ------- ------- ------- Total cost of revenues............. 41 45 42 41 46 45 48 42 ------ ------ ------ ------- ------- ------- ------- ------- Gross profit....................... 59 55 58 59 54 55 52 58 ------ ------ ------ ------- ------- ------- ------- ------- Operating expenses: Selling and marketing............ 28 32 32 35 38 40 40 36 Platform and product development.................... 23 22 19 20 20 23 21 21 General and administrative....... 10 9 13 12 13 12 12 11 ------ ------ ------ ------- ------- ------- ------- ------- Total operating expenses....... 61 63 64 67 71 75 73 68 ------ ------ ------ ------- ------- ------- ------- ------- Loss from operations............... (2)% (8)% (6)% (8)% (17)% (20)% (21)% (10)% ====== ====== ====== ======= ======= ======= ======= ======= OTHER DATA FOR WEB-BASED PRODUCTS (AS OF THE QUARTER END) (UNAUDITED): (IN THOUSANDS, EXCEPT NUMBER OF CUSTOMERS DATA) Annualized contract value.......... $2,430 $4,815 $8,973 $11,854 $14,619 $19,754 $25,920 $28,338 Number of customers................ 92 149 233 279 322 386 445 460 Average annualized contract value per customer..................... $ 26.4 $ 32.3 $ 38.5 $ 42.5 $ 45.4 $ 51.2 $ 58.2 $ 61.6
33 35 Annualized contract value represents the invoiced fees for one month for all customer contracts for Web-based products in effect at the measurement date, multiplied by 12, without regard to the actual duration of such contracts. At June 30, September 30 and December 31, 1997 and March 31, June 30, September 30 and December 31, 1998 and March 31, 1999, annualized contract value was calculated by multiplying the total amount of fees invoiced for one month and included in deferred revenues for all customer contracts for Web-based products at June 30, September 30 and December 31, 1997 and March 31, June 30, September 30 and December 31, 1998 and March 31, 1999 of $202,500, $401,250 and $747,750 and $987,850, $1,218,250, $1,646,200 and $2,160,000 and $2,361,500, respectively, by 12. Our quarterly revenues, gross profits and results of operations have fluctuated significantly in the past and we expect them to continue to fluctuate significantly in the future. In addition, we believe that an important measure of our business is the annualized contract value at the end of each period, which also may fluctuate. Causes of such fluctuations have included and may include, among other factors: - changes in demand for our products - the dollar value and timing of both new and renewal subscriptions - competition (particularly price competition) - increases in selling and marketing expenses, as well as other operating expenses - technical difficulties or system downtime affecting our products on the Web generally - economic conditions specific to the Web, as well as general economic conditions - consolidation of our customers In addition, a substantial portion of our expenses, including certain product development and selling and marketing expenses, must be incurred in advance of revenue generation. If our projected revenue does not meet our expectations, then we are likely to experience an even larger shortfall in our operating profit (loss) relative to our expectations. Annualized contract value depends upon the timely renewal or upgrade of existing customers and the sale to new customers of subscription agreements within a quarter and can be difficult to forecast accurately. In addition, we have experienced some quarterly seasonality in contract bookings with a significant amount of activity occurring in the fourth quarter of a given year. Accordingly, these timing variations can create shortfalls in revenues in relation to our expectations and have an adverse effect on our operating results. LIQUIDITY AND CAPITAL RESOURCES Since acquiring our business from Lotus in 1993, we have funded our operations through a combination of seller financing, proceeds received from the sale of Class P common stock and common stock in connection with the purchase of the business from Lotus, bank debt, proceeds received from the sale of non-strategic lines of business, capitalized equipment leases and cash flows from operations. Our cash and cash equivalents totaled $6.7 million at March 31, 1999, as compared to $0.4 million at March 31, 1998, an increase of $6.3 million. Net cash of $1.2 million was provided by operations for the year ended December 31, 1998, primarily resulting from growth in contracts 34 36 invoiced for the period. Net cash of $1.0 million was used in operations in the quarter ended March 31, 1999. Net cash provided by investing activities for 1998 was $9.0 million, primarily reflecting net cash proceeds from the sale of the CD-Insurance division, offset partially by expenditures of $1.3 million for property and equipment. Net cash used in investing activities for the quarter ended March 31, 1999 was $0.8 million. Net cash used in financing activities for the year ended December 31, 1998 was $2.0 million reflecting primarily repayments on our line of credit, term loan and capital lease obligations. Net cash used by financing activities for the quarter ended March 31, 1999 was $0.1 million. We do not currently have a line of credit but intend to enter into a revolving line of credit for letters of credit and general working capital. We have a note outstanding to Lotus and the principal amount outstanding at December 31, 1998 was $6.2 million. This note plus accrued interest is due September 8, 2000 and a repayment of a portion of the note would be required upon completion of this offering. We intend to repay the note upon the completion of this offering. Upon repayment of the note, OneSource will recognize a one-time expense of approximately $0.3 million relating to the unamortized portion of the original issue discount. We currently anticipate capital expenditures of approximately $2.8 million for 1999, including approximately $0.9 million in connection with the relocation of our corporate headquarters, which is scheduled to occur in June 1999. We expect to investigate the possibility of investing in or acquiring complementary businesses, products or technologies, although we have not entered into any commitments or negotiations with respect to any such transactions. We believe that our net proceeds from this offering, together with our current cash and cash equivalents and funds anticipated to be generated from operations, will be sufficient to satisfy working capital and capital expenditure requirements for at least the next twelve months. YEAR 2000 READINESS DISCLOSURE STATEMENT We have established a Year 2000 compliance program and we anticipate that our products and internal systems should operate correctly at the turn of the century. We have been performing Year 2000 tests for the past three years. Initial Year 2000 work was organized in late 1996 to certify readiness of the proprietary client software associated with our CD Rom product line. A more formal organizational effort involving senior management, product managers, developers and quality assurance personnel was established in early 1998. Compliance Program. The scope of OneSource's compliance program focuses on four key areas: products, third-party information providers, third-party software applications and internal systems. Our compliance program involves a three-step process to evaluate each of the key areas, which includes - inventory review, - assessment/testing and - resolution and contingency planning. 35 37 Products. We have assessed existing products to review OneSource's overall compliance status. We have decided not to test those products that will be discontinued prior to December 31, 1999. This includes, for example, all products associated with our CD Rom product line with the exception of the "UK Companies" product, which we expect to produce beyond 1999. We have established clear migration paths for those customers who have products installed that will be discontinued. As of February 1999, we had completed almost all work associated with creating internal company awareness of Year 2000 issues, organizing and executing high-level plans to address the concern, and inventorying existing systems, data, and software dependency for Year 2000 exposure. We estimate that as of March 1999 we had completed about 90% of the process of analyzing the impact of Year 2000 issues company-wide and developing detailed plans for resolving problem situations. We are in the midst of implementing those plans. Resolution of outstanding Year 2000 issues for non-Information Services applications are being incorporated with plans to move our corporate offices in June 1999. Projects that involve IS-related issues, particularly those processes that prepare and deliver data in our products, are expected to be completed in May 1999, with follow-up testing, if required, extending through August 1999. In terms of verifying and planning for Year 2000 compliance for our products, we use the British Standards Institute's definition of Year 2000 compliance as stated in DISC PD2000-1:1998: A Definition of Year 2000 Conformity Requirements. According to this definition, Year 2000 conformity means that neither performance nor functionality is affected by dates prior to, during and after the year 2000, and according to the following rules: - No value for current date will cause any interruption in operation - Date-based functionality must behave consistently for dates prior to, during and after the year 2000 - In all interfaces and data storage, the century in any date must be specified either explicitly or by unambiguous algorithms or inferencing rules - Year 2000 must be recognized as a leap year New products under development for this year and next have Year 2000 qualification as part of their standard test plans. Products that fail their standard test plans are not released to customers. Third-Party Information Providers. OneSource relies on content provided by third-party information providers. Communication with our information providers with respect to their Year 2000 compliance status was largely complete as of February 1999. OneSource's goal is to have all information providers' compliance responses complete by May 31, 1999. We are also trying to minimize our dependence on third-party information providers' external date formats by accommodating changes in date format within our existing production processes. Third-Party Application and System Software. OneSource invests in third-party software as components of the data storage and delivery requirements of our products. We have identified an exhaustive list of such systems along with research of the current status of their Year 2000 compliance efforts. We completed this research in February 1999. Confirmation of compliance or a specific plan to replace any non-compliant resource was completed in March 1999. Only a short list of these resources remains non-compliant as of April 1999. While OneSource is committed to taking every reasonable action to obtain assurances from such business partners that their software is Year 2000 compliant, we cannot guarantee the performance of such 36 38 business partners or predict whether any of the assurances provided by them may be accurate or realistic. Internal Systems. OneSource has completed its inventory of its internal systems and its assessment of such systems' compliance status is approximately 90% complete, with an anticipated completion date of May 31, 1999. The scope of these systems ranges from accounting, payroll, communications, network hardware and applications, Internet access, internal information systems and data production systems. The majority of our internal systems and equipment are currently Year 2000 compliant. Some existing Year 2000 issues, including OneSource's phone switch and some components of the Corporate Local Area Network, will be addressed as part of the relocation of our offices in June 1999. Costs. To date we have not relied on outside consulting expertise for assessing our products or testing for Year 2000 related issues. We are utilizing internal personnel to identify Year 2000 readiness in our supported products, network hardware/applications, internal business and information systems. A large number of our personnel are necessarily involved in this work. We estimate that the aggregation of all such efforts represents an equivalent of six full-time employees. Not included in this estimate are those indirect costs associated with time spent by management or staff discussing Year 2000 issues internally or with third parties. Such discussions are handled by existing employees in the ordinary course of business. We have not identified the need to hire additional staff specifically to address third-party questions or concerns. Risks. With regard to third-party information suppliers, OneSource is addressing, through normal operating procedures any concerns that third-party information providers may have delivery problems associated with Year 2000 issues. OneSource is identifying issues by internal quality assurance or editorial reviewers. When identified, issues are being handled by contacting the information provider who may correct the problem at the source or by developing a workaround in the software. The risks associated with delivery problems present more serious issues for us as our products could be deprived of certain data content. While OneSource does not anticipate a failure in its ability to deliver data, and has established contingency plans as discussed below, such a failure may - have a material adverse effect upon our business, financial condition and results of operations - require us to incur unanticipated material expenses to remedy any problem - result in litigation due to our inability to fulfill our contractual obligations In such cases, we would likely suffer a disruption in our revenue stream and operations could be materially impacted. Contingency Plans. At this time, our contingency plans relating to the above discussed Year 2000 issues include having additional support staff and programmers on call for rapid response dealing with any disruption of our business during a critical date transition, for example January 1, 2000 or February 29, 2000. Our assessment of our products and internal systems for Year 2000 compliance will be an ongoing effort throughout the remainder of this year. The information contained herein is the product of conclusions made from the information and test results available to OneSource at this time. 37 39 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes the accounting for costs of software products developed or purchased for internal use, including when such costs should be capitalized. We do not expect SOP 98-1, which is effective for OneSource beginning January 1, 1999, to have a material effect on our financial condition or results of operations. In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." Start-up activities are defined broadly as those one-time activities relating to opening a new facility, introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer, commencing some new operation or organizing a new entity. Under SOP 98-5, the cost of start-up activities should be expensed as incurred. SOP 98-5 is effective for OneSource's calendar year 1999 financial statements and we do not expect its adoption to have a material effect on our financial condition or results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." The new standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. We do not expect SFAS No. 133 to have a material effect on our financial condition or results of operations. 38 40 BUSINESS This prospectus contains forward-looking statements that involve substantial risks and uncertainties. Our actual results, performance or achievements could differ materially from the results expressed in or implied by these forward-looking statements. Factors that could cause or contribute to these differences include those discussed in "Risk Factors." OVERVIEW OneSource provides Web-based business and financial information to professionals who need quick access to reliable corporate, industry and market intelligence. Our Business Browser product line integrates comprehensive and up-to-date business and financial information on over one million public and private companies from more than 25 information providers drawing upon over 2,500 sources of content. These sources include both textual information, such as news, trade press, SEC filings, executive biographies and analyst reports, and numeric information, such as company financial results, stock quotes and industry statistics. Our customers access this information over the Internet using standard Web browsers at a fixed annual subscription price. Our products are designed to address information needs of leading professional and financial services firms, technology companies and other large organizations. Representative customers include American Express, Bain & Company, BankAmerica, Boeing, British Telecom, Deloitte & Touche, Ernst & Young, Harvard Business School, KPMG Peat Marwick, MCI/Worldcom, Merrill Lynch, Oracle and SAP. At March 31, 1999, 460 organizations subscribed to our Web-based Business Browser product line, up from 279 at March 31, 1998. On average, our customers for Web-based products at March 31, 1999 had an annualized contract value of $61,604 per customer, compared to $42,489 per customer at March 31, 1998. The annualized value of Business Browser customer contracts was $25.9 million at December 31, 1998, having grown from $9.0 million at the end of 1997. Of this $25.9 million, $14.2 million was attributable to those customers that were under contract at both December 31, 1997 and 1998. The renewal rate of the Business Browser product line for 1998 was 90% calculated on a dollar basis. INDUSTRY BACKGROUND According to Simba, the market for all Web-based and on-line business information services was nearly $24.8 billion in 1997 and is projected to grow to almost $39.8 billion in 2002. This reflects a compound annual growth rate of 9.9%. Simba also reported that the primary market segment in which OneSource participates--Web-based and on-line financial news, current awareness and research services--was $5.4 billion in 1997 and is projected to grow to $9.8 billion in 2002. This reflects a compound annual growth rate of 12.6%. Recent industry growth has been driven by corporations and other enterprises recognizing that productivity and competitiveness depend on extensive knowledge of external information, including information about industries, customers, competitors, prospects, business trends, breaking news and market data. These organizations have already invested heavily in Internet connectivity and networked computing infrastructures to manage internal information and are seeking to leverage these infrastructures to access and manage external information. 39 41 The task of finding and using external information is often difficult and cumbersome. Traditional, textual sources such as newspapers and directories require hours to search. A centralized library can be costly to establish and maintain and can be an inefficient and incomplete information source. While the emergence of the Web has greatly increased access to information, finding comprehensive, precise, up-to-date, relevant and reliable information on the Web can still be time-consuming and difficult. While other on-line services can be useful research tools in certain circumstances, most of these services currently focus on specific areas of content, such as financial data or news. They do not provide the full range of data required by professionals. In addition, most on-line services charge a fee for each search performed. Traditional sources, the Web and existing on-line services do not adequately meet the information needs of many professionals who want to compete effectively in today's fast-paced, global, customer-focused marketplace. These professionals and their organizations demand external information that is: - easily accessible in a user-friendly format - comprehensive and includes both textual and numeric information - derived from multiple, high quality sources - integrated at a single site - delivered on a platform that allows interpretation, manipulation and analysis - available throughout the enterprise at a fixed cost - delivered in a product easily implemented and supported on a corporate network THE ONESOURCE SOLUTION OneSource's Business Browser product line is designed to be a comprehensive and easy to use business and financial information resource for professionals who need quick access to reliable corporate, industry and market intelligence. Business Browser products integrate over 2,500 sources of business information from more than 25 category-leading business and financial information providers. These sources include both textual information, such as news, trade press, SEC filings, executive biographies and analyst reports, and numeric information, such as company financial results, stock quotes and industry statistics. OneSource uses its proprietary KeyID technology to sort, prioritize, integrate and link information on over one million public and private companies worldwide. Our Business Browser product line is accessed through a standard Web browser that is already available and familiar to end-users. Because our products are based on standard Web technology, our customers require minimal installation and systems support and users have full access to the products at any time from anywhere via the Internet. OneSource focuses on the functional uses of the business and financial information it delivers. The Business Browser product line has been designed for use not only by traditional users of business information, but also throughout an organization, including sales, marketing, finance and management professionals. We apply our knowledge of how business professionals use information to transform raw, disparate data into meaningful, actionable information. We focus on integrating and presenting information so that interpretation, manipulation and analysis 40 42 can be performed more easily by the end user. Because the interface is built around the inquiries of professionals, users require minimal training to become productive quickly. OneSource's pricing strategy is designed to be particularly attractive to large organizations. The Business Browser product line is available at a fixed annual subscription price which declines on a per-user basis as the total number of users increases for that customer. The fixed-price model encourages professionals to use the products as needed without concern with additional charges, and a declining marginal price per user encourages customers to distribute our products widely throughout their organizations. STRATEGY Our goal is to become a leading Web-based provider of business and financial information to professionals worldwide. To accomplish that goal, we have adopted the following strategies: --Focus on Information Needs of Professionals in Large Organizations. We believe that professional and financial services firms, technology companies and other large organizations have the widely distributed Web access necessary to take advantage of the Business Browser product line and are most likely to be willing to purchase external information services to gain the competitive advantages available through our products. While many alternative products are focused on small organizations and individual consumers, our product and pricing strategies and sales and marketing efforts have been designed to address the needs of large enterprises. --Expand Customer Base. At March 31, 1999, 460 organizations subscribed to our Web-based Business Browser product line, up from 279 at March 31, 1998. One group of our direct sales force, our account executives, concentrates primarily on selling the Business Browser product line to new customers. We intend to continue to invest in training our sales force and in recruiting technically qualified sales personnel to sell Business Browser products. In addition, while the traditional users of on-line business information services have been primarily financial analysts and professional service providers, we have expanded our target customer base to include corporations which are purchasing our products for use by their sales, marketing, finance and management professionals. We also intend to explore selective third-party distribution of our products primarily to expand geographic coverage. For example, we recently entered into an agreement with Dun & Bradstreet under which they will serve as a distributor of our European Business Browser product. --Leverage Existing Customer Base. We will continue to seek to increase sales to existing customers by expanding the number of authorized user seats at each customer and by upgrading customers to new products, more extensive content and increased functionality. Each customer is assigned an account manager who is responsible for that customer's retention, monitoring that customer's needs and assisting that customer with rollouts and upgrades. The average annualized contract value at December 31, 1998 of Business Browser customers who were also customers at December 31, 1997 was $76,143 per customer, compared to $38,512 per customer at December 31, 1997, an increase of 98% during the course of the year. --Expand Content and Product Offerings. Since introducing Business Browser in December 1996, we have followed a strategy of enhancing the Business Browser product line by adding content from new sources, increasing functionality and designing products tailored to particular markets. For example, in January 1999 we introduced European Business Browser, which includes content focused on the European market, and in December 1998 we introduced 41 43 AppLink, which permits customers to integrate content from Business Browser products within the customer's own intranet applications, such as sales force automation applications. --Strategic Alliances and Possible Acquisitions. We will seek to expand our distribution channels in part by seeking strategic alliances with partners, such as vendors of sales automation software, who may use AppLink to integrate content from the Business Browser products into their software offerings. In addition, OneSource may seek additional content sources, distribution channels or technology through selective acquisitions or strategic alliances. While we discuss potential acquisitions, investments and alliances from time to time, we currently have no commitments or arrangements regarding any potential acquisitions, investments or alliances. PRODUCTS Business Browser Product Line The Business Browser product line includes: US BUSINESS BROWSER. Released in December 1996, US Business Browser is focused specifically on the US and Canada. It contains a subset of business and financial information from the Global Business Browser product. It covers over 250,000 public and private companies in the US and Canada. UK BUSINESS BROWSER. Released in September 1997, UK Business Browser is a comprehensive source of information on over 350,000 public and private companies in the UK. GLOBAL BUSINESS BROWSER. Released in December 1997, Global Business Browser is a single, integrated resource that provides information on over 350,000 public and private companies from around the world. EUROPEAN BUSINESS BROWSER. Released in January 1999, European Business Browser provides users with a comprehensive database on 300,000 public and private companies across Europe, including 50,000 UK companies. An important source of data for the European Business Browser is Dun & Bradstreet, a leading business information source. Business Browser delivers information in an integrated format. This allows customers to obtain different types of information from multiple sources in a single report. Business Browser products organize data around business applications and transform raw, disparate data into meaningful, actionable information, delivered according to the characteristics users have defined and in the custom formats, tables and reports that users require. Users who need to perform detailed analysis can also easily transfer quantitative data into spreadsheets or other desktop tools, such as contact management software. Specific applications available through the Business Browser product line include: - "Company Profiler" delivers integrated reports on a company's history, products, competition, industry, executives, current news articles and financials. Both summary and detailed company reports are available, depending on the user's need. In addition, "Corporate Family Reports" allow users to quickly map relationships among subsidiaries and divisions of corporations. - "WatchList Update" automatically keeps track of new articles, news stories, financial filings and research reports on the companies the user monitors. 42 44 - "Industry Profiler" delivers reports on market size, segmentation, financial norms, ratios and forecasts for a specified industry, as well as participants, industry news and analysis, and creates research reports with graphs and statistics that help track industry trends. - "Company Finder" screens companies by defining key search characteristics to deliver a targeted list by industry, geography, size, revenues, employment or other key characteristics. - "Topic Search" screens news stories, research reports, business descriptions and trade articles for information by topic. - "Executive Search" provides users with reports on business leaders by name, company, location, schools and affiliated organizations. Additional Software Applications Two additional software applications are available with Business Browser products. BUSINESS BROWSER AP. Business Browser AP, which became commercially available in August 1997, is an advanced Web-based quantitative analysis tool available as an option with all of the Business Browser products other than European Business Browser. Business Browser AP lets users screen across a wide range of public company financial statement items, ratios, growth rates and other criteria. It also allows users to produce detailed quantitative reports of their own design. Business Browser AP also makes EDGAR documents more user friendly by removing confusing computer codes, formatting tables for easy viewing and printing, and allowing users to export tables to a spreadsheet. BUSINESS BROWSER APPLINK. Business Browser AppLink, which became commercially available in December 1998, is a software toolkit that allows customers to easily incorporate Business Browser content, like company profiles, news, business and trade articles, analyst reports, executive biographies, industry intelligence and financial data, directly into corporate intranet applications. Users have the ability to integrate in-depth, objective external business information into their existing internal applications such as prospect and customer databases, sales force automation tools, enterprise reporting software and corporate Web applications. No special client software or dedicated servers are necessary. AppLink-enabled applications are currently under development at a number of client sites. Legacy CD Rom Products Prior to our introduction of Business Browser in 1996, we distributed business information on CD Rom. Having made the strategic decision to transition to a completely Web-based business, we began in 1998 to phase out our CD Rom products. We expect that all but two of these products will be completely phased out by the end of 1999, with the remaining two products being phased out shortly thereafter. PLATFORM AND PRODUCT DEVELOPMENT The product development function is currently carried out by 39 employees in our Global Strategic Web Applications Team. This team includes product managers who define functional software components, end user interfaces, report formats and content requirements; product development engineers who take content feeds from information partners and write database 43 45 loader code; and the KeyID team whose role, through both programming and editorial expertise, is to ensure consistent integration and presentation of information from multiple underlying sources of content. Our product development strategy is to deliver a broad range of information on a software platform which allows end users to efficiently research their business questions. Since the inception of the Business Browser product line, we have consistently added sources of content and improved the software functionality for users. In the future, we expect to continue to make these types of improvements to our product line. The product development team uses our proprietary KeyID technology to integrate and link public and private companies worldwide from multiple databases, each with its own set of incompatible identifiers. Through a combination of proprietary programmatic and editorial means, this technology enables us to provide a single and unified presentation from multiple underlying company databases. It also manages multiple SIC codes and industry mappings assigned to companies by disparate databases and reclassifies the companies to comparable categories. The system also keeps track of company name synonyms to allow searching by commonly used alternative company names. The synonyms feature allows the user to input one company name or term and to access all information for that company although it may be categorized under different names or terms depending on the database. In total, the KeyID database contains 1.1 million companies, 1.7 million synonyms and 40,000 URLS. 44 46 INFORMATION PROVIDERS Each Business Browser product combines an array of carefully chosen financial, company, industry, executive and news-related content obtained from leading business and financial information providers identified by our Global Strategic Web Applications Team. The following table lists the type of content provided by our current information providers and which Business Browser products include that content.
- --------------------------------------------------------------------------------------------- BUSINESS BROWSER PRODUCT --------------------------- TYPE OF INFORMATION INFORMATION PROVIDER GLOBAL US UK EURO - --------------------------------------------------------------------------------------------- Company Information........... CorpTech X X Dun & Bradstreet X Extel (Primark) X Graham & Whiteside Limited X Hemmington Scott X Hoover's Inc. X X ICC X InfoUSA X X Market Guide X X Reed Elsevier X X Worldscope (Disclosure Inc.) X Industry Reports and Data..... McGraw-Hill X X Integra X X The Gale Group X X Snapshots Intl X X X X News and Newsletters.......... Asia Pulse X X X X Comtex News X X X X Phillips Newsletters X X X X Reuters News X X X X Business and Trade Press...... Responsive Database Services X X X X Information Access Company X X X X Executive Biographies......... Marquis Who's Who X X Standard & Poor's Register X X Stock Quotes.................. Datastream X Quote.com X X Investment Reports............ Investext X X X Published Statistical Responsive Database Services X X Tables..................... SEC Filings................... EDGAR X X - ---------------------------------------------------------------------------------------------
We enter into contracts with our information providers which are generally for a term of at least one year, and which renew for the same period if not canceled with advance notice. These contracts may be terminated under certain circumstances. For more information, see "Risk Factors--If our information providers stopped doing business with us, we could not continue to sell Business Browser." Under these arrangements, royalties are generally paid on a quarterly basis to information providers. Royalties are typically calculated either as a flat percentage of our revenues or as a per-user fee that declines as the number of authorized users of the product increases. In limited cases, we pay a fixed fee per period for unlimited use of the information. 45 47 CUSTOMERS At March 31, 1999, 460 organizations had subscribed to our Web-based Business Browser product line, up from 279 at March 31, 1998. On average, our customers at March 31, 1999 had an annualized contract value of $61,604 per customer, compared to $42,489 per customer at March 31, 1998. The annualized contract value of customer contracts for Business Browser products was $25.9 million at December 31, 1998, having grown from $9.0 million at December 31, 1997. The following is a representative list of significant customers in each of our primary industry sectors: PROFESSIONAL SERVICES Arthur Andersen Arthur D. Little Bain & Company Cambridge Technology Partners Deloitte & Touche EDS Ernst & Young KPMG Watson Wyatt OTHER CORPORATIONS Avery Dennison Bayer Boeing British Telecom Cargill Coca Cola General Electric GTE Johnson & Johnson Pitney Bowes Sears FINANCIAL SERVICES American Express BankAmerica BankBoston Bank of Scotland Bank of Tokyo Bear Stearns Credit Lyonnais First Union Bank Merrill Lynch Oppenheimer Royal Bank of Canada BUSINESS SCHOOLS Dartmouth Duke Harvard Stanford University of Florida University of Southern California University of Texas Yale TECHNOLOGY AT&T Compaq Data General JD Edwards Lockheed Martin MCI/Worldcom Nortel Oracle PeopleSoft Platinum Technology SAP Sun Microsystems At December 31, 1998, approximately 60% of our annualized contract value for Web-based products came from customers in the professional services and financial services sectors, which have been the traditional customers for business information products. The remaining 40% of our annualized contract value at December 31, 1998 for Web-based products represented customers in sectors that have not historically been heavy consumers of business information products. At these customers, Business Browser products are used by professionals throughout the organization, including sales, marketing, finance and management personnel, as a result of the products' ease of use and availability over the Web. SALES AND MARKETING We market our products through a direct sales force and marketing staff, which as of March 31, 1999 consisted of 69 full-time employees based at five locations throughout the US and one location in the UK. The sales function breaks down into two major parts: - the initial sale, which is conducted by account executives - customer retention and growth through the sale of additional seats and upgrades, which are primarily handled by account managers 46 48 As of March 31, 1999, we had 19 account executives and 15 account managers. Compensation for account executives and account managers is comprised of base salary plus commission. The commission component typically constitutes 50% and 40% of the compensation of account executives and account managers, respectively. We also employ a telemarketing group which assists in generating leads for the account executives. As of March 31, 1999, there were seven members of the telemarketing group. Business Browser products are sold on a subscription basis, generally for a one-year period. Customers typically prepay for annual subscriptions. Typically, contracts automatically renew for the same period prior to expiration unless canceled by the client. The Business Browser product line is available at a fixed annual subscription price which declines on a per-user basis as the total number of users increases. The fixed-price model encourages business professionals to use the products as needed without concern with additional charges, and a declining marginal price per user encourages customers to distribute the products widely throughout their organizations. List prices as of January 1, 1999 ranged from $20,000 per year for a single user seat to $290,000 per year for 1,000 user seats. CUSTOMER SUPPORT We provide both on-site and telephone support for clients. As of March 31, 1999, we had eight field support consultants who provide assistance before and after sales are completed. For example, they assist in managing free product trials for prospective customers and expanding the availability of our products to additional users through training and rollout initiatives within an organization. They also provide technical consulting which may be requested, such as the customization of Web pages for large clients or the building of prototype applications using AppLink. As of March 31, 1999, we had six telephone-based customer support representatives in the U.S. and one in the UK. These representatives operate the telephone help desk which is open from 8:00 a.m. to 8:00 p.m. Monday through Friday. WEBSITE TECHNOLOGY AND OPERATIONS OneSource has designed its Website architecture to be open, flexible, scaleable and reliable. The architecture is designed to accommodate an evolving collection of third-party technologies that together provide the functionality required by our products' applications. These technologies are adapted and integrated with software developed in-house. As a result, we believe our systems are flexible enough to upgrade or change software as new, improved third-party software products are developed or as we develop our own new software. Our on-line architecture was also designed to be able to expand easily and efficiently as usage grows. By treating the core backoffice technologies as system "objects," we have constructed a natural environment for simply adding additional copies of specific servers, as needed, to share the load. Besides load sharing and usage expansion, this setup also provides natural failover capabilities for the system. Any given server can suffer a problem and one or several backups share the load while the problem is corrected. The OneSource on-line site is located at a dedicated hosting facility managed by GTE/BBN Internetworking. It is a node on the GTE/BBN Internet backbone. The system is available 24 hours a day, seven days a week. For more information, see "Risk Factors--If our Website 47 49 service is disrupted, our customers could lose access to Business Browser and our reputation could be harmed." The engineering team closely monitors the usage, delivery performance and availability of the system. Particular attention is paid to individual product usage, relative levels of customer activity, speed of data retrieval and delivery, peak usage figures, uptime statistics and power requirements. This engineering team is key to maintaining continuous service for our customers. COMPETITION The business information services industry is intensely competitive. We face direct or indirect competition from numerous companies as described in "Risk Factors--Competition in our industry is intense and many of our competitors have greater resources than we do; this competition may adversely affect our financial results," "--Free information may lessen the demand for Business Browser," and "--Increased competition could result in price reductions, reduced gross margins and loss of market share." The principal competitive factors in our industry are availability of comprehensive and integrated business and financial information, ease of use, support and training required and price/performance characteristics. We believe that Business Browser products are differentiated from the products offered by other providers because of our ability to deliver information from many different, competing providers on an enterprise-wide basis. We also believe that our focus on integrating and presenting information so that interpretation, manipulation and analysis can be performed more easily also differentiates our products. EMPLOYEES We had 168 full-time employees as of March 31, 1999, including 69 in sales and marketing, 20 in engineering, 16 in production/on-line support, 24 in finance and administration and 39 on our Global Strategic Web Applications Team. Our employees are not represented by any collective bargaining organization. We have never experienced a work stoppage and we believe our relationships with our employees are good. FACILITIES Our corporate headquarters are located in a 28,766 square foot rented facility in Cambridge, Massachusetts, under a lease expiring in July 1999. We have entered into a new lease for a new, 35,766 square foot headquarters facility in Concord, Massachusetts. We intend to move to that facility in June 1999. Our lease to the new facility expires in May 2004. We lease additional sales offices in Chicago, New York, San Francisco and London, England. We believe that these facilities and additional or alternative space available to us will be adequate to meet our needs for the foreseeable future. LITIGATION OneSource is not a party to any material legal proceedings. 48 50 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information with respect to the executive officers and directors of OneSource as of March 31, 1999.
NAME AGE POSITION - ---- --- -------- Martin Kahn(1)(2)........... 48 Chairman of the Board of Directors Daniel J. Schimmel.......... 39 President, Chief Executive Officer and Director James A. Becker............. 41 Vice President, Global Strategic Web Applications Team Philip J. Garlick........... 37 Vice President, Global Enterprise Sales and Marketing Mark C. VanDine............. 42 Vice President, Engineering Roy D. Landon............... 43 Vice President, Finance and Administration David Dominik(1)............ 42 Director Gregg S. Newmark(2)......... 40 Director
- ------------ (1) Member of compensation committee. (2) Member of audit committee. Martin Kahn joined OneSource as Chairman of the board of directors in September 1993. Mr. Kahn has served as managing director of Cadence Information Associates LLC since 1996. Mr. Kahn was the chairman of Ovid Technologies, Inc., a producer of medical, scientific and technical CD Rom and network products, from 1990 to 1998, was chairman of VISTA Information Solutions, Inc., a supplier of information about geographically-based risk, from 1992 to 1996 and was chairman of Shoppers Express, Inc., an Internet-based grocery shopping service, from 1995 to 1998. Mr. Kahn holds an MBA from the Harvard Business School and a B.A. from Yale University. Daniel J. Schimmel joined OneSource as President, Chief Executive Officer and a Director in 1993. Prior to joining OneSource, Mr. Schimmel served as general manager of the OneSource Division and held other operating positions at Lotus. Mr. Schimmel holds an MBA from the Harvard Business School and a B.A. from Harvard University. James A. Becker joined OneSource as the Director of Product Management in 1993 and became Vice President, Global Strategic Web Applications Team in 1995. Prior to joining OneSource, Mr. Becker served as group product manager at Lotus. Mr. Becker holds an MBA from the Yale School of Management and a B.A. from Brown University. Philip J. Garlick joined OneSource as Director of Marketing and Product Development in 1993, served as Vice President and General Manager Europe from 1995 to October 1997, and in October 1997 became Vice President, Global Enterprise Sales and Marketing. Prior to joining OneSource, Mr. Garlick was a marketing executive at Lotus UK. Mr. Garlick holds an MA in Economics and a B.A. from Manchester University. Mark C. VanDine joined OneSource as Senior Product Manager in 1993, served as Director, Platform Product Management in 1995 and in 1996 became Vice President, Engineering. Prior to joining OneSource, Mr. VanDine was a senior consultant at Lotus. Mr. VanDine holds a B.A. and an MBA from Penn State University. 49 51 Roy D. Landon joined OneSource as Director, Finance and Administration in 1993 and became Vice President, Finance and Administration in 1997. Prior to joining OneSource, Mr. Landon was director of plans and controls for the Consulting and Information Services Group at Lotus. Mr. Landon holds a B.S. from Babson College. David Dominik joined OneSource as a Director in 1993. Mr. Dominik has been a managing director at Bain Capital Inc. since January 1990. He is also a director of Oacis Healthcare Holdings Corp., a clinical information systems software company. Gregg S. Newmark joined OneSource as a Director in 1993. Since 1993 Mr. Newmark has served as general partner of William Blair Venture Partners, as a principal of William Blair & Company, L.L.C. and as a managing director of William Blair Capital Partners. ELECTION OF OFFICERS AND DIRECTORS The executive officers of OneSource are elected by the board of directors on an annual basis and serve until their successors are duly elected and qualified. Messrs. Dominik and Newmark were selected as directors of OneSource pursuant to a Stockholders Agreement dated September 8, 1993, as amended, among OneSource and its principal stockholders, which agreement will terminate as of the effective date of this offering. For more information, see "Certain Transactions." There are no family relationships among any of the executive officers or directors of OneSource. COMMITTEES OF THE BOARD OF DIRECTORS The board of directors has appointed a compensation committee consisting of Messrs. Kahn and Dominik. The compensation committee reviews and evaluates the compensation and benefits of all officers of OneSource, reviews general policy matters relating to compensation and benefits of OneSource employees and make recommendations concerning these matters to the board of directors. The compensation committee also administers OneSource's stock option and stock purchase plans. For more information, see "--Equity Plans." The board of directors has also appointed an audit committee consisting of Messrs. Kahn and Newmark. The audit committee reviews, with OneSource's independent auditors, the scope and timing of their audit services and any other services they are asked to perform, the auditors' report on OneSource's consolidated financial statements following completion of their audit, and OneSource's policies and procedures with respect to internal accounting and financial controls. In addition, the audit committee will make annual recommendations to the board of directors for the appointment of independent auditors for the ensuing year. DIRECTOR COMPENSATION Directors who are not employees of OneSource and who are not affiliated with principal stockholders (also referred to as "outside directors"), will receive an annual retainer fee and a fee for attending regular or special meetings of the board of directors and for meetings of any committees of the board of directors on which they serve, if committee meetings are held separately. Currently, Mr. Kahn is the only outside director. Outside directors also are eligible to participate in OneSource's 1999 Stock Option and Incentive Plan. Directors also are reimbursed for reasonable out-of-pocket expenses incurred in attending such meetings. For more information, see "--Equity Plans," and "Certain Transactions." 50 52 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The compensation committee is comprised of Messrs. Kahn and Dominik. Neither member of the compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of OneSource's board of directors or compensation committee. EXECUTIVE COMPENSATION Summary Compensation The following table sets forth the compensation earned by (a) the Chief Executive Officer and (b) OneSource's four other most highly compensated executive officers for services rendered in all capacities to OneSource during the year ended December 31, 1998. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) ----------------------- ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2) --------------------------- ---------- --------- --------------- Daniel J. Schimmel.............................. $164,997 $57,749 -- President and Chief Executive Officer James A. Becker................................. 123,748 24,750 -- Vice President, Global Strategic Web Applications Team Philip J. Garlick............................... 144,000 47,520 $145,725 Vice President, Global Enterprise Sales and Marketing Mark C. VanDine................................. 115,498 23,100 -- Vice President, Engineering Roy D. Landon................................... 105,186 21,037 -- Vice President, Finance and Administration
- ------------ (1) OneSource did not make any restricted stock awards, grant any stock appreciation rights or make any long-term incentive payments during 1998 to its executive officers. Options granted to the named executive officers were granted at fair market value as determined by the board of directors based on all factors available to them on the grant date. (2) Mr. Garlick received additional compensation in connection with his relocation from the UK to Massachusetts, including car and housing allowances, moving expenses and payment of taxes. Option Grants in Last Fiscal Year None of the named executive officers were granted options in the year ended December 31, 1998. 51 53 Option Exercises and Year-End Holdings The following table sets forth information concerning stock option exercises during 1998 by each of the named executive officers and the number and value of unexercised options held by them as of December 31, 1998. AGGREGATE OPTION EXERCISES IN 1998 AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1) ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ----------- ----------- ------------- ----------- ------------- Daniel J. Schimmel.............. 0 -- 1,031,199 0 $9,975,489 $ 0 President and Chief Executive Officer James A. Becker................. 44,770 $236,500 248,270 203,500 2,296,672 1,877,002 Vice President, Global Strategic Web Applications Team Philip J. Garlick............... 0 -- 137,566 223,850 1,301,156 2,064,702 Vice President, Global Enterprise Sales and Marketing Mark C. VanDine................. 0 -- 156,898 123,932 1,479,129 1,144,782 Vice President, Engineering Roy D. Landon................... 0 -- 105,820 40,700 1,029,879 375,400 Vice President, Finance and Administration
- ------------ (1) There was no public trading market for the common stock as of December 31, 1998. Accordingly, these values have been calculated by determining the difference between the assumed initial public offering price of $11.00 per share and the exercise price of the named executive officer's options. EQUITY PLANS 1999 Stock Option and Incentive Plan. OneSource's 1999 Stock Option and Incentive Plan was adopted by the board of directors in February 1999 and approved by OneSource's stockholders in April 1999, to be effective upon the completion of this offering. The 1999 Stock Option Plan provides for the grant of stock-based awards to employees, officers and directors of, and consultants or advisors to, OneSource. Under the 1999 Stock Option Plan, OneSource may grant options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, options not intended to qualify as incentive stock options, restricted stock and other stock-based awards. Incentive stock options may be granted only to employees of OneSource. A total of 800,000 shares of common stock may be issued upon the exercise of options or other awards granted under the 1999 Stock Option Plan after the completion of this offering. The maximum number of shares with respect to which awards may be granted to any employee under the 1999 Stock Option Plan shall not exceed 100,000 shares of common stock during any calendar year. The 1999 Stock Option Plan is administered by the board of directors and the compensation committee. Subject to the provisions of the 1999 Stock Option Plan, each of the board of directors and the compensation committee has the authority to select the persons to whom 52 54 awards are granted and determine the terms of each award, including the number of shares of common stock subject to the award. Payment of the exercise price of an award may be made in cash, shares of common stock, a combination of cash and stock, a promissory note or by any other method approved by the board or compensation committee, consistent with Section 422 of the Code and Rule 16b-3 under the Exchange Act. Unless otherwise permitted by the board of directors, awards are not assignable or transferable except by will or the laws of descent and distribution, and, during the participant's lifetime, may be exercised only by the participant. The board of directors or compensation committee may, in its sole discretion, amend, modify or terminate any award granted or made under the 1999 Stock Option Plan, so long as the amendment, modification or termination would not materially and adversely affect the participant. The board of directors or compensation committee may also, in its sole discretion, accelerate or extend the date or dates on which all or any particular option or options granted under the 1999 Stock Option Plan may be exercised. 1993 Stock Purchase and Option Plan. OneSource's 1993 Stock Purchase and Option Plan was adopted by the board of directors and approved by OneSource's stockholders in September 1993. Under the 1993 Plan, OneSource is authorized to grant incentive stock options and non-qualified stock options to employees, consultants, directors and advisors of OneSource. The aggregate number of shares of common stock which may be issued under the 1993 Plan is 4,273,500 shares and the aggregate number of shares of Class P common stock that may be issued under the 1993 Plan is 40,700 shares. In February 1999, the board of directors, voted to terminate the 1993 Plan effective immediately prior to the closing of this offering. To date, OneSource has granted stock options to purchase an aggregate of 3,919,479 shares of common stock pursuant to the 1993 Plan. 1999 Employee Stock Purchase Plan. The 1999 Employee Stock Purchase Plan was adopted by the board of directors in February 1999 and approved by OneSource's stockholders in April 1999, to be effective upon the completion of this offering. The 1999 Purchase Plan provides for the issuance of a maximum of 100,000 shares of common stock after the completion of this offering. The 1999 Purchase Plan is administered by the compensation committee of the board of directors. All employees of OneSource whose customary employment is for more than 20 hours per week and for more than five months in any calendar year and who have completed more than three months of employment with OneSource on or before the first day of any six-month payment period are eligible to participate in the 1999 Purchase Plan. Employees who would own 5% or more of the total combined voting power or value of OneSource's stock immediately after the grant may not participate in the 1999 Purchase Plan. To participate in the 1999 Purchase Plan, an employee must authorize OneSource to deduct an amount (not less than one percent nor more than 10 percent of a participant's total cash compensation) from his or her pay during six-month payment periods. The first payment period will commence upon the registration of OneSource's common stock under the Exchange Act and will end on December 31, 1999. Thereafter, the payment periods will commence on the six-month periods commencing on January 1 and July 1, respectively, and ending on the following June 30 and December 31, respectively, of each year, but in no case shall an employee be entitled to purchase more than 1,000 shares in any one payment period. The exercise price for the option granted in each payment period is 85% of the lesser of the average market price of the common stock on the first 53 55 or last business day of the payment period, in either event rounded up to the nearest cent to avoid fractions of a dollar other than 1/4, 1/2 and 3/4. If an employee is not a participant on the last day of the payment period, the employee is not entitled to exercise his or her option, and the amount of his or her accumulated payroll deductions will be refunded. Options granted under the 1999 Purchase Plan may not be transferred or assigned. An employee's rights under the 1999 Purchase Plan terminate upon his or her voluntary withdrawal from the plan at any time or upon termination of employment. No options have been granted to date under the 1999 Purchase Plan. 401(K) PLAN OneSource has established a tax-qualified employee savings and retirement plan. Employees must complete three months of service at OneSource before they are eligible to participate on the first day of the month following the completion. Employees may contribute a percentage of their pre-tax compensation and OneSource may, in its discretion from year-to-year, make matching contributions to the employees. Amounts matched by OneSource vest over three years. LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OneSource's restated certificate of incorporation and amended and restated by-laws provide that the directors and officers of OneSource shall be indemnified by OneSource to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended, against all expenses and liabilities reasonably incurred in connection with their service for or on behalf of OneSource. In addition, the restated certificate of incorporation provides that the directors of OneSource will not be personally liable for monetary damages to OneSource for breaches of their fiduciary duty as directors, unless they violated their duty of loyalty to OneSource or its stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper personal benefit from their action as directors. OneSource intends to obtain insurance which insures the directors and officers of OneSource against specified losses and which insures OneSource against specific obligations to indemnify its directors and officers. 54 56 CERTAIN TRANSACTIONS In connection with the management buy-out from Lotus in 1993, each William Blair Venture Partners III Limited Partnership and Information Partners Capital Fund, L.P. and its affiliated entities purchased 329,669 and 329,665 shares respectively, of Class P common stock for $1.62 million each, or $4.91 per share, and 2,967,029 and 2,967,027 shares respectively, of common stock for $180,000 each, or $0.06 per share. The shares of common stock held by William Blair Venture Partners and Information Partners Capital are subject to registration rights entitling the holder to demand that OneSource register the shares under the Securities Act in some circumstances to enable the holder to resell its shares. For more information, see "Shares Eligible For Future Sale." A Stockholders Agreement, as amended, among OneSource, William Blair Venture Partners, Information Partners Capital and other stockholders provides that, for so long as William Blair Venture Partners or Information Partners Capital continues to own at least 25% of the common stock which each entity originally purchased in the buy-out, OneSource shall cause a representative of each of William Blair Venture Partners and Information Partners Capital to be nominated to the board of directors. Mr. Newmark, a general partner of William Blair Venture Management Company, which is the general partner of William Blair Venture Partners, currently serves as the William Blair Venture Partners representative. Mr. Dominik, a general partner of Information Partners, Inc., which is the general partner of Information Partners Capital, currently serves as the Information Partners Capital representative. The Stockholders Agreement will be terminated upon consummation of this offering. Since 1993, OneSource has paid each of William Blair Venture Partners and an affiliate of Information Partners Capital an annual management fee of $0.1 million, pursuant to an oral arrangement. OneSource has agreed to pay each of these entities a one-time fee of $0.5 million to terminate the management fee arrangement. In addition, William Blair Venture Partners owns 329,669 shares of Class P common stock and will participate in the recapitalization. For more information, please see "Risk Factors--The offering will benefit William Blair & Company, L.L.C., one of the underwriters." OneSource intends to use approximately $6.8 million of its net proceeds from this offering to repay a note issued by OneSource to Lotus in connection with the purchase of OneSource's business from Lotus in 1993. The note bears interest at the rate of 8% per year and is due September 8, 2000, unless accelerated upon the occurrence of any one of several events. The completion of this offering would require OneSource to repay a significant portion of the note if it is not repaid in full. In 1998, William Blair Venture Partners and Information Partners Capital and its affiliates subscribed for an aggregate of $335,000 of services from OneSource. 55 57 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information known to OneSource regarding beneficial ownership of OneSource's common stock as of March 31, 1999 and as adjusted to reflect the sale of the shares of common stock in this offering by: - each person known by OneSource to be the beneficial owner of more than 5% of OneSource's common stock; - each of OneSource's directors; - each named executive officer (for more information, see "Management--Executive Compensation"); - all executive officers and directors as a group; and - each selling stockholder. Unless otherwise indicated, to the knowledge of OneSource, each stockholder possesses sole voting and investment power with respect to the shares listed, except to the extent an individual stockholder's shares are owned jointly with that person's spouse. The following table is based on 7,410,804 shares of common stock outstanding prior to the offering and 9,926,500 shares outstanding upon completion of the offering. The number of shares of common stock deemed outstanding includes (a) one share of common stock for each share of outstanding Class P common stock and (b) shares issuable pursuant to options and warrants held by the respective person or group which may be exercised within 60 days after March 31, 1999 ("presently exercisable stock options"), as set forth in the table. For purposes of calculating each person's or group's percentage ownership, presently exercisable stock options are included for that person or group but not the presently exercisable stock options of any other person or group. 56 58 For more information, see "Management--Executive Officers and Directors." Unless otherwise indicated, the address for each beneficial owner is c/o OneSource Information Services, Inc., 150 CambridgePark Drive, Cambridge, MA 02140.
SHARES BENEFICIALLY SHARES PRIOR TO THE OFFERING OWNED AFTER THE --------------------------------------- OFFERING IF SHARES UNDERWRITERS DO NUMBER OF OPTIONS OFFERED IF NOT EXERCISE AND WARRANTS UNDERWRITERS OVERALLOTMENT EXERCISABLE DO NOT ------------------- SHARES NUMBER OF WITHIN 60 DAYS OF EXERCISE NUMBER OF OFFERED IN NAME AND ADDRESS OF BENEFICIAL OWNER SHARES MARCH 31, 1999 PERCENT OVERALLOTMENT SHARES PERCENT OVERALLOTMENT - ------------------------------------ --------- ----------------- ------- ------------- --------- ------- ------------- Information Partners Capital Fund, L.P.(1).................... 3,296,692 0 44.0% 390,642 2,906,050 29.3% 133,092 William Blair Venture Partners III Limited Partnership(2)..... 3,296,698 0 44.0 729,662 2,567,036 25.9 132,542 Martin Kahn.................. 162,800 507,445 8.5 0 670,245 6.4 80,430 Daniel J. Schimmel........... 162,800 1,031,199 14.1 0 1,193,999 10.9 143,270 James A. Becker.............. 89,538 244,200 4.4 0 310,649 3.1 23,089 Philip J. Garlick............ 8,138 137,566 1.9 0 145,704 1.5 7,176 Mark C. Van Dine............. 16,280 158,730 2.3 0 175,010 1.7 9,572 Roy D. Landon................ 16,280 105,820 1.6 0 122,100 1.2 14,642 David Dominik(1)............. 3,296,692 0 44.0 390,642 2,906,050 29.3 133,092 Gregg Newmark(2)............. 3,296,698 0 44.0 729,662 2,567,036 25.9 132,542 Lotus Development Corporation... 0 407,000 5.2 0 407,000 3.9 55 Cambridge Parkway Cambridge, MA 02139 Silicon Valley Bank.......... 0 82,222 1.1 15,696 65,518 * 1,587 40 Williams Street Suite 350 Wellesley, MA 02481 All executive officers and directors as a group (8 persons)..... 7,049,226 2,184,960 96.2 1,120,304 8,050,093 66.5 543,813 Total:....................... 7,049,226 2,674,182 96.4 1,136,000 8,522,611 67.6 545,400
- ------------ * Less than 1% (1) Includes 113,824 shares owned by BCIP Associates and 123,347 shares owned by BCIP Trust Associates, L.P. The respective general partners of these entities, including Mr. Dominik, exercise sole voting and investment power with respect to the shares owned by such entities. The general partners of Information Partners are Mr. Dominik, Mark Nunnelly, Stephen G. Pagliuca, and Bain Capital Partners IV, L.P., whose general partner is a corporation wholly-owned by W. Mitt Romney. The general partners of BCIP Associates are Joshua Bekenstein, Roy Edgar Brakeman, III, Edward Conard, Dominic Ferrante, Jeremy Ferris, Adam W. Kirsch, Michael Krupka, Matthew Levin, Simon Lonergan, John W. Maki, Geoffrey S. Rehnert, W. Mitt Romney, Paul Spinale, Samantha Trotman and Mark B. Wolpow. The general partners of BCIP Trust Associates, L.P. are Prescott Ashe, Mr. Dominik, Paul B. Edgerley, Jonathan Lavine, Michael D. May, Ronald Mika, Mark Nunnelly, R. David Nurme, Stephen G. Pagliuca, Joseph Pretlow, Geoffrey S. Rehnert, Paul Spinale, Ann Marie Viglione, Robert F. White and Robert C. Gray. Each of these persons disclaims beneficial ownership of such shares except to the extent of his respective proportionate pecuniary interest therein. (2) The general partners of this entity, including Mr. Newmark, exercise sole voting and investment power with respect to the shares owned by such entity. The general partner of William Blair Venture Partners III Limited Partnership is William Blair Venture Management whose general partners are Mr. Newmark, Ellen Carnahan, Samuel Guren and William Blair & Company, a limited liability company with approximately 150 members. Each of these persons disclaims beneficial ownership of such shares except to the extent of his respective proportionate pecuniary interest therein. 57 59 DESCRIPTION OF CAPITAL STOCK Effective upon the closing of this offering and the filing of OneSource's restated certificate of incorporation, the authorized capital stock of OneSource will consist of 20,000,000 shares of common stock, par value $.01 per share, and 1,000,000 shares of preferred stock, par value $.01 per share. Prior to the closing of this offering and in accordance with OneSource's certificate of incorporation as currently in effect, OneSource is authorized to issue up to 20,000,000 shares of common stock, par value $.01 per share, of which 6,693,685 shares are issued and outstanding and 1,250,000 shares of Class P common stock, par value $.01 per share, of which 717,119 shares are issued and outstanding. Prior to the closing of this offering, all shares of Class P common stock and the preference amount thereon will be reclassified into 717,119 shares of common stock. All shares of common stock issued in respect of the aggregate preference amount will be repurchased by OneSource prior to completion of this offering. The following summary description of OneSource's capital stock is not intended to be complete and is qualified by reference to the provisions of applicable law and to OneSource's restated certificate of incorporation and amended and restated by-laws filed as exhibits to the registration statement of which this prospectus is a part. COMMON STOCK As of March 31, 1999, there were 7,410,804 shares of common stock outstanding held by 57 stockholders of record. Based upon the number of shares outstanding as of that date and giving effect to the following transactions, there will be 9,926,500 shares of common stock outstanding after this offering: - the issuance of the 2,500,000 shares of common stock offered by OneSource in this offering - the reclassification of Class P common stock into common stock - the issuance of 15,696 shares of common stock upon partial exercise of a warrant by a selling stockholder In addition, there will be outstanding stock options for the purchase of a total of 3,919,479 shares of common stock and outstanding warrants for the purchase of 473,526 shares of common stock. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Directors are elected by a plurality of the votes of the shares present in person or by proxy at the meeting and entitled to vote in such election. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the board of directors out of funds legally available therefor, subject to any preferential dividend rights of outstanding preferred stock. Upon the liquidation, dissolution or winding up of OneSource, the holders of common stock are entitled to receive ratably the net assets of OneSource available after the payment of all debts and other liabilities of OneSource, subject to the prior rights of any outstanding preferred stock. Holders of the common stock have no preemptive, subscription, redemption or conversion rights, nor are they entitled to the benefit of any sinking fund. The outstanding shares of common stock are, and the shares offered by OneSource in this offering will be, when issued and paid for, validly 58 60 issued, fully paid and nonassessable. The rights, powers, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which OneSource may designate and issue in the future. PREFERRED STOCK The board of directors will be authorized, subject to any limitations prescribed by law, without further stockholder approval, to issue from time to time up to an aggregate of 1,000,000 shares of preferred stock, in one or more series. Each series of preferred stock shall have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights. The stockholders of OneSource have granted the board of directors authority to issue the preferred stock and to determine its rights and preferences in order to eliminate delays associated with a stockholder vote on specific issuances. The rights of the holders of common stock will be subject to the rights of holders of any preferred stock issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could adversely affect the voting power or other rights of the holders of common stock, and could make it more difficult for a third-party to acquire, or discourage a third-party from attempting to acquire, a majority of the outstanding voting stock of OneSource. OneSource has not, to date, issued any shares of preferred stock and has no present plans to issue any shares of preferred stock. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS Upon completion of this offering, OneSource will be subject to the provisions of Section 203 of the General Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within the prior three years did own, 15% or more of the corporation's outstanding voting stock. OneSource's restated certificate of incorporation provides that directors may be removed only for cause by the affirmative vote of the holders of 75% of the shares of capital stock of OneSource entitled to vote. In addition, under the restated certificate of incorporation any vacancy on the board of directors, however occurring, including a vacancy resulting from an enlargement of the board, may only be filled by vote of a majority of the directors then in office. The likely effect of the limitations on the removal of directors and filling of vacancies is an increase in the time required for the stockholders to change the composition of the board of directors. OneSource's restated by-laws to be adopted upon the closing of this offering provide that any action required or permitted to be taken by the stockholders of OneSource at an annual meeting or special meeting of stockholders may only be taken if OneSource is given proper 59 61 advance notice of the action. The restated by-laws further provide that special meetings of stockholders may only be called by a majority of the board of directors, the chairman of the board of directors or the president of OneSource. The foregoing provisions could have the effect of delaying until the next stockholders meeting stockholder actions which are favored by the holders of a majority of the outstanding voting securities of OneSource. However, the restated by-laws provide that stockholders may take action by written consent. The General Corporation Law of Delaware provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless a corporation's certificate of incorporation or by-laws, as the case may be, requires a greater percentage. OneSource's restated by-laws require the affirmative vote of the holders of at least 75% of the issued and outstanding shares of capital stock of OneSource entitled to vote to amend or repeal any of the foregoing provisions of the restated by-laws. The 75% stockholder vote would be in addition to any separate class vote that might be required pursuant to the terms of any series of preferred stock that might be outstanding at the time any amendments are submitted to stockholders. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock will be American Stock Transfer & Trust Company. 60 62 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, OneSource will have 9,926,500 shares of common stock outstanding, assuming no exercise of outstanding options or warrants. Of these shares, the 3,636,000 shares, 4,181,400 shares if the over-allotment option is exercised in full, to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased by affiliates of OneSource, as that term is defined in Rule 144 under the Securities Act, may generally only be sold in compliance with the limitations of Rule 144 described below. SALES OF RESTRICTED SHARES The remaining 6,290,500 shares of common stock outstanding upon completion of this offering are deemed "restricted shares" under Rule 144 or Rule 701 under the Securities Act. Approximately 170,926 restricted shares will be eligible for sale in the public market pursuant to Rule 144(k) on the date of this prospectus. Upon expiration of lock-up agreements with the underwriters, 180 days after the date of this prospectus, an additional 5,307,162 shares of common stock will be eligible for sale in the public market pursuant to Rule 144 under the Securities Act. In general, under Rule 144, a person, or persons whose shares are aggregated, including an affiliate, who has beneficially owned restricted shares for at least one year is entitled to sell, within any three-month period, a number of his or her shares that does not exceed the greater of - one percent of the then outstanding shares of common stock, approximately 99,265 shares immediately after this offering or - the average weekly trading volume in the common stock in the over-the-counter market during the four calendar weeks preceding the date on which notice of the sale is filed, provided requirements concerning availability of public information, manner of sale and notice of sale are satisfied. In addition, affiliates must comply with the restrictions and requirements of Rule 144, other than the one-year holding period requirement, in order to sell shares of common stock which are not restricted shares. Under Rule 144(k), a person who is not an affiliate and has not been an affiliate for at least three months prior to the sale and who has beneficially owned restricted shares for at least two years may resell the shares without compliance with the foregoing requirements. In meeting the one- and two-year holding periods described above, a holder of restricted shares can include the holding periods of a prior owner who was not an affiliate. The one- and two-year holding periods described above do not begin to run until the full purchase price or other consideration is paid by the person acquiring the restricted shares from the issuer or an affiliate. Rule 701 provides that currently outstanding shares of common stock acquired under OneSource's employee compensation plans may be resold by persons, other than affiliates, beginning 90 days after the date of this prospectus, subject only to the manner of sale provisions of Rule 144, and by affiliates under Rule 144, without compliance with its one-year minimum holding period, subject to specified limitations. OPTIONS Rule 701 also provides that the shares of common stock acquired upon the exercise of currently outstanding options or pursuant to other rights granted under OneSource's stock plans may be resold by persons, other than affiliates, beginning 90 days after the date of this 61 63 prospectus, subject only to the manner of sale provisions of Rule 144, and by affiliates under Rule 144, without compliance with its one-year minimum holding period, subject to limitations. As of the date of this prospectus, the board of directors has authorized an aggregate of up to 4,819,487 shares of common stock for issuance pursuant to OneSource's stock option and stock purchase plans. At March 31, 1999, 2,777,909 shares of common stock were issuable pursuant to outstanding vested options or pursuant to other rights granted under OneSource's stock plan(s), of which approximately 588,869 shares are not subject to lock-up agreements with the underwriters and will be eligible for sale in the public market in accordance with Rule 701 under the Securities Act beginning 90 days after the date of this prospectus; 1,141,570 shares of common stock are issuable pursuant to outstanding options that are not yet exercisable; and 900,000 shares of common stock are available for future grants under OneSource's stock option and stock purchase plans. OneSource intends to file one or more registration statements on Form S-8 under the Securities Act 90 days after the date of this prospectus to register all shares of common stock which are issuable pursuant to OneSource's stock option and stock purchase plans. The registration statements are expected to become effective upon filing. Shares covered by the registration statements will thereupon be eligible for sale in the public markets. WARRANTS Pursuant to Rule 144, 473,526 shares of common stock issuable upon exercise of outstanding warrants which are fully exercisable will be freely tradable one year from the date the warrants are exercised. LOCK-UP AGREEMENTS OneSource, its executive officers and directors, the selling stockholders and Lotus have agreed not to sell or transfer any shares of common stock (or any security convertible into or exchangeable or exercisable for common stock), or to engage in hedging transactions with respect to the common stock without the prior written consent of William Blair & Company, L.L.C. for a period of 180 days from the date of this prospectus. In addition, for a period of 180 days from the date of this prospectus, except as required by law, OneSource has agreed that its board of directors will not consent to any offer for sale, sale or other disposition, or any transaction which is designed or could be expected to result in the disposition by any person, directly or indirectly, of any shares of common stock without the prior written consent of William Blair. For more information, see "Underwriting." William Blair in its sole discretion at any time or from time to time and without notice may release for sale in the public market all or any portion of the shares subject to the lock-up agreements. REGISTRATION RIGHTS Upon the expiration of the contractual lock-up period, particular security holders of OneSource will be entitled to require OneSource to register under the Securities Act up to a total of 5,530,284 shares of outstanding common stock under the terms of a registration rights agreement between OneSource and the holders of the shares. The registration rights agreement provides that if OneSource proposes to register in a firm commitment underwritten offering any of its securities under the Securities Act at any time or times, these security holders, subject to exceptions, shall be entitled to include some of their shares in the registration. However, the 62 64 managing underwriter of any such offering may exclude for marketing reasons some or all of the shares from the registration. The security holders also have, subject to conditions and limitations, the right to require OneSource, no more than once in any six-month period, to prepare and file a registration statement under the Securities Act with respect to their shares. OneSource is generally required to bear the expenses of all these registrations, except underwriting discounts and commissions. Prior to this offering, there has been no public market for the common stock of OneSource, and no predictions can be made as to the effect, if any, that market sales of shares of common stock prevailing from time to time, or the availability of shares for future sale, may have on the market price for our common stock. Sales of substantial amounts of common stock, or the perception that these sales could occur, could adversely affect prevailing market prices for our common stock and could impair OneSource's future ability to obtain capital through an offering of equity securities. 63 65 UNDERWRITING The several underwriters named below, for which William Blair & Company, L.L.C., U.S. Bancorp Piper Jaffray Inc. and Adams, Harkness & Hill, Inc. are acting as representatives, have severally agreed, subject to the terms and conditions set forth in the underwriting agreement among OneSource, the selling stockholders and the underwriters, to purchase from OneSource and the selling stockholders, and OneSource and the selling stockholders have agreed to sell to each of the underwriters, the respective number of shares of common stock set forth opposite each underwriter's name in the table below.
NUMBER OF UNDERWRITER SHARES - ----------- --------- William Blair & Company, L.L.C. ............................ U.S. Bancorp Piper Jaffray Inc. ............................ Adams, Harkness & Hill, Inc. ............................... --------- Total.................................................. 3,636,000 =========
This offering will be underwritten on a firm commitment basis. In the underwriting agreement, the underwriters have agreed, subject to the terms and conditions set forth therein, to purchase the shares of common stock being sold pursuant thereto at a price per share equal to the public offering price less the underwriting discount specified on the cover page of this prospectus. According to the terms of the underwriting agreement, the underwriters will either purchase all of the shares or none of them. In the event of default by any underwriter, in certain circumstances the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated. The representatives of the underwriters have advised OneSource and the selling stockholders that the underwriters will offer the shares of common stock to the public at the public offering price specified on the cover page of this prospectus. The underwriters may also offer the shares to dealers at the public offering price less a concession of up to $ per share. The underwriters may allow, and these dealers may re-allow, a concession of up to $ per share to certain other dealers. The underwriters will offer the shares subject to prior sale and subject to receipt and acceptance of the shares by the underwriters. The underwriters may reject any order to purchase shares in whole or in part. The underwriters expect that OneSource and the selling stockholders will deliver the shares to the underwriters through the facilities of the Depository Trust Company in New York, New York on or about , 1999. At that time, the underwriters will pay OneSource and the selling stockholders for the shares in immediately available funds. After the commencement of the initial public offering, the representatives may change the public offering price and the other selling terms. The underwriters have the option to purchase up to an aggregate of 545,400 additional shares of common stock from the selling stockholders at the same price they are paying for the 3,636,000 shares offered hereby. The underwriters may purchase additional shares only to cover over-allotments made in connection with this offering and only within 30 days after the date of this prospectus. If the underwriters decide to exercise this over-allotment option, each underwriter will be required to purchase additional shares in approximately the same proportion as set forth in the table above. The underwriters will offer any additional shares that they purchase on the terms described in the preceding paragraph. 64 66 The following table summarizes the compensation to be paid by OneSource and the selling stockholders to the underwriters:
TOTAL --------------------------------------------- PER SHARE WITHOUT OVER-ALLOTMENT WITH OVER-ALLOTMENT --------- ---------------------- ------------------- Public offering price................. Underwriting discount paid by OneSource........................... Underwriting discount paid by the selling stockholders................
OneSource estimates the expenses of this offering payable by OneSource (excluding the underwriting discount) to be $750,000. OneSource and the selling stockholders have agreed to indemnify the underwriters and their controlling persons against specific liabilities, including liabilities under the Securities Act. OneSource, its executive officers and directors, the selling stockholders and Lotus have agreed not to sell or transfer any shares of common stock, or to engage in hedging transactions with respect to the common stock, for a period of 180 days from the date of this prospectus without the consent of William Blair, except in limited circumstances. After giving effect to this offering, stockholders who have agreed to this lock-up arrangement will hold an aggregate of 7,049,226 shares of common stock, options to purchase 2,775,120 shares of common stock and warrants to purchase 473,526 shares of common stock. For more information, see "Shares Eligible for Future Sale." In connection with this offering, the underwriters and other persons participating in this offering may engage in transactions which affect the market price of the common stock. These may include stabilizing and over-allotment transactions and purchases to cover syndicate short positions. Stabilizing transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock. Over-allotment involves selling more shares of common stock in this offering than are specified on the cover page of this prospectus, which results in a syndicate short position. The underwriters may cover this short position by purchasing common stock in the open market or by exercising all or part of their over-allotment option. In addition, the representatives of the underwriters may impose a penalty bid. This allows the representatives to reclaim the selling concession allowed to an underwriter or selling group member if common stock sold by such underwriter or selling group member in this offering is repurchased by the representatives in stabilizing or syndicate short covering transactions. These transactions, which may be effected on the Nasdaq National Market or otherwise, may stabilize, maintain or otherwise affect the market price of the common stock and could cause the price to be higher than it would be without these transactions. The underwriters and other participants in this offering are not required to engage in any of these activities and may discontinue any of these activities at any time without notice. Neither OneSource nor any of the underwriters makes any representation or prediction as to whether the underwriters will engage in these transactions or choose to discontinue any transactions engaged in or as to the direction or magnitude of any effect that these transactions may have on the price of the common stock. The representatives of the underwriters have advised OneSource and the selling stockholders that the underwriters do not intend to confirm, without client authorization, sales to any account over which they exercise discretionary authority. 65 67 Prior to this offering, there has been no public market for OneSource's common stock. Consequently, OneSource, representatives of the selling stockholders and the representatives of the underwriters will negotiate to determine the initial public offering price. They will consider current market conditions, OneSource's operating results in recent periods, the market capitalization of other companies in its industry, estimates of OneSource's potential and other factors they deem relevant. The estimated price range specified on the cover page of this prospectus may change because of market conditions and other factors. The underwriters have reserved for sale, at the initial public offering price, up to 5% of the shares of common stock in this offering for OneSource employees and other individuals with a relationship with OneSource. Purchases of the reserved shares would reduce the number of shares available for sale to the general public. The underwriters will offer any reserved shares which are not so purchased to the general public on the same terms as the other shares. OneSource has applied for quotation of the common stock on the Nasdaq National Market under the symbol "ONES." Some of the underwriters and their affiliates engage in transactions with, and perform services for, OneSource in the ordinary course of business and have engaged, and may in the future engage, in commercial banking and investment banking transactions with OneSource. In connection with rendering these services in the past, the underwriters and their affiliates have received customary compensation. William Blair Venture Partners is an affiliate of William Blair. As such, William Blair may be deemed to be an affiliate of OneSource under Rule 2720 of the National Association of Securities Dealers, Inc. Mr. Newmark, a principal of William Blair, currently serves on OneSource's board of directors as the representative of William Blair Venture Partners. In addition, since 1993, OneSource has paid William Blair Venture Partners an annual management fee of $100,000 pursuant to an oral arrangement and OneSource will pay William Blair Venture Partners $500,000 upon the closing of this offering to terminate this arrangement. For more information, see "Principal and Selling Stockholders" and "Certain Transactions." When an NASD member participates in an offering of an affiliated company's equity securities, Rule 2720 of the NASD requires that a "qualified independent underwriter" within the meaning of that rule participate in the preparation of the registration statement and prospectus for the offering and conduct due diligence as part of such preparation. In addition, the public offering price can be no higher than that recommended by the qualified independent underwriter. U.S. Bancorp Piper Jaffray has accepted the responsibility of acting as the "qualified independent underwriter" with respect to this offering and, accordingly, the initial public offering price specified on the cover page of this prospectus does not exceed that recommended by U.S. Bancorp Piper Jaffray in its capacity as such. LEGAL MATTERS The validity of the shares of common stock to be issued in this offering will be passed upon for OneSource by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. Legal matters in connection with the shares of common stock to be issued in this offering, this prospectus and the related registration statement and the underwriting agreement will be passed upon for the underwriters by Sidley & Austin, Chicago, Illinois. 66 68 EXPERTS The consolidated financial statements as of December 31, 1997 and 1998 and for each of the three years in the period ended December 31, 1998 included in this prospectus have been so included in reliance upon the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION OneSource has filed with the Commission a registration statement on Form S-1 (including all amendments and exhibits thereto) under the Securities Act with respect to the common stock in this offering. As permitted by the rules and regulations of the Commission, this prospectus omits certain information contained in the registration statement. For further information with respect to OneSource and the common stock offered in this offering, you should refer to the registration statement and to the exhibits and schedules filed as part thereof. Statements contained in this prospectus regarding the contents of any agreement or other document filed as an exhibit to the registration statement are not necessarily complete, and in each instance reference is made to the copy of that agreement or document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference. You may obtain copies of all or any portion of the registration statement at prescribed rates from the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, at its regional offices located at Seven World Trade Center, New York, New York 10007 and 500 West Madison Street, Chicago, Illinois 60661, or by calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains a Website that contains reports, proxy and information statements and other information regarding registrants (including OneSource) that file electronically with the Commission which can be accessed at http://www.sec.gov. OneSource intends to furnish to its stockholders annual reports containing consolidated financial statements audited by an independent public accounting firm and with quarterly reports for each of the first quarters of each fiscal year containing unaudited consolidated financial statements. 67 69 ONESOURCE INFORMATION SERVICES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants........................... F-2 Consolidated Balance Sheet as of December 31, 1997 and 1998 and March 31, 1999 (unaudited) and Pro Forma March 31, 1999 (unaudited).......................................... F-3 Consolidated Statement of Operations for the Years Ended December 31, 1996, 1997 and 1998 and the Three Months Ended March 31, 1998 and 1999 (unaudited)................. F-4 Consolidated Statement of Changes in Stockholders' Deficit for the Years Ended December 31, 1996, 1997 and 1998 and the Three Months Ended March 31, 1999 (unaudited)......... F-5 Consolidated Statement of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 and the Three Months Ended March 31, 1998 and 1999 (unaudited)................. F-7 Notes to Consolidated Financial Statements.................. F-8
F-1 70 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of OneSource Information Services, Inc. The 2.035 for 1.0 stock split approved on April 13, 1999 described in Note 6 to the consolidated financial statements has not been consummated at April 22, 1999. When it has been consummated, we will be in a position to furnish the following report: "In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of OneSource Information Services, Inc. and its subsidiary at December 31, 1997 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above." PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts February 26, 1999, except for Note 6, as to which the date is April 13, 1999 F-2 71 ONESOURCE INFORMATION SERVICES, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, PRO FORMA ------------------- MARCH 31, MARCH 31, 1997 1998 1999 1999 -------- -------- ----------- ----------- (UNAUDITED) (NOTE 2) ASSETS Current assets: Cash and cash equivalents................................. $ 341 $ 8,665 $ 6,739 $ 6,739 Accounts receivable, net of allowance for doubtful accounts of $210, $300 and $288 at December 31, 1997 and 1998 and March 31, 1999 (unaudited), respectively....... 8,703 9,621 4,822 4,822 Deferred subscription costs............................... 5,037 6,662 5,789 5,789 Prepaid expenses and other current assets................. 323 426 578 578 -------- -------- -------- -------- Total current assets.................................... 14,404 25,374 17,928 17,928 Property and equipment, net................................. 1,826 1,770 1,788 1,788 Restricted time deposit..................................... -- 100 515 515 Other assets................................................ 414 402 492 492 -------- -------- -------- -------- Total assets.......................................... $ 16,644 $ 27,646 $ 20,723 $ 20,723 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of capital lease obligations.............. $ 580 $ 471 $ 401 $ 401 Notes payable............................................. 1,530 -- -- -- Accounts payable.......................................... 1,204 995 729 729 Accrued expenses.......................................... 2,450 3,378 2,159 2,159 Accrued royalties......................................... 2,684 4,626 2,347 2,347 Deferred revenues......................................... 15,748 18,022 15,293 15,293 -------- -------- -------- -------- Total current liabilities............................... 24,196 27,492 20,929 20,929 Capital lease obligations................................... 439 233 179 179 Long-term debt.............................................. 5,622 6,232 6,270 6,270 -------- -------- -------- -------- Total liabilities..................................... 30,257 33,957 27,378 27,378 -------- -------- -------- -------- Commitments (Note 13)....................................... -- -- -- -- Stockholders' deficit: Preferred stock, $0.01 par value: No shares authorized, issued or outstanding at December 31, 1997 and 1998 and March 31, 1999 (unaudited); 1,000,000 shares authorized, no shares issued and outstanding at March 31, 1999 on a pro forma basis (unaudited)............................................. -- -- -- -- Class P common stock, $0.01 par value: 1,250,000 shares authorized; 717,948, 717,119, and 717,119 shares issued and outstanding at December 31, 1997 and 1998 and March 31, 1999 (unaudited), respectively, at issuance cost (liquidation preference of $6,869 at March 31, 1999); no shares authorized, issued and outstanding at March 31, 1999 on a pro forma basis (unaudited)....................................... 3,528 3,524 3,524 -- Common stock, $0.01 par value: 20,000,000 shares authorized; 6,684,959, 6,775,313, 6,693,685 and 7,714,915 shares issued; and 6,582,395, 6,665,423, 6,693,685 and 7,714,915 shares outstanding, at December 31, 1997 and 1998, March 31, 1999 (unaudited) and March 31, 1999 on a pro forma basis (unaudited), respectively............................................ 67 68 67 77 Additional paid-in capital................................ 362 724 1,176 4,690 Unearned compensation..................................... -- (39) (464) (464) Accumulated deficit....................................... (17,432) (10,444) (10,856) (10,856) Accumulated other comprehensive loss...................... (132) (138) (102) (102) Common stock held in treasury, at cost.................... (6) (6) -- -- -------- -------- -------- -------- Total stockholders' deficit........................... (13,613) (6,311) (6,655) (6,655) -------- -------- -------- -------- Total liabilities and stockholders' deficit........... $ 16,644 $ 27,646 $ 20,723 $ 20,723 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 72 ONESOURCE INFORMATION SERVICES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------- ----------------------- 1996 1997 1998 1998 1999 ---------- ---------- ----------- ---------- ---------- (UNAUDITED) Revenues: Web-based product............... $ 15 $ 3,312 $ 16,058 $ 2,628 $ 6,903 CD Rom product.................. 30,419 27,072 14,370 5,322 1,240 ---------- ---------- ----------- ---------- ---------- 30,434 30,384 30,428 7,950 8,143 ---------- ---------- ----------- ---------- ---------- Cost of revenues: Web-based product............... 295 2,401 7,863 1,287 2,970 CD Rom product.................. 12,244 10,444 5,792 1,979 487 ---------- ---------- ----------- ---------- ---------- 12,539 12,845 13,655 3,266 3,457 ---------- ---------- ----------- ---------- ---------- Gross profit.................... 17,895 17,539 16,773 4,684 4,686 ---------- ---------- ----------- ---------- ---------- Operating expenses: Selling and marketing........... 8,572 9,167 11,577 2,797 2,927 Platform and product development................... 7,252 6,375 6,313 1,561 1,718 General and administrative...... 3,664 3,401 3,847 957 860 ---------- ---------- ----------- ---------- ---------- Total operating expenses...... 19,488 18,943 21,737 5,315 5,505 ---------- ---------- ----------- ---------- ---------- Loss from operations.......... (1,593) (1,404) (4,964) (631) (819) Interest expense.................. (752) (943) (878) (247) (192) Interest income................... 19 13 283 3 99 Gain on sale of product line...... -- 501 12,797 -- -- Other income...................... 393 -- -- -- 500 ---------- ---------- ----------- ---------- ---------- Income (loss) before income taxes...................... (1,933) (1,833) 7,238 (875) (412) Provision for income taxes........ -- -- 250 -- -- ---------- ---------- ----------- ---------- ---------- Net income (loss)............. (1,933) (1,833) 6,988 (875) (412) ---------- ---------- ----------- ---------- ---------- Less: income attributable to Class P common stock.................. 335 414 1,367 72 139 ---------- ---------- ----------- ---------- ---------- Net income (loss) attributable to common stock............ $ (2,268) $ (2,247) $ 5,621 $ (947) $ (551) ========== ========== =========== ========== ========== Class P common stock: Basic and diluted earnings per share......................... $ 0.47 $ 0.57 $ 1.91 $ 0.10 $ 0.19 Weighted average Class P common shares outstanding............ 718,966 717,948 717,541 717,948 717,119 Common stock: Basic earnings (loss) per share......................... $ (0.35) $ (0.34) $ 0.85 $ (0.14) $ (0.08) Diluted earnings (loss) per share......................... $ (0.35) $ (0.34) $ 0.59 $ (0.14) $ (0.08) Weighted average common shares outstanding: Basic......................... 6,486,959 6,545,343 6,640,834 6,620,952 6,685,164 Diluted....................... 6,486,959 6,545,343 9,563,151 6,620,952 6,685,164 Unaudited pro forma earnings per share: Basic........................... $ 0.91 $ (0.05) Diluted......................... $ 0.66 $ (0.05) Weighted average common shares outstanding: Basic......................... 7,644,012 7,706,409 Diluted....................... 10,566,326 7,706,409
The accompanying notes are an integral part of these consolidated financial statements. F-4 73 ONESOURCE INFORMATION SERVICES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT (IN THOUSANDS, EXCEPT SHARE DATA)
CLASS P COMMON STOCK COMMON STOCK ADDITIONAL ---------------- ------------------ PAID-IN UNEARNED COMPREHENSIVE ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) DEFICIT ------- ------ --------- ------ ---------- ------------ ------------- ----------- Balance, December 31, 1995..... 719,983 $3,538 6,564,096 $65 $ 343 $ -- $(13,666) Comprehensive loss: Net loss...................... $(1,933) (1,933) Other comprehensive income (loss): Foreign currency translation adjustment................ (130) ------- Comprehensive loss........ (2,063) ======= Issuance of common stock pursuant to exercise of options....................... 30,476 1 3 Reacquisition and retirement of Class P common stock.......... (2,035) (10) Reacquisition of common stock for treasury.................. ------- ------ --------- --- ------ ----- -------- Balance, December 31, 1996..... 717,948 3,528 6,594,572 66 346 -- (15,599) Comprehensive loss: Net loss...................... (1,833) (1,833) Other comprehensive income (loss): Foreign currency translation adjustment................ 30 ------- Comprehensive loss........ (1,803) ======= Issuance of common stock pursuant to exercise of options....................... 90,387 1 16 ------- ------ --------- --- ------ ----- -------- Balance, December 31, 1997..... 717,948 3,528 6,684,959 67 362 -- (17,432) Comprehensive income: Net income.................... 6,988 6,988 Other comprehensive income (loss): Foreign currency translation adjustment................ (6) ------- Comprehensive income...... 6,982 ======= Issuance of common stock pursuant to exercise of options....................... 90,354 1 22 Unearned compensation relating to grants of stock options.... 45 (45) Compensation relating to grants of stock options.............. 6 Compensation relating to modification of stock options on sale of product line....... 295 ACCUMULATED OTHER TREASURY STOCK TOTAL COMPREHENSIVE ----------------- STOCKHOLDERS' LOSS SHARES AMOUNT DEFICIT ------------- -------- ------ ------------- Balance, December 31, 1995..... $ (32) 84,249 $(5) $ (9,757) Comprehensive loss: Net loss...................... (1,933) Other comprehensive income (loss): Foreign currency translation adjustment................ (130) (130) Comprehensive loss........ Issuance of common stock pursuant to exercise of options....................... 4 Reacquisition and retirement of Class P common stock.......... (10) Reacquisition of common stock for treasury.................. 18,315 (1) (1) ----- -------- --- -------- Balance, December 31, 1996..... (162) 102,564 (6) (11,827) Comprehensive loss: Net loss...................... (1,833) Other comprehensive income (loss): Foreign currency translation adjustment................ 30 30 Comprehensive loss........ Issuance of common stock pursuant to exercise of options....................... 17 ----- -------- --- -------- Balance, December 31, 1997..... (132) 102,564 (6) (13,613) Comprehensive income: Net income.................... 6,988 Other comprehensive income (loss): Foreign currency translation adjustment................ (6) (6) Comprehensive income...... Issuance of common stock pursuant to exercise of options....................... 23 Unearned compensation relating to grants of stock options.... -- Compensation relating to grants of stock options.............. 6 Compensation relating to modification of stock options on sale of product line....... 295
F-5 74
CLASS P COMMON STOCK COMMON STOCK ADDITIONAL ---------------- ------------------ PAID-IN UNEARNED COMPREHENSIVE ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) DEFICIT ------- ------ --------- ------ ---------- ------------ ------------- ----------- Reacquisition and retirement of Class P common stock.......... (829) (4) Reacquisition of common stock for treasury.................. ------- ------ --------- --- ------ ----- -------- Balance, December 31, 1998..... 717,119 3,524 6,775,313 68 724 (39) (10,444) Comprehensive loss: Net loss (unaudited).......... (412) (412) Other comprehensive loss: Foreign currency translation adjustment (unaudited).... 36 ------- Comprehensive loss (unaudited)................. $ (376) ======= Issuance of common stock pursuant to exercise of options (unaudited)........... 28,262 -- 19 Unearned compensation relating to grants of stock options (unaudited)................... 438 (438) Compensation relating to grants of stock options (unaudited)................... 13 Retirement of treasury stock (unaudited)................... (109,890) (1) (5) ------- ------ --------- --- ------ ----- -------- Balance, March 31, 1999 (unaudited)................... 717,119 $3,524 6,693,685 $67 $1,176 $(464) $(10,856) ======= ====== ========= === ====== ===== ======== ACCUMULATED OTHER TREASURY STOCK TOTAL COMPREHENSIVE ----------------- STOCKHOLDERS' LOSS SHARES AMOUNT DEFICIT ------------- -------- ------ ------------- Reacquisition and retirement of Class P common stock.......... (4) Reacquisition of common stock for treasury.................. 7,326 -- -- ----- -------- --- -------- Balance, December 31, 1998..... (138) 109,890 (6) (6,311) Comprehensive loss: Net loss (unaudited).......... (412) Other comprehensive loss: Foreign currency translation adjustment (unaudited).... 36 36 Comprehensive loss (unaudited)................. Issuance of common stock pursuant to exercise of options (unaudited)........... 19 Unearned compensation relating to grants of stock options (unaudited)................... -- Compensation relating to grants of stock options (unaudited)................... 13 Retirement of treasury stock (unaudited)................... (109,890) 6 -- ----- -------- --- -------- Balance, March 31, 1999 (unaudited)................... $(102) -- $-- $ (6,655) ===== ======== === ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 75 ONESOURCE INFORMATION SERVICES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------- ---------------- 1996 1997 1998 1998 1999 ------- ------- -------- ------ ------- (UNAUDITED) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flows relating to operating activities Net income (loss)........................................ $(1,933) $(1,833) $ 6,988 $ (875) $ (412) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization.......................... 2,670 1,776 1,518 321 383 Compensation expense relating to grants of stock options.............................................. -- -- 6 -- 13 Amortization of debt discount.......................... 108 142 121 30 38 Loss on sale leaseback transaction..................... -- -- 45 45 -- Gain on sale of product line........................... -- (501) (12,797) -- -- Other income from dispute settlement................... (393) -- -- -- -- Changes in assets and liabilities: Accounts receivable.................................. (781) 17 (946) 2,592 4,763 Deferred subscription costs.......................... (178) (748) (2,217) (153) 873 Prepaid expenses and other assets.................... (255) 14 (43) (19) (323) Accounts payable..................................... 509 (459) (213) (462) (250) Accrued expenses..................................... 507 758 1,075 (17) (1,194) Accrued royalties.................................... 76 (128) 2,283 (368) (2,279) Deferred revenues.................................... 943 453 5,373 (833) (2,602) ------- ------- -------- ------ ------- Net cash provided (used) by operating activities....... 1,273 (509) 1,193 261 (990) ------- ------- -------- ------ ------- Cash flows relating to investing activities Investment in certificate of deposit..................... -- -- (100) -- (415) Purchases of property and equipment...................... (1,332) (878) (1,252) (245) (346) Capitalization of software development costs............. (300) (75) (200) (24) (56) Net proceeds from sale of product line................... -- 501 10,563 -- -- ------- ------- -------- ------ ------- Net cash provided (used) by investing activities....... (1,632) (452) 9,011 (269) (817) ------- ------- -------- ------ ------- Cash flows relating to financing activities Proceeds from issuance of common stock................... 4 17 23 6 19 Repurchase of Class P common stock and common stock...... (11) -- (4) -- -- Net borrowings (repayments) under line of credit......... (400) 883 (1,183) 35 -- Borrowings under term loan............................... 575 -- -- -- -- Repayments of term loan.................................. (208) (228) (347) -- -- Proceeds from sale and leaseback of fixed assets......... 289 753 228 228 -- Repayments of capital lease obligations.................. (402) (607) (684) (228) (124) ------- ------- -------- ------ ------- Net cash provided (used) by financing activities....... (153) 818 (1,967) 41 (105) ------- ------- -------- ------ ------- Effect of exchange rate changes on cash and cash equivalents.............................................. 81 (51) 87 5 (14) ------- ------- -------- ------ ------- Increase (decrease) in cash and cash equivalents........... (431) (194) 8,324 38 (1,926) Cash and cash equivalents, beginning of period............. 966 535 341 341 8,665 ------- ------- -------- ------ ------- Cash and cash equivalents, end of period................... $ 535 $ 341 $ 8,665 $ 379 $ 6,739 ======= ======= ======== ====== ======= Supplemental disclosure of cash flow information: Cash paid for interest................................... $ 218 $ 301 $ 209 $ 90 $ 547 Cash paid for taxes...................................... -- -- 175 4 154 Supplemental disclosure of noncash investing and financing activities: Additions to capital lease obligations for purchases of fixed assets........................................... $ 430 $ 87 $ 183 $ 183 $ -- Additions to capital lease obligations for sale and leaseback of fixed assets.............................. 289 753 228 228 -- Additions to long-term debt for accrued interest......... 440 480 489 489 -- Exchange of property and equipment for the retirement of capital lease obligations.............................. -- -- 41 -- --
The accompanying notes are an integral part of these consolidated financial statements. F-7 76 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS OneSource Information Services, Inc. and its wholly-owned subsidiary provide Web-based business and financial information to professionals in corporations and other enterprises. OneSource primarily sells its products through a direct sales force located throughout the United States and United Kingdom. OneSource manages its business as a single segment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of OneSource Information Services, Inc. and OneSource Information Services Limited, its wholly-owned subsidiary (collectively, "OneSource"). All significant intercompany transactions and balances have been eliminated. REVENUE RECOGNITION OneSource's products are sold on a subscription basis pursuant to customer contracts that span varying periods of time but are generally for a period of one year. In accordance with its customer agreements, OneSource initially records receivables and defers the related revenue at the time amounts are billed to customers. Revenues are recognized ratably over the related subscription period. SUBSCRIPTION COSTS Subscription costs represent sales commission and royalty costs that are directly associated with securing a subscription and procuring information to be delivered over the subscription period, respectively. These costs are deferred and amortized ratably over the associated subscription period as a component of selling and marketing expense and cost of revenues, respectively. At December 31, 1997 and 1998, deferred subscription costs consisted of $1,365,000 and $1,250,000, respectively, related to sales commissions and $3,672,000 and $5,412,000, respectively, related to royalties. At March 31, 1999 (unaudited), deferred subscription costs consisted of $1,148,000 related to sales commissions and $4,641,000 related to royalties. CASH AND CASH EQUIVALENTS Cash equivalents consist of money market funds with original maturities of three months or less and are stated at cost which approximates fair market value. These funds are managed by a financial institution with a strong credit rating. Accordingly, the investments are subject to minimal credit and market risks. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated over their estimated useful lives, generally three to five years, using the straight-line method. Equipment held under capital F-8 77 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) leases is stated at the fair value of the equipment at inception of the leases and is amortized on a straight-line basis over the term of the leases. PLATFORM AND PRODUCT DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS Platform and product development costs, other than certain software development costs, are charged to expense as incurred. Software development costs incurred subsequent to the establishment of technological feasibility, and prior to general release of the product, are capitalized and amortized on a straight-line basis over the estimated useful lives of the related products, generally twenty-four to thirty-six months. For the years ended December 31, 1996, 1997 and 1998, amortization of capitalized software development costs amounted to $340,000, $413,000 and $198,000, respectively. FINANCIAL INSTRUMENTS Fair values of OneSource's financial instruments, which include cash and cash equivalents, restricted time deposits, accounts receivable, long-term debt and capital lease obligations are based on quoted market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of perceived risk. The carrying value of these financial instruments approximated their fair value at December 31, 1997 and 1998. CONCENTRATION OF CREDIT RISK Concentration of credit risk with respect to accounts receivable is limited due to the large number of companies comprising OneSource's client base. Ongoing credit evaluations of customers' financial condition are performed and collateral is generally not required. OneSource maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management's expectations. ACCOUNTING FOR STOCK-BASED COMPENSATION OneSource accounts for stock-based compensation to employees in accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and related interpretation. Accordingly, compensation expense is recorded for options issued to employees in fixed amounts to the extent that the fixed exercise prices are less than the fair market value of OneSource's common stock at the date of grant. OneSource follows the disclosure requirements of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" (Note 8). All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123. UNAUDITED INTERIM FINANCIAL STATEMENTS Data and information as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is unaudited. In the opinion of OneSource's management, the March 31, 1998 and 1999 unaudited interim consolidated financial statements include all adjustments, consisting of F-9 78 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for that period. The results of operations for the three month period ended March 31, 1999 are not necessarily indicative of the results of operations for the year ended December 31, 1999. UNAUDITED PRO FORMA BALANCE SHEET Prior to the closing of OneSource's initial public offering, each outstanding share of Class P common stock (the "Class P stock") will be reclassified into one share of common stock plus an additional number of shares of common stock (determined by dividing the preference amount for such share by the assumed initial public offering price of $11.00 per share). In addition, upon the closing of OneSource's initial public offering, OneSource will file a Restated Certificate of Incorporation which will authorize 1,000,000 shares of a single class of undesignated preferred stock, $0.01 par value per share, will cancel authorization of the Class P common stock and will have authorized 20,000,000 shares of common stock. This reclassification and other changes have been reflected in the unaudited pro forma balance sheet as of March 31, 1999. EARNINGS PER SHARE AND UNAUDITED PRO FORMA EARNINGS PER SHARE Earnings per share is computed in accordance with SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires the presentation of two amounts, basic earnings per share and diluted earnings per share. The two-class method of computing earnings per share has been used since the Class P stock and the common stock share ratably in earnings remaining subsequent to the 12% yield on the Class P stock. Earnings per share of Class P stock is calculated by dividing the yield earned and income (loss) attributable to Class P stock by the weighted average number of shares of Class P stock outstanding during the period. Diluted earnings per share is the same for all periods presented as there are no securities outstanding that would result in dilution for Class P stock. Earnings per share of common stock is calculated by dividing income (loss) attributable to common stock by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated by considering the impact of potential common stock as if they were converted into common stock at the beginning of the period. Potential common stock equivalents are not included in loss periods as they are anti-dilutive. Unaudited pro forma basic and diluted earnings per share of common stock for the year ended December 31, 1998 and three months ended March 31, 1999 have been calculated based on net income applicable to all classes of common stock and assuming the reclassification of OneSource's Class P common stock prior to the completion of this offering, as if such reclassification had occurred at January 1, 1998 for the year ended December 31, 1998 and at January 1, 1999 for the three months ended March 31, 1999, respectively. Each share of Class P common stock will be reclassified into one share of common stock plus an additional number of shares of common stock (determined by dividing the preference amount for such share by the assumed initial public offering price of $11.00 per share). F-10 79 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOREIGN CURRENCY TRANSLATION Assets and liabilities of OneSource's United Kingdom operations, where the local currency is the functional currency, are translated into US dollars at the exchange rate in effect as of the balance sheet date, while revenues and expenses are translated at average exchange rates during the period. The resultant translation adjustment is reflected as a separate component of stockholders' deficit. Transaction gains and losses, which are not material in amount, are reflected in the consolidated statement of operations. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires OneSource 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes the accounting for costs of software products developed or purchased for internal use, including when such costs should be capitalized. OneSource does not expect SOP 98-1, which is effective for OneSource beginning January 1, 1999, to have a material effect on OneSource's financial condition or results of operations. In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." Start-up activities are defined broadly as those one-time activities relating to opening a new facility, introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer, commencing some new operation or organizing a new entity. Under SOP 98-5, the cost of start-up activities should be expensed as incurred. SOP 98-5 is effective for OneSource's calendar year 1999 financial statements and OneSource does not expect its adoption to have a material effect on OneSource's financial condition or results of operations. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The new standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. OneSource does not expect SFAS No. 133 to have a material effect on its financial condition or results of operations. F-11 80 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ------------------ 1997 1998 ------- ------- (IN THOUSANDS) Office and computer equipment................... $ 5,222 $ 5,478 Furniture and fixtures.......................... 293 326 ------- ------- 5,515 5,804 Less: accumulated depreciation and amortization.................................. (3,689) (4,034) ------- ------- $ 1,826 $ 1,770 ======= =======
At December 31, 1997 and 1998, office and computer equipment under capital leases totaled $2,112,000 and $1,304,000, respectively. Related accumulated amortization of assets under capital leases totaled $1,158,000 and $702,000 at December 31, 1997 and 1998, respectively. During the years ended December 31, 1996, 1997 and 1998, OneSource sold and leased back certain computer equipment with net book values of $308,000, $788,000, and $237,000, respectively for cash proceeds of $289,000, $753,000 and $228,000. During 1998, OneSource retired $525,000 of fully depreciated property and equipment. 4. BORROWINGS NOTES PAYABLE OneSource entered into a credit agreement (the "Agreement") with a bank, as amended, which provides for a line of credit (the "Line") of up to $2,500,000 through April 1, 1998 and a term loan (the "Term Loan") of $750,000 to be used for financing equipment purchases. At December 31, 1997, borrowings under the Line were $1,183,000 and borrowings under the Term Loan were $347,000. During 1998, the Line and the Term Loan expired and were repaid in full. LONG-TERM DEBT In connection with the acquisition of the business in 1993, OneSource entered into a subordinated note agreement with the seller with a face amount of $5,000,000 (the "Note"). The Note bears interest at 8% per annum, payable annually commencing March 31, 1995 and has been discounted to reflect the market rate of 12% at the time of issuance. The initial discount totaling $938,000 is being amortized to interest expense over the life of the Note using the effective interest method. As of December 31, 1998, the unamortized discount was $291,000. Interest payments may be added to the unpaid principal of the Note if OneSource's cash flow, as defined in the Note agreement, is less than a specified amount. The Note, and any accrued but unpaid interest thereon, is due on the earlier of i) September 8, 2000, ii) the date OneSource's stockholders, in connection with an acquisition, cease to own a majority of the capital stock of OneSource, or iii) the date OneSource sells substantially all of its assets. In the event OneSource issues equity securities with net proceeds to F-12 81 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) OneSource in excess of $10,000,000, OneSource is required to make a prepayment of the principal amount as defined in the Note agreement. The Note agreement requires OneSource to comply with certain restrictive covenants, including the maintenance of specified financial ratios, and restricts OneSource from paying dividends. In December 1996, OneSource reached a settlement agreement for an alleged breach by the seller of a provision of the Note agreement regarding the initial acquisition of the business. Under the terms of the settlement, the seller forgave $393,000 of the principal on the Note, which amount has been recognized as other income. As of December 31, 1998, the carrying value of the Note was $6,232,000. In accordance with the terms of the Note agreement, OneSource has added $1,523,000 to the principal of the Note for interest which had accrued through the end of December 31, 1997. Accrued interest related to the Note was $504,000 for the year ended December 31, 1998 and, since OneSource met the cash flow requirements set forth in the Note agreement, such amount is due by March 31, 1999. During the three months ended March 31, 1999 (unaudited), OneSource paid the accrued interest related to the Note. 5. EARNINGS PER SHARE The following tables set forth the computation of earnings per share of common stock and Class P stock from net income (loss):
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ------------------------------------ ----------------------------- 1996 1997 1998 1998 1999 ---------- ---------- ---------- ------------- ------------- (UNAUDITED) Numerator for common stock (in thousands): Net income (loss)......... $ (1,933) $ (1,833) $ 6,988 $ (875) $ (412) Less: income attributable to Class P stock....... 335 414 1,367 72 139 ---------- ---------- ---------- ---------- ---------- $ (2,268) $ (2,247) $ 5,621 $ (947) $ (551) ========== ========== ========== ========== ========== Denominator for common stock: Weighted average shares outstanding used for basic earnings per share.................. 6,486,959 6,545,343 6,640,834 6,620,952 6,685,164 Effect of dilutive securities: Stock options............. -- -- 2,433,095 -- -- Common stock warrants..... -- -- 489,222 -- -- ---------- ---------- ---------- ---------- ---------- Weighted average shares outstanding used for diluted earnings per share.................. 6,486,959 6,545,343 9,563,151 6,620,952 6,685,164 ========== ========== ========== ========== ==========
F-13 82 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Total potential common equivalent shares consist of 3,547,916 stock options outstanding with a weighted average exercise price of $1.43 per share and 489,222 common stock warrants exercisable at $0.06 per share as of December 31, 1998. (Unaudited) Total potential common equivalent shares consist of 3,919,479 stock options outstanding with a weighted average exercise price of $2.19 per share and 489,222 common stock warrants exercisable at $0.06 per share as of March 31, 1999.
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ------------------------------------ ----------------------------- 1996 1997 1998 1998 1999 ---------- ---------- ---------- ------------- ------------- (UNAUDITED) Numerator for Class P stock (in thousands): Yield earned by Class P stock.................. $ 586 $ 660 $ 742 $ 177 $ 200 Income (loss) attributable to Class P stock....... (251) (246) 625 (105) (61) ---------- ---------- ---------- ---------- ---------- $ 335 $ 414 $ 1,367 $ 72 $ 139 ========== ========== ========== ========== ==========
Basic and diluted earnings per share of Class P stock are the same for all periods presented since there are no potentially dilutive securities. 6. CLASS P COMMON STOCK AND COMMON STOCK In connection with its initial capitalization, OneSource issued 725,274 shares of Class P stock and 6,527,466 shares of common stock at $4.91 per share and $0.06 per share, respectively. The holders of the Class P stock, as a separate class, are entitled to receive first all or a portion of any distribution, as defined, until the "preference amount" and the original issuance cost has been paid in full. The preference amount is 12% compounded quarterly. After all such payments have been made, the holders of the Class P stock and of the common stock shall share pro rata in the remaining portion of the distribution, as a single class. As of December 31, 1998, no dividends on either the Class P stock or the common stock have been declared or paid, and no payments of the aggregate yield have been made to the Class P stockholders. As a result, the Class P stock is stated at its original issuance cost of $4.91 per share. As of December 31, 1998, the liquidation preference of these shares was $6,656,000. As of March 31, 1999 (unaudited), the liquidation preference of these shares was $6,869,000. All holders of Class P stock and all holders of common stock are entitled to one vote per share on all matters to be voted upon by OneSource's stockholders. The Class P stock is not convertible into common stock without the prior agreement of the Class P stockholders and OneSource. On April 13, 1999, OneSource authorized a 2.035 for one stock split on common stock and Class P common stock. As a result, all common stock and Class P common stock share data F-14 83 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) included in the accompanying consolidated financial statements and notes have been retroactively restated for this split. 7. WARRANTS In connection with the Note agreement (Note 4), OneSource issued a warrant exercisable at $0.06 per share for 407,000 shares of OneSource's common stock. The warrant is currently exercisable and expires on September 8, 2002. In connection with the credit agreement (Note 4), OneSource also issued a warrant to the Term Loan holder which entitles the holder to purchase 82,222 shares of OneSource's common stock at $0.06 per share. The warrant is currently exercisable and expires on the later of September 8, 2003 or five years from the effective date of an initial public offering of OneSource's common stock. The fair value of these warrants at the date of issuance in 1993 was determined to be $10,000 in the aggregate. OneSource has reserved 489,222 shares of common stock for issuance upon exercise of the above warrants. 8. STOCK PLANS The 1993 Stock Purchase and Option Plan (the "1993 Plan") provides for the grant of incentive stock options and non-qualified stock options for the purchase of up to an aggregate of 4,273,500 shares of OneSource's common stock by employees, directors, consultants and advisors of OneSource. The Board of Directors determines the term of each option, option price, number of shares for which each option is granted, whether restrictions will be imposed on the shares subject to options, and the vesting schedule of each option. The exercise price for incentive stock options granted may not be less than the fair value per share of the underlying common stock on the date granted as determined by the Board of Directors (not less than 110% of the fair value for options granted to holders of more than 10% of the voting stock of OneSource). Additionally, the term of the options cannot exceed ten years (five years for options granted to holders of more than 10% of the voting stock of OneSource). The options generally vest over a four-year period. In February 1999, the Board of Directors of OneSource approved the 1999 Stock Option and Incentive Plan (the "1999 Stock Option Plan") to be effective upon the closing of OneSource's initial public offering. The 1999 Stock Option Plan provides for the grant of stock-based awards to employees, officers and directors of, and consultants or advisors to, OneSource. A total of 800,000 shares of common stock are authorized for issuance upon the exercise of options or other awards granted under the 1999 Stock Option Plan. In February 1999, the Board of Directors of OneSource approved the 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan"), to be effective upon the closing of OneSource's initial public offering. The 1999 Purchase Plan provides for the issuance of a maximum of 100,000 shares of common stock. F-15 84 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Transactions under the 1993 Plan during the years ended December 31, 1996, 1997 and 1998 are summarized as follows:
WEIGHTED- NUMBER OF AVERAGE SHARES EXERCISE PRICE --------- -------------- Outstanding--December 31, 1995............... 2,813,908 $1.07 Granted (weighted average fair value of $0.12).................................. 1,263,125 1.73 Exercised.................................. (30,476) 0.12 Forfeited.................................. (174,758) 0.68 --------- Outstanding--December 31, 1996............... 3,871,799 1.31 Granted (weighted average fair value of $0.12).................................. 294,261 1.73 Exercised.................................. (90,387) 0.19 Forfeited.................................. (469,149) 1.47 --------- Outstanding--December 31, 1997............... 3,606,524 1.35 Granted (weighted average fair value of $0.82).................................. 204,925 2.18 Exercised.................................. (90,354) 0.27 Forfeited.................................. (173,179) 1.34 --------- Outstanding--December 31, 1998............... 3,547,916 1.43 =========
The following table summarizes information about stock options outstanding at December 31, 1998:
WEIGHTED- AVERAGE REMAINING NUMBER OF NUMBER CONTRACTUAL OPTIONS EXERCISE PRICE OF OPTIONS LIFE IN YEARS EXERCISABLE -------------- ---------- ------------- ----------- $0.12............................. 754,064 4.9 744,755 1.37............................. 1,375,457 6.4 1,011,293 2.19............................. 1,418,395 6.7 974,409 --------- --------- 3,547,916 6.2 2,730,457 ========= =========
As of December 31, 1996 and 1997, 1,884,111 and 2,472,240 options were exercisable, respectively, under the 1993 Plan. As of December 31, 1998, there were 514,367 shares of common stock available for grant to employees under the 1993 Plan. The fair value of each option grant is estimated on the date of grant using the minimum value method with the following assumptions for grants in 1996, 1997 and 1998: dividend yield of 0.0% for all years; risk-free interest rates of 6.4%, 6.2% and 5.2% for 1996, 1997 and 1998, respectively; and a weighted-average expected option term of 5 years for all years. F-16 85 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Compensation expense has been recognized for OneSource's stock option plan under APB No. 25. Had compensation cost been determined based on the fair value of the options at the grant date consistent with the provisions of SFAS No. 123, OneSource's net income (loss) and earnings (loss) per share would have been increased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ---------------------------- 1996 1997 1998 ------- ------- ------ Net income (loss) (in thousands): As reported.................................. $(1,933) $(1,833) $6,988 Pro-forma.................................... (2,006) (1,890) 6,909 Basic and diluted earnings per Class P common share: As reported.................................. 0.47 0.57 1.91 Pro-forma.................................... 0.45 0.57 1.89 Basic earnings per common share: As reported.................................. (0.35) (0.34) 0.85 Pro-forma.................................... (0.36) (0.35) 0.84 Diluted earnings per common share: As reported.................................. (0.35) (0.34) 0.59 Pro-forma.................................... (0.36) (0.35) 0.58
Because options vest over several years and additional option grants are expected to be made in future years, results of operations for future years may be materially different if the provisions of SFAS No. 123 are applied. In conjunction with the sale of the CD-Insurance division, OneSource modified the terms of 226,601 stock options held by terminated employees. In accordance with APB No. 25, compensation expense of $295,000 was recorded as a reduction of the gain on the sale of the insurance division in the year ended December 31, 1998. During 1998, 203,093 stock options were granted with an exercise price of $2.19 per share and 1,832 stock options were granted with an exercise price of $1.37 per share; these exercise prices were below the estimated fair market value of the common stock at the date of grant. Unearned compensation of $45,000 was recorded, in accordance with APB No. 25, and will be amortized over the related vesting period. Related compensation expense of $6,000 was recorded during the year ended December 31, 1998. Options issued during 1996 and 1997 were granted with exercise prices above the estimated fair market value of the common stock at the date of grant. (Unaudited) During the three months ended March 31, 1999, 40,700 stock options were granted with an exercise price of $2.19 per share and 30,525 stock options were granted with an exercise price of $5.90 per share; these exercise prices were below the estimated fair market value of the common F-17 86 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) stock at the date of grant. Unearned compensation of $438,000 was recorded in accordance with APB No. 25, and will be amortized over the related vesting period of four years. Related compensation expense of $10,000 was recorded during the three months ended March 31, 1999. 9. INCOME TAXES Components of the income (loss) before income taxes and extraordinary gain and of the current provision for income taxes are as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1996 1997 1998 ------- ------- ------ (IN THOUSANDS) Income (loss) before income taxes and extraordinary gain: Domestic..................................... $(1,976) $(2,124) $7,204 Foreign...................................... (350) 291 34 ------- ------- ------ $(2,326) $(1,833) $7,238 ======= ======= ====== Current provision for income taxes: Federal...................................... $ -- $ -- $ 200 State........................................ -- -- 45 Foreign...................................... -- -- 5 ------- ------- ------ $ -- $ -- $ 250 ======= ======= ======
OneSource had no deferred provision for income taxes in each of the years ended December 31, 1996, 1997 and 1998 due to the offsetting effects of the valuation allowance on its net deferred tax assets. There was no income tax effect related to the extraordinary gain on early extinguishment of debt in 1996. Provision has not been made for US or additional foreign taxes on undistributed earnings of foreign subsidiaries as those earnings have been permanently reinvested. Such taxes, if any, are not expected to be significant. F-18 87 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Income taxes computed using the federal statutory income tax rate differ from OneSource's effective tax rate primarily due to the following:
YEAR ENDED DECEMBER 31, ------------------------- 1996 1997 1998 ----- ----- ------- (IN THOUSANDS) Income tax expense (benefit) at US federal statutory tax rate............................. $(657) $(623) $ 2,461 State income taxes, net of federal tax effect.... (115) (125) 508 Permanent items.................................. 79 20 21 Other............................................ 20 (4) 36 Change in deferred tax asset valuation allowance...................................... 673 732 (2,776) ----- ----- ------- Provision for income taxes....................... $ -- $ -- $ 250 ===== ===== =======
Components of OneSource's deferred tax assets and liabilities are as follows:
DECEMBER 31, ------------------ 1997 1998 ------- ------- (IN THOUSANDS) Deferred tax assets: Net operating loss carryforwards.............. $ 3,394 $ 238 Depreciation.................................. 378 537 Accrued expenses.............................. 222 623 Deferred revenues............................. 2,159 1,342 Equity compensation........................... -- 123 Miscellaneous................................. 120 133 ------- ------- Gross deferred tax asset................... 6,273 2,996 Less: valuation allowance..................... (4,544) (1,768) ------- ------- Total deferred tax assets.................. 1,729 1,228 ------- ------- Deferred tax liabilities: Prepaid expenses.............................. 1,068 513 Deferred royalties............................ 253 252 Amortization of debt discount................. 163 217 Capitalized software development costs........ 126 127 Tax operating leases.......................... 119 119 ------- ------- Total deferred tax liabilities............. 1,729 1,228 ------- ------- Net deferred tax assets......................... $ -- $ -- ======= =======
F-19 88 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Realization of OneSource's net deferred tax assets is contingent upon the generation of future taxable income. Due to the uncertainty of realization of these tax benefits, OneSource has provided a valuation allowance for the full amount of its net deferred tax assets. During 1998, OneSource utilized $8,000,000 of net operating loss carryforwards. At December 31, 1998, OneSource had net operating loss carryforwards of $575,000 for foreign tax purposes which do not expire. Under the provisions of the Internal Revenue Code, if certain substantial changes in OneSource's ownership should occur, the amount of net operating loss carryforwards which could be utilized annually to offset future taxable income and income tax liability may be limited. The amount of any annual limitation is determined based upon OneSource's value prior to an ownership change. 10. SALE OF PRODUCT LINES In June 1997, OneSource sold its CD Rom banking product line for $650,000 in cash. In connection with the sale, OneSource entered a non-compete agreement for five years. As a result of the sale, OneSource recorded a gain of $501,000 which is net of expenses of $149,000 incurred in conjunction with the sale. No assets or liabilities with recorded net book values were transferred in connection with this product line sale. In May 1998, OneSource sold its CD-Insurance division for $11,000,000 in cash and entered a software license agreement for $4,000,000 to be received in equal quarterly installments for two years commencing January 1, 1999. In connection with the sale, OneSource also entered a non-compete agreement for five years. As a result of the sale, OneSource recorded a gain of $12,797,000 which includes: (i) the recognition of $3,124,000 of deferred revenues and $595,000 of deferred subscription costs based upon the assumption by the buyer of all obligations to service the existing subscriber base of the insurance division, (ii) $530,000 of employee severance costs and (iii) $202,000 of expenses associated with the sale. Payments pertaining to the software license agreement will be recognized in other income as support services are performed and payments become due in accordance with the agreement. During the three months ended March 31, 1999 (unaudited), OneSource recorded $500,000 of other income related to the software license agreement. 11. EMPLOYEE BENEFIT PLANS After three months of service, OneSource employees are eligible to participate in a tax deferred savings plan (the "Savings Plan") under Section 401(k) of the Internal Revenue Code. OneSource matches 25% of the first 6% contributed by the employee, and the employee becomes fully vested in OneSource's matching contribution after three years of service. OneSource's contributions to the Savings Plan totaled $122,000, $116,000 and $120,000 for the years ended December 31, 1996, 1997 and 1998, respectively. 12. RELATED PARTY TRANSACTIONS At December 31, 1997 and 1998, OneSource had accounts receivable of $117,000 and $335,000, respectively, due from two stockholders. OneSource recognized revenue of $200,000, F-20 89 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $292,000 and $318,000 in the years ended December 31, 1996, 1997, and 1998 respectively, from these parties. Management fees paid to a stockholder and an affiliate of another stockholder totaling $200,000 for each of the years ended December 31, 1996, 1997 and 1998 are included in general and administrative expenses. 13. COMMITMENTS Leases OneSource leases facilities and certain equipment under various noncancellable operating lease agreements. Total rent expense under such leases was $1,271,000, $1,191,000 and $1,146,000 for the years ended December 31, 1996, 1997, and 1998, respectively. Future minimum lease commitments under all noncancellable capital and operating leases at December 31, 1998 are as follows:
CAPITAL OPERATING LEASES LEASES ------- --------- (IN THOUSANDS) 1999............................................... $490 $ 920 2000............................................... 207 231 2001............................................... 80 223 2002............................................... -- 221 2003............................................... -- 68 ---- ------ Total minimum lease payments....................... 777 $1,663 ====== Less: amount representing interest................. 73 ---- Present value of net minimum lease payments, including current maturities of $471............. $704 ====
In January 1999, OneSource entered into a five-year noncancellable operating lease for a new operating facility. Minimum yearly rental payments will be $655,000, commencing in June 1999. Pursuant to the lease, OneSource entered into a $415,000 irrevocable letter of credit collateralized by a certificate of deposit. Restricted Time Deposit In connection with a facility lease, OneSource is required to maintain, on behalf of the landlord, an irrevocable letter of credit with a bank in the amount of $100,000 over the term of the lease. In addition, OneSource was required to maintain a certificate of deposit in an equal amount as security for the letter of credit. F-21 90 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14. GEOGRAPHIC INFORMATION Revenue was distributed geographically as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 1996 1997 1998 ------- ------- ------- (IN THOUSANDS) United States......................... $25,294 $24,193 $23,428 United Kingdom........................ 5,140 6,191 7,000 ------- ------- ------- $30,434 $30,384 $30,428 ======= ======= =======
Substantially all of OneSource's identifiable assets are located in the United States. F-22 91 [The graphic contains the OneSource logo in the center of the page. Reading from the top right diagonally to the bottom left of the page is the following text: Turning World Class Information into Integrated Solutions For Demanding Business Professionals Worldwide. The top left of the page depicts the names and logos of the following OneSource information providers: The Investext Group; Market Guide; Standard & Poor's; Comtex; Financial Times; Corp Tech; WorldScope Disclosure; Hoover's Inc.; Reuters; and Dun & Bradstreet. The bottom half of the page depicts the following OneSource customers by name and logo displayed according to the following industry sectors noted in the text: Financial Institutions: Credit Suisse; Merrill Lynch; American Express: Bank of America. Professional Services: Bain & Company; KMPG; Deloitte Touche Tohmatsu; Ernst & Young. High Tech: Oracle; SAP; Platinum; IBM. Leading Corporations: Boeing; MCI Worldcom; BT; Nortel Networks.] 92 - ------------------------------------------------------ - ------------------------------------------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT WHICH IS SET FORTH IN THIS PROSPECTUS. WE ARE OFFERING TO SELL SHARES OF COMMON STOCK AND SEEKING OFFERS TO BUY SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THE PROSPECTUS OR OF ANY SALE OF COMMON STOCK. --------------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary................. 3 Risk Factors....................... 7 Reclassification................... 18 Use of Proceeds.................... 19 Dividend Policy.................... 19 Capitalization..................... 20 Dilution........................... 21 Selected Consolidated Financial Data............................. 22 Management's Discussion and Analysis of Financial Condition and Results of Operations........ 25 Business........................... 39 Management......................... 49 Certain Transactions............... 55 Principal and Selling Stockholders..................... 56 Description of Capital Stock....... 58 Shares Eligible for Future Sale.... 61 Underwriting....................... 64 Legal Matters...................... 66 Experts............................ 67 Additional Information............. 67 Index to Consolidated Financial Statements....................... F-1
--------------------------- Until , 1999 (25 days after the date of this prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ 3,636,000 SHARES ONE SOURCE LOGO COMMON STOCK ------------------------ PROSPECTUS , 1999 ------------------------ WILLIAM BLAIR & COMPANY U.S. BANCORP PIPER JAFFRAY ADAMS, HARKNESS & HILL, INC. - ------------------------------------------------------ - ------------------------------------------------------ 93 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Estimated expenses payable in connection with the sale of the common stock in this offering are as follows: SEC registration fee........................................ $ 13,949 NASD filing fee............................................. 4,550 Nasdaq National Market listing fee.......................... 49,000 Printing and engraving expenses............................. 125,000 Legal fees and expenses..................................... 270,000 Accounting fees and expenses................................ 275,000 Transfer agent and registrar fees and expenses.............. 4,450 Miscellaneous............................................... 8,051 -------- Total.................................................. $750,000 ========
- ------------ OneSource will bear all of the expenses shown above. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Delaware General Corporation Law, the Company's charter and by-laws provide for indemnification of the Company's directors and officers for liabilities and expenses that they may incur in such capacities. In general, directors and officers are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful. Reference is made to the Company's corporate charter and by-laws filed as Exhibits 3.01 and 3.02 hereto, respectively. The Underwriting Agreement provides that the Underwriters are obligated, under certain circumstances, to indemnify directors, officers and controlling persons of the Company against certain liabilities, including liabilities under the Securities Act. Reference is made to the form of Underwriting Agreement filed as Exhibit 1.01 hereto. The Company intends to apply for a directors' and officers' insurance policy. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In the three years preceding the filing of this registration statement, the Company has issued the following securities that were not registered under the Securities Act: Since January 1, 1996, the Company has issued options to purchase an aggregate of 2,163,408 shares of common stock under the 1993 Plan, exercisable at a weighted average price of $3.09 per share. From January 1, 1996 through December 31, 1998, options to purchase 211,217 shares had been exercised. The following table lists options granted between January 1, 1996 and March 1, 1999.
DATE SHARES PRICE ---- ------- ----- November 12, 1996........................................... 693,325 $1.37 November 12, 1996........................................... 569,800 2.19 April 17, 1997.............................................. 1,221 1.37 July 17, 1997............................................... 2,035 1.37
II-1 94
DATE SHARES PRICE ---- ------- ----- October 16, 1997............................................ 2,035 1.37 November 12, 1997........................................... 16,280 1.37 November 17, 1997........................................... 142,450 1.37 November 17, 1997........................................... 130,240 2.19 May 6, 1998................................................. 1,832 1.37 May 6, 1998................................................. 203,093 2.19 February 26, 1999........................................... 40,700 2.19 February 26, 1999........................................... 30,525 5.90 February 26, 1999........................................... 329,874 9.93
No underwriters were involved in the foregoing sales of securities. Such sales were made in reliance upon the exemption provided by Section 4(2) of the Securities Act for transactions not involving a public offering and/or Rule 701 under the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS:
EXHIBIT NO. EXHIBIT ------- ------- 1.01 Form of Underwriting Agreement 3.01 Form of Second Amended and Restated Certificate of Incorporation of the Company 3.02+ Amended and Restated Certificate of Incorporation of the Company 3.03+ By-laws, as amended and restated, of the Company 3.04 Second Amended and Restated By-Laws of the Company 3.05 Amendment to Amended and Restated Certificate of Incorporation 4.01 Specimen certificate representing the common stock 5.01 Opinion of Testa, Hurwitz & Thibeault, LLP 10.01+ 1993 Stock Purchase and Option Plan 10.02 1999 Stock Option and Incentive Plan 10.03 1999 Employee Stock Purchase Plan 10.04+ Registration Agreement dated September 8, 1993 10.05+ Stock Purchase Warrant issued to Lotus Development Corporation dated September 8, 1993 10.06+ Warrant Agreement with Silicon Valley Bank dated September 8, 1993 10.07+ Subordinated Promissory Note issued to Lotus Development Corporation dated September 8, 1993 10.08+ Stock Purchase Agreement dated September 8, 1993 10.09+ Form of Management Stock Purchase Agreement 10.10+ Stock Purchase Agreement dated August 3, 1993, by and among Lotus Development Corporation, Datext, Inc. and Datext Holding Corporation 10.11+ Lease dated July 1, 1998 by and between OneSource and CambridgePark Two Limited Partnership 10.12+ Lease dated January 20, 1999 by and between OneSource and 300 Baker Avenue Associates, Limited Partnership 10.13+ Agreement and Plan of Merger dated February 26, 1999 by and between OneSource Information Services, Inc. and OneSource Holding Corporation 10.14 Stockholders Agreement dated September 8, 1993 10.15 Amendment No. 1 to Stockholders Agreement dated April 21, 1999
II-2 95
EXHIBIT NO. EXHIBIT ------- ------- 10.16 Form of Fee Termination Agreement 10.17 Stock Redemption Agreement dated April 21, 1999 21.01+ Subsidiaries of the Company 23.01 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.01) 23.02 Consent of PricewaterhouseCoopers LLP 23.03 Consent from Simba Information Inc. 24.01+ Power of Attorney 27.01 Financial Data Schedule as of December 31, 1998 27.02 Financial Data Schedule as of March 31, 1999
- ------------ + previously filed (b) FINANCIAL STATEMENT SCHEDULES: Schedule II -- Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are either not applicable or the required information is included in the Consolidated Financial Statements and Notes thereto, and therefore have been omitted. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to provisions described in Item 14 above, or otherwise, the Company 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 Company of expenses incurred or paid by a director, officer or controlling person of the Company 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 Company 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 Company hereby undertakes: (1) 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; (2) that for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and (3) that 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. II-3 96 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Cambridge, Massachusetts on this 21st day of April, 1999. OneSource Information Services, Inc. By: /s/ DANIEL J. SCHIMMEL ----------------------------------- Daniel J. Schimmel President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE --------- -------- ---- President and Chief Executive April 21, 1999 Officer and Director (principal executive officer) /s/ DANIEL J. SCHIMMEL - ------------------------------------------ Daniel J. Schimmel Vice President, Finance and April 21, 1999 Administration (principal financial officer) /s/ ROY D. LANDON - ------------------------------------------ Roy D. Landon * Director April 21, 1999 - ------------------------------------------ Martin Kahn * Director April 21, 1999 - ------------------------------------------ David Dominik * Director April 21, 1999 - ------------------------------------------ Gregg Newmark *By: /s/ Daniel J. Schimmel --------------------------------------- Daniel J. Schimmel Attorney-in-Fact
II-4 97 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS ONESOURCE INFORMATION SERVICES, INC.
BALANCE AT BEGINNING OF CHARGED TO BALANCE AT DESCRIPTION PERIOD OPERATIONS DEDUCTIONS(1) END OF PERIOD - ----------- ------------ ---------- -------------- ------------- Year ended December 31, 1996 Reserves and allowances deducted from asset accounts Allowance for doubtful accounts..................... $161,000 49,000 49,000 $161,000 Year ended December 31, 1997 Reserves and allowances deducted from asset accounts Allowance for doubtful accounts..................... $161,000 72,000 23,000 $210,000 Year ended December 31, 1998 Reserves and allowances deducted from asset accounts Allowance for doubtful accounts..................... $210,000 120,000 30,000 $300,000
- ------------ (1) Doubtful accounts written off, net of recoveries S-1 98 EXHIBIT INDEX
EXHIBIT NO. EXHIBIT ------- ------- 1.01 Form of Underwriting Agreement 3.01 Form of Second Amended and Restated Certificate of Incorporation of the Company 3.02+ Amended and Restated Certificate of Incorporation of the Company 3.03+ By-laws, as amended and restated, of the Company 3.04 Second Amended and Restated By-Laws of the Company 3.05 Amendment to Amended and Restated Certificate of Incorporation 4.01 Specimen certificate representing the common stock 5.01 Opinion of Testa, Hurwitz & Thibeault, LLP 10.01+ 1993 Stock Purchase and Option Plan 10.02 1999 Stock Option and Incentive Plan 10.03 1999 Employee Stock Purchase Plan 10.04+ Registration Agreement dated September 8, 1993 10.05+ Stock Purchase Warrant issued to Lotus Development Corporation dated September 8, 1993 10.06+ Warrant Agreement with Silicon Valley Bank dated September 8, 1993 10.07+ Subordinated Promissory Note issued to Lotus Development Corporation dated September 8, 1993 10.08+ Stock Purchase Agreement dated September 8, 1993 10.09+ Form of Management Stock Purchase Agreement 10.10+ Stock Purchase Agreement dated August 3, 1993, by and among Lotus Development Corporation, Datext, Inc. and Datext Holding Corporation 10.11+ Lease dated July 1, 1998 by and between OneSource and CambridgePark Two Limited Partnership 10.12+ Lease dated January 20, 1999 by and between OneSource and 300 Baker Avenue Associates, Limited Partnership 10.13+ Agreement and Plan of Merger dated February 26, 1999 by and between OneSource Information Services, Inc. and OneSource Holding Corporation 10.14 Stockholders Agreement dated September 8, 1993 10.15 Amendment No. 1 to Stockholders Agreement dated April 21, 1999 10.16 Form of Fee Termination Agreement 10.17 Stock Redemption Agreement dated April 21, 1999 21.01+ Subsidiaries of the Company 23.01 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.01) 23.02 Consent of PricewaterhouseCoopers LLP 23.03 Consent from Simba Information Inc. 24.01+ Power of Attorney 27.01 Financial Data Schedule as of December 31, 1998 27.02 Financial Data Schedule as of March 31, 1999
- ------------ + previously filed EX-1.01 2 UNDERWRITING AGREEMENT 1 EXHIBIT 1.01 ONESOURCE INFORMATION SERVICES, INC. _____ Shares Common Stock(1) UNDERWRITING AGREEMENT _______________, 1999 William Blair & Company, L.L.C. U.S. Bancorp Piper Jaffray Inc. Adams, Harkness & Hill, Inc. As Representatives of the Several Underwriters Named in Schedule A c/o William Blair & Company, L.L.C. 222 West Adams Street Chicago, Illinois 60606 Ladies and Gentlemen: SECTION 1. Introductory. OneSource Information Services, Inc., a Delaware corporation (the "Company"), as of the First Closing Date (hereinafter defined) but excluding the transactions contemplated hereby, will have an authorized capital stock consisting of ______ shares of Preferred Stock, $.01 par value, of which no shares will be outstanding as of such date and ________ shares of Common Stock, $.01 par value ("Common Stock"), of which ____________ shares will be outstanding as of such date. The Company proposes to issue and sell 1,750,000 shares of its authorized but unissued Common Stock, and certain stockholders of the Company (collectively referred to as the "Venture Capital Selling Stockholders" and named in Schedule B-1) propose to sell ______ shares of the Company's issued and outstanding Common Stock to the several underwriters ("Underwriters") named in Schedule A, as it may be amended by the Pricing Agreement (hereinafter defined), who are acting severally and not jointly. Collectively, such total of ___________ shares of Common Stock proposed to be sold by the Company and the Venture Capital Selling Stockholders is hereinafter referred to as the "Firm Shares." In addition, the Venture Capital Selling Stockholders and certain other stockholders of the Company (collectively referred to as the "Management Selling Stockholders" and named in Schedule B-2, and together with the Venture Capital Selling Stockholders being collectively referred to as the "Selling Stockholders" propose to grant to the Underwriters an option to purchase up to an aggregate of __________ additional shares of Common Stock ("Option Shares") as provided in Section 5 hereof. The Firm Shares and, to the extent such option is exercised, the Option Shares, are hereinafter collectively referred to as the "Shares." You have advised the Company and the Selling Stockholders that the Underwriters propose to make a public offering of their respective portions of the Shares as soon as you deem advisable after the registration statement hereinafter referred to becomes effective, if it has not yet become effective, and the Pricing Agreement (hereinafter defined) has been executed and delivered. - ---------------- (1)Plus an option to acquire up to __ additional shares to cover over-allotments. 2 Prior to the purchase and public offering of the Shares by the several Underwriters, the Company, the Selling Stockholders and the Representatives, acting on behalf of the several Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto ("Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company, the Selling Stockholders and the Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Shares will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Company and the Underwriters agree that up to _____ Shares to be purchased by the Underwriters ("Reserved Shares") shall be reserved for sale by the Underwriters to certain eligible employees and other persons, subject to the terms of this Agreement, the Pricing Agreement, the applicable rules, regulations and interpretations of the National Association of Securities Dealers, Inc. ("NASD") and all other applicable laws, rules and regulations. To the extent that such Reserved Shares are not orally confirmed for purchase by such eligible employees and other persons by the end of the first business day after the date of this Agreement, such Reserved Shares may be offered to the public as part of the public offering contemplated hereby. The Company and each of the Selling Stockholders hereby confirm their agreements with the Underwriters as follows: SECTION 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Underwriters that: (a) A registration statement on Form S-1 (File No. 333-_______) and a related preliminary prospectus with respect to the Shares have been prepared and filed with the Securities and Exchange Commission ("Commission") by the Company in conformity with the requirements of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "1933 Act;" unless indicated to the contrary, all references herein to specific rules are rules promulgated under the 1933 Act); and the Company has so prepared and has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof and will file such additional amendments thereto and such amended prospectuses as may hereafter be required. There have been or will promptly be delivered to you three signed copies of such registration statement and amendments, three copies of each exhibit filed therewith, and conformed copies of such registration statement and amendments (but without exhibits) and copies of the related preliminary prospectus or prospectuses and final forms of prospectus for each of the Underwriters. Such registration statement (as amended, if applicable) at the time it becomes effective and the prospectus constituting a part thereof at such time (including the information, if any, deemed to be part thereof pursuant to Rule 430A(b) and/or Rule 434), 2 3 as from time to time amended or supplemented, are hereinafter referred to as the "Registration Statement," and the "Prospectus," respectively, except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement became or becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b)), the term Prospectus shall refer to such revised prospectus from and after the time it was provided to the Underwriters for such use. If the Company elects to rely on Rule 434 of the 1933 Act, all references to "Prospectus" shall be deemed to include, without limitation, the form of prospectus and the term sheet, taken together, provided to the Underwriters by the Company in accordance with Rule 434 ("Rule 434 Prospectus"). Any registration statement (including any amendment or supplement thereto or information which is deemed part thereof) filed by the Company under Rule 462(b) ("Rule 462(b) Registration Statement") shall be deemed to be part of the "Registration Statement" as defined herein, and any prospectus (including any amendment or supplement thereto or information which is deemed part thereof) included in such registration statement shall be deemed to be part of the "Prospectus" as defined herein, as appropriate. The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder are hereinafter collectively referred to as the "Exchange Act." (b) The Commission has not issued any order preventing or suspending the use of any preliminary prospectus, and each preliminary prospectus has conformed in all material respects with the requirements of the 1933 Act and, as of its date, did not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading; and when the Registration Statement became or becomes effective, and at all times subsequent thereto, up to the First Closing Date or the Second Closing Date (as such terms are hereinafter defined), as the case may be, the Registration Statement, including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if applicable, and the Prospectus and any amendments or supplements thereto, contained or will contain all statements that are required to be stated therein in accordance with the 1933 Act and in all material respects conformed or will in all material respects conform to the requirements of the 1933 Act, and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, included or will include any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; provided, however, that the Company makes no representation or warranty as to information contained in or omitted from any preliminary prospectus, the Registration Statement, the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for use in the preparation thereof. (c)(i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own or lease its properties and conduct its business as described in the 3 4 Prospectus; the Company is duly qualified to transact business as a foreign corporation under the corporation law of, and is in good standing as such in, each jurisdiction where the ownership or leasing of property, having an office or the conduct of its business requires such qualification, except in any such case where the failure to so qualify or be in good standing would not have a material adverse effect upon the condition (financial or otherwise) or results of operations of the Company and its subsidiary, OneSource Information Services Limited ("OneSource U.K."), taken as a whole (a "Material Adverse Effect"); and no proceeding of which the Company has knowledge has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority, qualification or good standing. (ii) The Merger Agreement (the "Merger Agreement") between the Company and its prior wholly owned subsidiary, OneSource Information Services, Inc. (the "Operating Subsidiary"), has been duly authorized, executed and delivered by all parties thereto, and constitutes the legal, valid and binding obligation of each of the parties thereto, enforceable in accordance with its terms. The closing under the Merger Agreement has occurred in accordance with its terms, the certificate of merger relating thereto has been duly filed with the State of Delaware, and all of the business and assets previously held by the Operating Subsidiary have been transferred to the Company. As used in Sections 2(c)(i), (k), (s), (t), (u) and (v), the term "Company" shall mean (i) the Company and (ii) with respect to any period or portion thereof prior to the consummation of the Merger Agreement, the Operating Subsidiary. (iii) OneSource U.K. has been duly incorporated and is validly existing as a corporation in good standing under the laws of the United Kingdom, with corporate power and authority to own or lease its properties and conduct its business as described in the Prospectus; OneSource U.K. is duly qualified to transact business as a foreign corporation under the corporation law of, and is in good standing as such in, each jurisdiction where the ownership or leasing of property, having an office, or the conduct of its business requires such qualification, except in any such case where the failure to so qualify or be in good standing would not have a Material Adverse Effect; and no proceeding of which the Company has knowledge has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority, qualification or good standing. (d) Except as disclosed in the Registration Statement, the Company owns directly 100 percent of the issued and outstanding capital stock of OneSource U.K., free and clear of any claims, liens, encumbrances or security interests and all of such capital stock has been duly authorized and validly issued and is fully paid and nonassessable. The Company does not own any capital stock or other equity securities or interests in any entity other than OneSource U.K. (e) The issued and outstanding shares of each class of capital stock of the Company as set forth in the Prospectus under the caption "Capitalization" have been duly authorized and validly issued, are fully paid and nonassessable, and conform to the description 4 5 thereof contained in the Prospectus, and, except as disclosed in the Prospectus, there are no options, rights or warrants for the purchase from the Company of Common Stock, or securities convertible into Common Stock, and there are no agreements to which the Company is a party with respect thereto. (f) The Shares to be sold by the Company have been duly authorized and when issued and delivered by the Company and paid for by the Underwriters pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and will conform to the description thereof contained in the Prospectus. (g) The execution, delivery and performance by the Company of this Agreement and the Pricing Agreement have been duly authorized by all necessary corporate action and will not violate any provision of the Company's charter or bylaws and will not conflict with, constitute a breach of, or default under, or violate any provision of any agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument to which the Company or OneSource U.K. is a party or by which the Company or OneSource U.K. is or may be bound or to which the property or assets of either of them is subject, or any statute, law, rule, regulation, ruling, judgment, injunction, order or decree applicable to the Company or OneSource U.K. or to either of their respective properties or assets. No consent, approval, authorization or other order of, or filing or registration with, any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Agreement or the Pricing Agreement by the Company or the consummation by the Company of the transactions contemplated herein or therein, except for compliance with the 1933 Act and blue sky laws applicable to the public offering of the Shares by the several Underwriters and clearance of such offering with the NASD. This Agreement has been duly executed and delivered by the Company. (h) The accountants who have expressed their opinions with respect to certain of the financial statements and schedules included in the Registration Statement are independent accountants as required by the 1933 Act. (i) The consolidated financial statements and schedule of the Company included in the Registration Statement present fairly the consolidated financial position of the Company as of the respective dates of such financial statements, and the consolidated statements of operations, changes in stockholders' deficit and cash flows of the Company for the respective periods covered thereby, all in conformity with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed in the Prospectus; and the supporting schedule included in the Registration Statement presents fairly the information required to be stated therein. The financial information set forth in the Prospectus under "Selected Consolidated Financial Data" presents fairly on the basis stated in the Prospectus, the information set forth therein. (j) Neither the Company nor OneSource U.K. is in violation of its charter or in default under any consent decree, or in default with respect to any material provision of any lease, loan agreement, franchise, license, permit or other contract obligation to which it is a 5 6 party; and there does not exist any state of facts which constitutes an event of default as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default, in each case, except for defaults which neither singly nor in the aggregate would have a Material Adverse Effect. (k) There are no material legal or governmental proceedings or investigations pending, or to the Company's knowledge, threatened to which the Company or OneSource U.K. is or may be a party or of which material property owned or leased by the Company or OneSource U.K. is or may be the subject, or related to environmental or discrimination matters which are not disclosed in the Prospectus, or which question the validity of this Agreement or the Pricing Agreement or any action taken or to be taken pursuant hereto or thereto. (l) There are no holders of securities of the Company having preemptive rights to purchase Common Stock. All holders of registration rights are participating as Selling Stockholders (and with respect to the amount of Shares agreed to by such holder) or have duly and validly waived such rights with respect to the offering being made by the Prospectus. (m) The Company and OneSource U.K. have good and marketable title to all the properties and assets reflected as owned in the financial statements hereinabove described (or elsewhere in the Prospectus), subject to no claim, lien, mortgage, pledge, charge or encumbrance of any kind except those, if any, reflected in such financial statements (or elsewhere in the Prospectus) or which would not have a Material Adverse Effect. The Company and OneSource U.K. hold their respective leased properties which are material to the Company and OneSource U.K., taken as a whole, under valid and binding leases. (n) The Company has not taken and will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (o) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as contemplated by the Prospectus, the Company and OneSource U.K., taken as a whole, have not incurred any material liabilities or obligations, direct or contingent, nor entered into any material transactions not in the ordinary course of business and there has not been any material adverse change in their condition (financial or otherwise) or results of operations nor any change in their capital stock or material change in their short-term debt or long-term debt. (p) For a period of 180 days after the date of this Agreement, the Company agrees not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of Common Stock or any securities convertible into or 6 7 exchangeable or exercisable for Common Stock, or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise, without the prior written consent of William Blair & Company, L.L.C. Notwithstanding the prior sentence, after the date of this Agreement the Company may issue shares of Common Stock upon the exercise of options outstanding on the date hereof and 90 days after the date of this Agreement the Company may file Registration Statements on Form S-8 with respect to the equity-based incentive plans described in the Prospectus. The Company has obtained similar agreements from each of its executive officers, directors and certain other security-holders. (q) There is no document of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. (r) No relationship, direct or indirect, exists between or among the Company or OneSource U.K., on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or OneSource U.K., on the other hand, which is required to be described in the Prospectus that is not so described. (s) The Company, together with OneSource U.K., owns and possesses all right, title and interest in and to, or has duly licensed from third parties, all patents, patent rights, trade secrets, inventions, know-how (including trade secrets and proprietary or confidential information), trademarks, trade names, copyrights, service marks and other proprietary rights ("Trade Rights") material to the business of the Company and OneSource U.K., as currently conducted, taken as a whole. Neither the Company nor OneSource U.K. has received any notice of infringement, misappropriation or conflict from any third party as to any such material Trade Rights which has not been resolved or disposed of and neither the Company nor OneSource U.K. has infringed, misappropriated or otherwise conflicted with material Trade Rights of any third party, which infringement, misappropriation or conflict would have a Material Adverse Effect. (t) The conduct of the business of each of the Company and OneSource U.K. is in compliance in all respects with applicable federal, state, local and foreign laws and regulations, except where the failure to be in compliance would not have a Material Adverse Effect. (u) All offers and sales of the Company's capital stock prior to the date hereof were at all relevant times exempt from the registration requirements of the 1933 Act and were duly registered with or the subject of an available exemption from the registration requirements of the applicable state securities or blue sky laws. 7 8 (v) The Company has filed all necessary federal and state income and franchise tax returns, and OneSource U.K. has filed all necessary foreign tax returns, and each of the Company and OneSource U.K. has paid all taxes shown as due thereon, and there is no tax deficiency that has been, or to the knowledge of the Company might be, asserted against the Company or OneSource U.K. or any of their respective properties or assets that would or could be expected to have a Material Adverse Effect. (w) The Company has filed a registration statement pursuant to Section 12(g) of the Exchange Act to register the Common Stock thereunder, has filed an application to list the Common Stock (including the Shares) on the Nasdaq National Market, and has received notification that the listing has been approved, subject to notice of issuance or sale of the Shares, as the case may be. (x) The Company is not, and does not intend to conduct its business in a manner in which it would become, an "investment company" as defined in Section 3(a) of the Investment Company Act of 1940, as amended ("Investment Company Act"). SECTION 3. Representations, Warranties and Covenants of the Selling Stockholders. (a) Each Selling Stockholder, severally and not jointly, represents and warrants to, and agrees with, the Company and the several Underwriters that: (i) Such Selling Stockholder has, and on the First Closing Date or the Second Closing Date (as such terms are hereinafter defined), as the case may be, will have, valid marketable title to the Shares proposed to be sold by such Selling Stockholder hereunder on such date and full right, power and authority to enter into this Agreement and the Pricing Agreement and to sell, assign, transfer and deliver such Shares hereunder, free and clear of all voting trust arrangements, stockholder agreements, liens, security interests, encumbrances of any kind, equities, claims and, if applicable, community property rights; and upon delivery by such Selling Stockholder of and payment by the Underwriters for such Shares hereunder, the Underwriters will acquire (x) valid marketable title to such Shares (assuming the Underwriters acquire their interests in such Shares in good faith and without notice of any adverse claims) and (y) such Shares free and clear of all voting trust arrangements, stockholder agreements, liens, security interests, encumbrances of any kind, equities, claims and, if applicable, community property rights. (ii) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or which might be reasonably expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (iii) Such Selling Stockholder has duly executed and delivered a Power of 8 9 Attorney ("Power of Attorney") among the Selling Stockholder and Daniel J. Schimmel and Roy D. Landon (the "Agents"), naming the Agents as such Selling Stockholder's attorneys-in-fact (and, by the execution by any Agent of this Agreement, such Agent hereby represents and warrants that he has been duly appointed as attorney-in-fact by the Selling Stockholders pursuant to the Power of Attorney) for the purpose of entering into and carrying out this Agreement and the Pricing Agreement, and the Power of Attorney has been duly executed by such Selling Stockholder and a copy thereof has been delivered to you. (iv) Such Selling Stockholder has duly executed and delivered a Custody Agreement ("Custody Agreement") with the Company, as custodian ("Custodian"), and has deposited in custody under the Custody Agreement certificates in negotiable form for the Shares to be sold hereunder by such Selling Stockholder, for the purpose of further delivery pursuant to this Agreement. Such Selling Stockholder agrees that the Shares to be sold by such Selling Stockholder on deposit with the Custodian are subject to the interests of the Company, the Underwriters and the other Selling Stockholders, that the arrangements made for such custody, and the appointment of the Agents pursuant to the Power of Attorney, are to that extent irrevocable, and that the obligations of such Selling Stockholder hereunder and under the Power of Attorney and the Custody Agreement shall not be terminated (except as provided in this Agreement, the Power of Attorney or the Custody Agreement) by any act of such Selling Stockholder, by operation of law, whether, in the case of an individual Selling Stockholder, by the death or incapacity of such Selling Stockholder or, in the case of a trust or estate, by the death of the trustee or trustees or the executor or executors or the termination of such trust or estate, or, in the case of a partnership or corporation, by the dissolution, winding-up or other event affecting the legal life of such entity, or by the occurrence of any other event. If any individual Selling Stockholder, trustee or executor should die or become incapacitated, or any such trust, estate, partnership or corporation should be terminated, or if any other event should occur before the delivery of the Shares hereunder, the documents evidencing Shares then on deposit with the Custodian shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such death, incapacity, termination or other event had not occurred, regardless of whether or not the Custodian shall have received notice thereof. Each Agent has been authorized by such Selling Stockholder to execute and deliver this Agreement and the Pricing Agreement and the Custodian has been authorized to receive and acknowledge receipt of the proceeds of sale of the Shares to be sold by such Selling Stockholder against delivery thereof and otherwise act on behalf of such Selling Stockholder. A copy of the Custody Agreement has been delivered to you. (v) The execution, delivery and performance by or on behalf of such Selling Stockholder of this Agreement, the Pricing Agreement, the Power of Attorney and the Custody Agreement will not conflict with, constitute a breach of, or default under, or violate any provision of any agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument to which such Selling Stockholder is a 9 10 party or by which such Selling Stockholder is or may be bound or to which such Selling Stockholder's property or assets is subject, or any statute, law, rule, regulation, ruling, judgment, injunction, order or decree applicable to such Selling Stockholder or to such Selling Stockholder's property or assets. No consent, approval, authorization or other order of, or filing or registration with, any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Agreement, the Pricing Agreement, the Power of Attorney or the Custody Agreement by or on behalf of such Selling Stockholder or the consummation by or on behalf of such Selling Stockholder of the transactions contemplated herein or therein, except for compliance with the 1933 Act and blue sky laws applicable to the public offering of the Shares by the several Underwriters and clearance of such offering with the NASD. This Agreement has been duly executed and delivered by or on behalf of such Selling Stockholder. (vi) Each preliminary prospectus, insofar as it has related to such Selling Stockholder, as of its date, has conformed in all material respects with the requirements of the 1933 Act and, as of its date, did not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading; and when the Registration Statement became or becomes effective, and at all times subsequent thereto, up to the First Closing Date or the Second Closing Date, as the case may be, (1) the Registration Statement and the Prospectus, and any amendments or supplements thereto, insofar as they relate to such Selling Stockholder, contained or will contain all statements that are required to be stated therein in accordance with the 1933 Act and in all material respects conformed or will in all material respects conform to the requirements of the 1933 Act and (2) neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, as it relates to such Selling Stockholder, included or will include any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; provided that neither of clauses (1) or (2) shall have any effect if information has been given by such Selling Stockholder to the Company and the Representatives in writing which would eliminate or remedy any such untrue statement or omission. (b) For a period of 180 days after the date of this Agreement, such Selling Stockholder agrees not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or 10 11 otherwise, without the prior written consent of William Blair & Company, L.L.C., except for the Shares to be sold pursuant to this Agreement. (c)(i) Each Management Selling Stockholder, severally and not jointly, represents and warrants to, and agrees with, the several Underwriters that the representations and warranties of the Company set forth in Section 2 of this Agreement are true and correct. (ii) Each Venture Capital Selling Stockholder has no reason to believe that the representations and warranties of the Company set forth in Section 2 of this Agreement are not true and correct. (d) In order to document the Underwriter's compliance with the reporting and withholding provisions of the Internal Revenue Code of 1986, as amended, with respect to the transactions herein contemplated, each of the Selling Stockholders agrees to deliver to you prior to or on the First Closing Date a properly completed and executed United States Treasury Department Form W-8 or W-9 (or other applicable form of statement specified by Treasury Department regulations in lieu thereof). SECTION 4. Representations and Warranties of the Underwriters. The Representatives, on behalf of the several Underwriters, represent and warrant to the Company and the Selling Stockholders that the information set forth (a) on the cover page of the Prospectus with respect to price, underwriting discount and terms of the offering and (b) in paragraphs 1, 2, 3, 4, 5, 9, 10, 12, 14 and 15 (except for the third sentence of such paragraph 15) under "Underwriting" in the Prospectus was furnished to the Company by and on behalf of the Underwriters for use in connection with the preparation of the Registration Statement and is correct and complete in all material respects. SECTION 5. Purchase, Sale and Delivery of Shares. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company and the Venture Capital Selling Stockholders, severally and not jointly, agree to sell to the Underwriters named in Schedule A hereto, and the Underwriters agree, severally and not jointly, to purchase from the Company and the Venture Capital Selling Stockholders, respectively, _________ Firm Shares from the Company and the respective number of Firm Shares set forth opposite the names of the Venture Capital Selling Stockholders in Schedule B-1 hereto at the price per share set forth in the Pricing Agreement. The obligation of each Underwriter to the Company shall be to purchase from the Company that number of full shares which (as nearly as practicable, as determined by you) bears to the number of Firm Shares to be sold by the Company, the same proportion as the number of Shares set forth opposite the name of such Underwriter in Schedule A hereto bears to the total number of Firm Shares to be purchased by all Underwriters under this Agreement. The obligation of each Underwriter to each Venture Capital Selling Stockholder shall be to purchase from such Venture Capital Selling Stockholder the number of full shares which (as nearly as practicable, as determined by you) bears to that number of Firm Shares set forth opposite the name of such Venture Capital Selling Stockholder in Schedule B-1 hereto, the same proportion as the number of Shares set forth opposite the name of such Underwriter in Schedule A hereto bears to the total number of Firm Shares to be purchased by all Underwriters under this Agreement. The initial public offering price and the purchase price shall be set forth in the Pricing Agreement. 11 12 At 9:00 A.M., Chicago Time, on the fourth business day, if permitted under Rule 15c6-1 under the Exchange Act (or the third business day if required under Rule 15c6-1 under the Exchange Act or unless postponed in accordance with the provisions of Section 12), following the date the Registration Statement becomes effective (or, if the Company has elected to rely upon Rule 430A, the fourth business day, if permitted under Rule 15c6-1 under the Exchange Act (or the third business day if required under Rule 15c6-1 under the Exchange Act), after execution of the Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company, the Company and the Custodian will deliver to you at the offices of counsel for the Company or through the facilities of The Depository Trust Company for the accounts of the several Underwriters, certificates representing the Firm Shares to be sold by them, respectively, against payment of the purchase price therefor by delivery of federal or other immediately available funds, by wire transfer or otherwise, to the Company and the Custodian. Such time of delivery and payment is herein referred to as the "First Closing Date." The certificates for the Firm Shares so to be delivered will be in such denominations and registered in such names as you request by notice to the Company and the Custodian prior to 10:00 A.M., Chicago Time, on the second business day preceding the First Closing Date, and will be made available at the Company's expense for checking and packaging by the Representatives at 10:00 A.M., Chicago Time, on the business day preceding the First Closing Date. Payment for the Firm Shares so to be delivered shall be made at the time and in the manner described above at the offices of counsel for the Company. In addition, on the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Selling Stockholders hereby grant an option to the several Underwriters to purchase, severally and not jointly, up to an aggregate of _______ Option Shares, at the same purchase price per share to be paid for the Firm Shares, for use solely in covering any over-allotments made by the Underwriters in the sale and distribution of the Firm Shares. The option granted hereunder may be exercised at any time (but not more than once) within 30 days after the date of the initial public offering upon notice by you to the Company and the Agents setting forth the aggregate number of Option Shares as to which the Underwriters are exercising the option, the names and denominations in which the certificates for such shares are to be registered and the time and place at which such certificates will be delivered. Such time of delivery (which may not be earlier than the First Closing Date), being herein referred to as the "Second Closing Date," shall be determined by you, but if at any time other than the First Closing Date, shall not be earlier than three nor later than 10 full business days after delivery of such notice of exercise. The number of Option Shares to be purchased from each Selling Stockholder shall be the number of shares set forth opposite the name of such Selling Stockholder under "Number of Option Shares to be Sold" in Schedules B-1 and B-2 hereto. If less than all Option Shares are to be purchased, the number of Option Shares to be purchased from the Selling Stockholders shall be reduced pro rata. The number of Option Shares to be purchased by each Underwriter shall be determined by multiplying the number of Option Shares to be sold by the Selling Stockholders pursuant to such notice of exercise by a fraction, the numerator of which is the number of Firm Shares to be purchased by such Underwriter as set forth opposite its name in Schedule A and the denominator of which is the total number of Firm Shares (subject to such adjustments to eliminate any fractional share purchases as you in your absolute discretion may make). Certificates for the Option Shares will be made available at the Company's expense for checking and packaging at 10:00 A.M., Chicago Time, on the business 12 13 day preceding the Second Closing Date. The manner of payment for and delivery of the Option Shares shall be the same as for the Firm Shares as specified in the preceding paragraph. You have advised the Company and the Selling Stockholders that each Underwriter has authorized you to accept delivery of its Shares, to make payment and to receipt therefor. You, individually and not as the Representatives of the Underwriters, may make payment for any Shares to be purchased by any Underwriter whose funds shall not have been received by you by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any obligation hereunder. The Company hereby confirms its engagement of U.S. Bancorp Piper Jaffray Inc. as, and U.S. Bancorp Piper Jaffray Inc. hereby confirms its agreement with the Company to render services as, a "qualified independent underwriter" within the meaning of Rule 2720 of the Conduct Rules of the NASD with respect to the offering and sale of the Shares. U.S. Bancorp Piper Jaffray Inc., solely in its capacity as qualified independent underwriter and not otherwise, is referred to herein as the "Independent Underwriter." All references to the Independent Underwriter in the Registration Statement or the Prospectus or in any other filing, report, document, release or other communication prepared, issued or transmitted in conjunction with the offering of Shares by the Company or the Underwriters shall be subject to its prior consent with respect to form and substance, which consent shall not be unreasonably withheld. Each of the Company and the Underwriters will cause any corporation controlling, controlled by or under common control with it, and any representative or agent of the Company or the Underwriters, as the case may be, or of any such corporation, who or which prepares, issues or transmits any filing, report, document, release or other communication in connection with the offering which refers to the Independent Underwriter, to obtain its prior consent with respect to the form and substance thereof, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, counsel to the Company or the Underwriters may, without the Independent Underwriter's prior consent, refer to it in any correspondence with the NASD or the Commission which relates to the transactions contemplated by this Agreement. SECTION 6. Covenants of the Company. The Company covenants and agrees that: (a) The Company will advise you and the Selling Stockholders promptly of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the institution of any proceedings for that purpose, or of any notification of the suspension of qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceedings for that purpose, and will also advise you and the Selling Stockholders promptly of any request of the Commission for any amendment to or supplement of the Registration Statement, any preliminary prospectus or the Prospectus, or for additional information. (b) The Company will give you and the Selling Stockholders notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective 13 14 amendment) or any Rule 462(b) Registration Statement or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Shares which differs from the prospectus on file at the Commission at the time the Registration Statement became or becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) and any term sheet as contemplated by Rule 434) and will furnish you and the Selling Stockholders with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which you or counsel for the Underwriters shall reasonably object. (c) If the Company elects to rely on Rule 434 of the 1933 Act, the Company will prepare a term sheet that complies with the requirements of Rule 434. If the Company elects not to rely on Rule 434, the Company will provide the Underwriters with copies of the form of prospectus, in such numbers as the Underwriters may reasonably request, and file with the Commission such prospectus in accordance with Rule 424(b) of the 1933 Act by the close of business in New York City on the second business day immediately succeeding the date of the Pricing Agreement. If the Company elects to rely on Rule 434, the Company will provide the Underwriters with copies of the form of Rule 434 Prospectus, in such numbers as the Underwriters may reasonably request, by the close of business in New York on the business day immediately succeeding the date of the Pricing Agreement. (d) If at any time when a prospectus relating to the Shares is required to be delivered under the 1933 Act any event occurs as a result of which the Prospectus, including any amendments or supplements, would include an untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, or if it is necessary at any time to amend the Prospectus, including any amendments or supplements thereto and including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Shares which differs from the prospectus on file with the Commission at the time of effectiveness of the Registration Statement, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) to comply with the 1933 Act, the Company promptly will advise you thereof and will promptly prepare and file with the Commission an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance; and, in case any Underwriter is required to deliver a prospectus nine months or more after the effective date of the Registration Statement, the Company upon request, but at the expense of such Underwriter, will prepare promptly such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the 1933 Act. (e) Neither the Company nor any of its subsidiaries will, prior to the earlier of the Second Closing Date or termination or expiration of the related option, incur any liability or obligation, direct or contingent, or enter into any material transaction, other than in the ordinary course of business, except as contemplated by the Prospectus. 14 15 (f) Neither the Company nor any of its subsidiaries will acquire any capital stock of the Company prior to the earlier of the Second Closing Date or termination or expiration of the related option nor will the Company declare or pay any dividend or make any other distribution upon the Common Stock payable to stockholders of record on a date prior to the earlier of the Second Closing Date or termination or expiration of the related option, except in either case as contemplated by the Prospectus. (g) Not later than the 45th day following the end of the fiscal quarter first occurring after the first anniversary of the effective date of the Registration Statement, the Company will make generally available to its security holders an earnings statement (which need not be audited) covering a period of at least 12 months beginning after the effective date of the Registration Statement, which will satisfy the provisions of the last paragraph of Section 11(a) of the 1933 Act. (h) During such period as a prospectus is required by law to be delivered in connection with offers and sales of the Shares by an Underwriter or dealer, the Company will furnish to you at its expense, subject to the provisions of subsection (d) hereof, copies of the Registration Statement, the Prospectus, each preliminary prospectus and all amendments and supplements to any such documents in each case as soon as available and in such quantities as you may reasonably request, for the purposes contemplated by the 1933 Act. (i) The Company will cooperate with the Underwriters in qualifying or registering the Shares for sale under the blue sky laws of such jurisdictions as you designate, and will continue such qualifications in effect so long as reasonably required for the distribution of the Shares. The Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any such jurisdiction where it is not currently qualified or where it would be subject to taxation as a foreign corporation. (j) During the period of five years hereafter, the Company will furnish you and each of the other Underwriters with a copy (i) as soon as practicable after the filing thereof, of each report filed by the Company with the Commission, any securities exchange or the NASD; (ii) as soon as practicable after the release thereof, of each material press release in respect of the Company; and (iii) as soon as available, of each report of the Company mailed to stockholders. (k) The Company will use the net proceeds received by it from the sale of the Shares being sold by it in the manner specified in the Prospectus. (l) If, at the time of effectiveness of the Registration Statement, any information shall have been omitted therefrom in reliance upon Rule 430A and/or Rule 434, then immediately following the execution of the Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A, Rule 424(b) and/or Rule 434, copies of an amended Prospectus, or, if required by such Rule 430A and/or Rule 434, a post-effective amendment to the Registration Statement (including an 15 16 amended Prospectus), containing all information so omitted. If required, the Company will prepare and file, or transmit for filing, a Rule 462(b) Registration Statement not later than the date of the execution of the Pricing Agreement. If a Rule 462(b) Registration Statement is filed, the Company shall make payment of, or arrange for payment of, the additional registration fee owing to the Commission required by Rule 111. (m) The Company will ensure that the Reserved Shares will be restricted as required by the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of this Agreement. The Underwriters will notify the Company as to which persons will need to be so restricted. At the request of the Underwriters, the Company will direct the transfer agent to place a stop transfer restriction upon such shares for such period of time. Should the Company release, or seek to release, from such restrictions any of the Reserved Shares, the Company agrees to reimburse the Underwriters for any reasonable expenses (including, without limitation, legal expenses) they incur in connection with such release. (n) Prior to the First Closing Date, the Company will (i) reclassify its Class P Common Stock as described in the Prospectus and (ii) terminate the Stockholders Agreement dated as of September 8, 1993 by and between the Company, William Blair Venture Partners III Limited Partnership, Information Partners Capital Fund, L.P., Silicon Valley Bank and certain other persons listed on Schedule A thereto. SECTION 7. Payment of Expenses. Whether or not the transactions contemplated hereunder are consummated or this Agreement becomes effective as to all of its provisions or is terminated, the Company agrees to pay (i) all costs, fees and expenses (other than legal fees and disbursements of counsel for the Underwriters and the expenses incurred by the Underwriters) incurred in connection with the performance of the Company's obligations hereunder, including without limiting the generality of the foregoing, all fees and expenses of legal counsel for the Company and of the Company's independent accountants, all costs and expenses incurred in connection with the preparation, printing, filing and distribution of the Registration Statement, each preliminary prospectus and the Prospectus (including all exhibits and financial statements) and all amendments and supplements provided for herein, this Agreement, the Pricing Agreement and the Blue Sky Memorandum and all fees and expenses incurred in connection with the listing of the Shares on the Nasdaq National Market; (ii) all costs, fees and expenses (including legal fees not to exceed $10,000 and disbursements of counsel for the Underwriters) incurred by the Underwriters in connection with qualifying or registering all or any part of the Shares for offer and sale under blue sky laws, including the preparation of a blue sky memorandum relating to the Shares and clearance of such offering with the NASD, and in connection with matters related to the Independent Underwriter; and (iii) all fees and expenses of the Company's transfer agent, printing of the certificates for the Shares and all transfer taxes, if any, with respect to the sale and delivery of the Shares to the several Underwriters. The provisions of this Section shall not affect any agreement which the Company and the Selling Stockholders may make for the allocation or sharing of such expenses and costs. 16 17 SECTION 8. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Shares on the First Closing Date and the Option Shares on the Second Closing Date shall be subject to the accuracy of the representations and warranties on the part of the Company and the Selling Stockholders herein set forth as of the date hereof and as of the First Closing Date or the Second Closing Date, as the case may be, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company and the Selling Stockholders of their respective obligations hereunder, and to the following additional conditions: (a) The Registration Statement shall have become effective either prior to the execution of this Agreement or not later than 1:00 P.M., Chicago Time, on the first full business day after the date of this Agreement, or such later time as shall have been consented to by you but in no event later than 1:00 P.M., Chicago Time, on the third full business day following the date hereof; and prior to the First Closing Date or the Second Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or, to the knowledge of the Company, the Selling Stockholders or you, shall be contemplated by the Commission. If the Company has elected to rely upon Rule 430A and/or Rule 434, the information concerning the initial public offering price of the Shares and price-related information shall have been transmitted to the Commission for filing pursuant to Rule 424(b) within the prescribed period and the Company will provide evidence satisfactory to the Representatives of such timely filing (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rules 430A and 424(b)). If a Rule 462(b) Registration Statement is required, such Registration Statement shall have been transmitted to the Commission for filing and become effective within the prescribed time period and, prior to the First Closing Date, the Company shall have provided evidence of such filing and effectiveness in accordance with Rule 462(b). (b) The Shares shall have been qualified for sale under the blue sky laws of such states as shall have been specified by the Representatives. (c) The legality and sufficiency of the authorization, issuance and sale or transfer and sale of the Shares hereunder, the validity and form of the certificates representing the Shares, the execution and delivery of this Agreement and the Pricing Agreement, and all corporate proceedings and other legal matters incident thereto, and the form of the Registration Statement and the Prospectus (except financial statements) shall have been approved by counsel for the Underwriters exercising reasonable judgment. (d) You shall not have advised the Company that the Registration Statement or the Prospectus or any amendment or supplement thereto, contains an untrue statement of fact, which, in the opinion of counsel for the Underwriters, is material or omits to state a fact which, in the opinion of such counsel, is material and is required to be stated therein or necessary to make the statements therein not misleading. (e) Subsequent to the execution and delivery of this Agreement, there shall not 17 18 have occurred any change, or any development involving a prospective change, in or affecting particularly the business or properties of the Company or its subsidiaries, whether or not arising in the ordinary course of business, which, in the judgment of the Representatives, makes it impractical or inadvisable to proceed with the public offering or purchase of the Shares as contemplated hereby. (f) The NASD shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (g) There shall have been furnished to you, as Representatives of the Underwriters, on the First Closing Date or the Second Closing Date, as the case may be, except as otherwise expressly provided below: (i) An opinion of Testa, Hurwitz & Thibeault, LLP, counsel for the Company, addressed to the Underwriters and dated the First Closing Date or the Second Closing Date, as the case may be, in the form attached hereto as Exhibit C. (ii) An opinion of Arnheim Tite & Lewis, counsel for the Company, addressed to the Underwriters and dated the First Closing Date or the Second Closing Date, as the case may be, in the form attached hereto as Exhibit D. (iii) An opinion of Kirkland & Ellis, counsel for the Venture Capital Selling Stockholders, addressed to the Underwriters and dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that: (1) each of the Power of Attorney and Custody Agreement has been duly authorized, executed and delivered by or on behalf of each Venture Capital Selling Stockholder and constitutes a legal, valid and binding agreement of such Venture Capital Selling Stockholder enforceable in accordance with its terms; (2) each of this Agreement and the Pricing Agreement has been duly authorized, executed and delivered by or on behalf of each Venture Capital Selling Stockholder; the Agents and the Custodian for such Venture Capital Selling Stockholders have been duly and validly authorized to carry out all transactions contemplated herein on behalf of such Venture Capital Selling Stockholders; and the execution and performance of this Agreement and the Pricing Agreement and the consummation by such Venture Capital Selling Stockholders of the transactions contemplated herein and therein will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument known to such counsel to which any such 18 19 Venture Capital Selling Stockholder is a party or by which any are bound or to which any of the property of any such Venture Capital Selling Stockholder is subject, or violate any statute, order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over any of such Venture Capital Selling Stockholders or any of their properties; and no approval, authorization or consent of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Pricing Agreement in connection with the sale of Shares by such Venture Capital Selling Stockholders pursuant to this Agreement, except such as have been obtained under the 1933 Act and such as may be required under blue sky laws applicable to the public offering of the Shares by the several Underwriters and the clearance of such offering with the NASD; (3) each Venture Capital Selling Stockholder has full right, power and authority to enter into this Agreement and the Pricing Agreement and to sell, transfer and deliver the Shares to be sold on the First Closing Date or the Second Closing Date, as the case may be, by such Venture Capital Selling Stockholder hereunder and good and marketable title to such Shares so sold, free and clear of all voting trust arrangements, stockholder agreements, liens, encumbrances, equities, claims and community property rights whatsoever, has been transferred to the Underwriters (who counsel may assume to be bona fide purchasers) who have purchased such Shares hereunder; and (4) this Agreement and the Pricing Agreement are legal, valid and binding agreements of each Venture Capital Selling Stockholder except as enforceability of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights and by the exercise of judicial discretion in accordance with general principles applicable to equitable and similar remedies and except with respect to those provisions relating to indemnities for liabilities arising under the 1933 Act, as to which no opinion need be expressed. In rendering such opinion, such counsel may state that they are relying, as to factual matters, on certificates of the Venture Capital Selling Stockholders, in which case their opinion is to state that they are so doing and copies of said certificates are to be attached to the opinion unless said certificates (or the information therein) have been furnished to the Representatives in other form. (iv) An opinion of Bachner, Tally, Polevoy & Misher LLP, counsel for the Management Selling Stockholders, addressed to the Underwriters and dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that: (1) each of the Power of Attorney and Custody Agreement has 19 20 been duly authorized, executed and delivered by or on behalf of each Management Selling Stockholder and constitutes a legal, valid and binding agreement of such Management Selling Stockholder enforceable in accordance with its terms; (2) each of this Agreement and the Pricing Agreement has been duly authorized, executed and delivered by or on behalf of each Management Selling Stockholder; the Agents and the Custodian for such Management Selling Stockholders have been duly and validly authorized to carry out all transactions contemplated herein on behalf of such Management Selling Stockholders; and the execution and performance of this Agreement and the Pricing Agreement and the consummation by such Management Selling Stockholders of the transactions contemplated herein and therein will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any agreement, franchise, license, indenture, mortgage, deed of trust or other instrument known to such counsel to which any such Management Selling Stockholder is a party or by which any are bound or to which any of the property of any such Management Selling Stockholder is subject, or violate any statute, order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over any of such Management Selling Stockholders or any of their properties; and no approval, authorization or consent of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Pricing Agreement in connection with the sale of Shares by such Management Selling Stockholders pursuant to this Agreement, except such as have been obtained under the 1933 Act and such as may be required under blue sky laws applicable to the public offering of the Shares by the several Underwriters and the clearance of such offering with the NASD; (3) each Management Selling Stockholder has full right, power and authority to enter into this Agreement and the Pricing Agreement and to sell, transfer and deliver the Shares to be sold on the First Closing Date or the Second Closing Date, as the case may be, by such Management Selling Stockholder hereunder and good and marketable title to such Shares so sold, free and clear of all voting trust arrangements, stockholder agreements, liens, encumbrances, equities, claims and community property rights whatsoever, has been transferred to the Underwriters (who counsel may assume to be bona fide purchasers) who have purchased such Shares hereunder; and (4) this Agreement and the Pricing Agreement are legal, valid and binding agreements of each Management Selling Stockholder except as 20 21 enforceability of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights and by the exercise of judicial discretion in accordance with general principles applicable to equitable and similar remedies and except with respect to those provisions relating to indemnities for liabilities arising under the 1933 Act, as to which no opinion need be expressed. In rendering such opinion, such counsel may state that they are relying, as to factual matters, on certificates of the Management Selling Stockholders, in which case their opinion is to state that they are so doing and copies of said certificates are to be attached to the opinion unless said certificates (or the information therein) have been furnished to the Representatives in other form. (v) Such opinion or opinions of Sidley & Austin, counsel for the Underwriters, dated the First Closing Date or the Second Closing Date, as the case may be, with respect to the incorporation of the Company, the validity of the Shares to be sold by the Company, the Registration Statement and the Prospectus and other related matters as you may reasonably require, and the Company shall have furnished to such counsel such documents and shall have exhibited to them such papers and records as they request for the purpose of enabling them to pass upon such matters. (vi) A certificate of the chief executive officer and the principal financial officer of the Company, dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that: (1) the representations and warranties of the Company set forth in Section 2 of this Agreement are true and correct as of the date of this Agreement and as of the First Closing Date or the Second Closing Date, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date; and (2) the Commission has not issued an order preventing or suspending the use of the Prospectus or any preliminary prospectus filed as a part of the Registration Statement or any amendment thereto; no stop order suspending the effectiveness of the Registration Statement has been issued; and to the best knowledge of the respective signers, no proceedings for that purpose have been instituted or are pending or contemplated under the 1933 Act. The delivery of the certificate provided for in this subparagraph shall be and constitute a representation and warranty of the Company as to the facts required in the immediately foregoing clauses (1) and (2) of this subparagraph to be set forth in said certificate. 21 22 (vii) A certificate of each Selling Stockholder dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that the representations and warranties of such Selling Stockholder set forth in Section 3 of this Agreement are true and correct as of such date and the Selling Stockholder has complied with all the agreements and satisfied all the conditions on the part of such Selling Stockholder to be performed or satisfied at or prior to such date. (viii) At the time the Pricing Agreement is executed and also on the First Closing Date or the Second Closing Date, as the case may be, there shall be delivered to you a letter addressed to you, as Representatives of the Underwriters, from PriceWaterhouseCoopers LLP, independent accountants, the first one to be dated the date of the Pricing Agreement, the second one to be dated the First Closing Date and the third one (in the event of a second closing) to be dated the Second Closing Date, in form and substance satisfactory to counsel for the Underwriters. There shall not have been any change or decrease specified in the letters referred to in this subparagraph which makes it impractical or inadvisable in the judgment of the Representatives to proceed with the public offering or purchase of the Shares as contemplated hereby. (ix) A lock-up agreement substantially in the form of Exhibit B signed by each of the persons listed on Schedule C. (x) Such further certificates and documents as you may reasonably request. All such opinions, certificates, letters and documents shall be in compliance with the provisions hereof only if they are satisfactory to you and to Sidley & Austin, counsel for the Underwriters, which approval shall not be unreasonably withheld. The Company shall furnish you with such manually signed or conformed copies of such opinions, certificates, letters and documents as you request. If any condition to the Underwriters' obligations hereunder to be satisfied prior to or at the First Closing Date is not so satisfied, this Agreement at your election will terminate upon notification to the Company and the Selling Stockholders without liability on the part of any Underwriter or the Company or any Selling Stockholder, except for the expenses to be paid or reimbursed by the Company pursuant to Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof. SECTION 9. Reimbursement of Underwriters' Expenses. If the sale to the Underwriters of the Shares on the First Closing Date is not consummated because any condition of the Underwriters' obligations hereunder is not satisfied or because of any refusal, inability or failure on the part of the Company or any Selling Stockholder to perform any agreement herein or to comply with any provision hereof, unless such failure to satisfy such condition or to comply with any provision hereof is due to the default or omission of any Underwriter, the Company agrees to 22 23 reimburse you and the other Underwriters upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been reasonably incurred by you and them in connection with the proposed purchase and the sale of the Shares. Any such termination shall be without liability of any party to any other party except that the provisions of this Section, Section 7 and Section 11 shall at all times be effective and shall apply. SECTION 10. Effectiveness of Registration Statement. You, the Company and the Selling Stockholders will use your, its and their best efforts to cause the Registration Statement to become effective, if it has not yet become effective, and to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement and, if such stop order be issued, to obtain as soon as possible the lifting thereof. SECTION 11. Indemnification. (a) The Company and each Management Selling Stockholder, jointly and severally, agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the 1933 Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or such controlling person may become subject under the 1933 Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Company and/or such Management Selling Stockholders, as the case may be), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A and/or Rule 434, if applicable, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that neither the Company nor any Management Selling Stockholder will be liable in any such case to the extent that (i) any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use therein; or (ii) if such statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus and (1) any such loss, claim, damage or liability suffered or incurred by any Underwriter (or any person who controls any Underwriter) resulted from an action, claim or suit by any person who purchased Shares which are the subject thereof from such Underwriter in the offering and (2) such Underwriter failed to deliver or provide a copy of the Prospectus to such person at or prior to the confirmation of the sale of such Shares in any case where such delivery is required by the 1933 Act. In addition to their other obligations under this Section 11(a), the Company and the Management Selling Stockholders agree that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 11(a), they will reimburse 23 24 the Underwriters on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's and the Management Selling Stockholders' obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. This indemnity agreement will be in addition to any liability which the Company and the Management Selling Stockholders may otherwise have. In addition to and without limitation of the Company's obligation to indemnify U.S. Bancorp Piper Jaffray Inc. as an Underwriter, the Company also agrees to indemnify and hold harmless the Independent Underwriter and each person, if any, who controls the Independent Underwriter within the meaning of the 1933 Act or the Exchange Act, from and against any losses, claims, damages or liabilities, joint or several, to which the Independent Underwriter or such controlling person may become subject as a result of the Independent Underwriter's participation as a "qualified independent underwriter" within the meaning of Rule 2720 of the Conduct Rules of the NASD in connection with the offering of the Shares. Insofar as this indemnity agreement may permit indemnification for liabilities under the 1933 Act of any person who is a partner of an Underwriter or who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the Exchange Act and who, at the date of this Agreement, is a director or officer of the Company or controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the Exchange Act, such indemnity agreement is subject to the undertaking of the Company in the Registration Statement under Item 17 thereof. Without limiting the full extent of the Company's agreement to indemnify each Underwriter and the Independent Underwriter, as herein provided, each Management Selling Stockholder shall be liable under the indemnity agreements contained in paragraph (a) of this Section only for an amount not exceeding the proceeds (after deduction of the underwriting discount) received by such Management Selling Stockholder from the sale of Shares hereunder (i.e. if the over-allotment is not exercised, the Management Selling Stockholders shall have no indemnification obligations under this Section 11(a)). (b) Each of the Venture Capital Selling Stockholders agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the 1933 Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or such controlling person may become subject under the 1933 Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise (including in settlement of litigation if such settlement is effected with the written consent of the Company and/or such Venture Capital Selling Stockholder), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A and/or Rule 434, if applicable, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission 24 25 to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission specifically relates to such Venture Capital Selling Stockholder, and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that such Venture Capital Selling Stockholder shall be not liable in any such case to the extent that (i) any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any preliminary prospectus, the Prospectus or any such amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by any Underwriter through William Blair & Company, L.L.C. expressly for use therein; or (ii) if such statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus and (1) any such loss, claim, damage or liability suffered or incurred by any Underwriter (or any person who controls any Underwriter) resulted from an action, claim or suit by any person who purchased Shares which are the subject thereof from such Underwriter in the offering and (2) such Underwriter failed to deliver or provide a copy of the Prospectus to such person at or prior to the confirmation of the sale of such Shares in any case where such delivery is required by the 1933 Act. In addition to their other obligations under this Section 11(b), the Venture Capital Selling Stockholders agree that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 11(b), they will reimburse the Underwriters on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Venture Capital Selling Stockholders' obligation to reimburse the Underwriters for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. This indemnity agreement will be in addition to any liability which the Venture Capital Selling Stockholders may otherwise have. Notwithstanding anything in this Section 11(b) to the contrary, each Venture Capital Selling Stockholder shall be liable under the indemnity agreements contained in paragraph (b) of this Section only for an amount not exceeding the proceeds (after deduction of the underwriting discount) received by such Venture Capital Selling Stockholder from the sale of Shares hereunder. (c) Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, and each Selling Stockholder and each person, if any, who controls the Company within the meaning of the 1933 Act or the Exchange Act, against any losses, claims, damages or liabilities to which the Company, or any such director, officer, Selling Stockholder or controlling person may become subject under the 1933 Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in the Registration Statement, any preliminary prospectus, the 25 26 Prospectus, or any amendment or supplement thereto (including any prospectus wrapper), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto in reliance upon and in conformity with Section 4 of this Agreement or any other written information furnished to the Company by such Underwriter through the Representatives specifically for use in the preparation thereof; and will reimburse any legal or other expenses reasonably incurred by the Company, or any such director, officer, Selling Stockholder or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. In addition to their other obligations under this Section 11(c), the Underwriters agree that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 11(c), they will reimburse the Company and the Selling Stockholders on a monthly basis for all reasonable legal and other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Underwriters' obligation to reimburse the Company and the Selling Stockholders for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (d) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party except to the extent that the indemnifying party was prejudiced by such failure to notify. In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, or the indemnified and indemnifying parties may have conflicting interests which would make it inappropriate for the same counsel to represent both of them, the indemnified party or parties shall have the right to select separate counsel to assume such legal defense and otherwise to participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defense in accordance with the proviso to the next preceding sentence (it being 26 27 understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel), approved by the Representatives in the case of paragraph (a)(i) or (b)(i) representing all indemnified parties not having different or additional defenses or potential conflicting interest among themselves who are parties to such action; provided, that, if indemnity is sought as a result of the Independent Underwriter's participation as a "qualified independent underwriter" within the meaning of Rule 2720 of the Conduct Rules of the NASD in connection with the offering, then, in addition to the expenses of such counsel for the indemnified parties, the indemnifying party shall be liable for the expenses of not more than one counsel (in addition to any local counsel) separate from its own counsel and that of the other indemnified parties for the Independent Underwriter in its capacity as such), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability arising out of such proceeding. (e) If the indemnification provided for in this Section is unavailable to an indemnified party under paragraphs (a), (b) or (c) hereof in respect of any losses, claims, damages or liabilities referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the Selling Stockholders and the Underwriters from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the Selling Stockholders and the Underwriters in connection with the statements or omissions, or in connection with any violation of applicable laws or regulations of foreign jurisdictions where Reserved Shares have been offered, which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The respective relative benefits received by the Company, the Selling Stockholders and the Underwriters shall be deemed to be in the same proportion in the case of the Company and the Selling Stockholders, as the total price paid to the Company and the Selling Stockholders for the Shares by the Underwriters (net of underwriting discount but before deducting expenses), and in the case of the Underwriters as the underwriting discount received by them bears to the total of such amounts paid to the Company and the Selling Stockholders and received by the Underwriters as underwriting discount in each case as contemplated by the Prospectus. The relative fault of the Company and the Selling Stockholders and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company or by the Selling Stockholders or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or any violation of the nature referred to above. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. 27 28 The Company and the Underwriters agree that U.S. Bancorp Piper Jaffray Inc. will not receive any additional benefits hereunder for serving as the Independent Underwriter in connection with the offering and sale of Shares. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first paragraph of this subsection (e). Notwithstanding the provisions of this Section, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section are several in proportion to their respective underwriting commitments and not joint. In no event shall the liability of a Selling Stockholder under this Section 11(e) exceed the amount that such Selling Stockholder would have been required to pay under Section 11(a) (with respect to a Management Selling Stockholder) or Section 11(b) (with respect to a Venture Capital Selling Stockholder) had such indemnification held to be available thereunder. (f) In connection with the offer and sale of the Reserved Shares, the Company agrees, promptly upon a request in writing, to indemnify and hold harmless the Underwriters from and against any and all losses, liabilities, claims, damages and expenses incurred by them as a result of the failure of recipients of Reserved Shares to pay for and accept delivery thereof which, by the end of the first business day following the date of this Agreement, were subject to a properly confirmed agreement to purchase. (g) The provisions of this Section shall survive any termination of this Agreement. Section 12. Default of Underwriters. It shall be a condition to the agreement and obligation of the Company and the Selling Stockholders to sell and deliver the Shares hereunder, and of each Underwriter to purchase the Shares hereunder, that, except as hereinafter in this paragraph provided, each of the Underwriters shall purchase and pay for all Shares agreed to be purchased by such Underwriter hereunder upon tender to the Representatives of all such Shares in accordance with the terms hereof. If any Underwriter or Underwriters default in their obligations to purchase Shares hereunder on the First Closing Date and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10 percent of the total number of Shares which the Underwriters are obligated to purchase on the First Closing Date, the Representatives may make arrangements satisfactory to the Company and the Selling Stockholders for the purchase of such Shares by other persons, including any of the Underwriters, but if no such arrangements are made by such date the nondefaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Shares which such defaulting Underwriters agreed but failed to purchase on such date. If any Underwriter or Underwriters so 28 29 default and the aggregate number of Shares with respect to which such default or defaults occur is more than the above percentage and arrangements satisfactory to the Representatives and the Company and the Selling Stockholders for the purchase of such Shares by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any nondefaulting Underwriter or the Company or the Selling Stockholders, except for the expenses to be paid by the Company pursuant to Section 7 hereof and except to the extent provided in Section 11 hereof. In the event that Shares to which a default relates are to be purchased by the nondefaulting Underwriters or by another party or parties, the Representatives or the Company shall have the right to postpone the First Closing Date for not more than seven business days in order that the necessary changes in the Registration Statement, Prospectus and any other documents, as well as any other arrangements, may be effected. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. SECTION 13. Effective Date. This Agreement shall become effective immediately as to Sections 7, 9, 11 and 14 hereof and as to all other provisions at 10:00 A.M., Chicago Time, on the day following the date upon which the Pricing Agreement is executed and delivered, unless such a day is a Saturday, Sunday or holiday (and in that event this Agreement shall become effective at such hour on the business day next succeeding such Saturday, Sunday or holiday); but this Agreement shall nevertheless become effective at such earlier time after the Pricing Agreement is executed and delivered as you may determine on and by notice to the Company and the Selling Stockholders or by release of any Shares for sale to the public. For the purposes of this Section, the Shares shall be deemed to have been so released upon the release for publication of any newspaper advertisement relating to the Shares or upon the release by you of telegrams (i) advising Underwriters that the Shares are released for public offering, or (ii) offering the Shares for sale to securities dealers, whichever may occur first. SECTION 14. Termination. Without limiting the right to terminate this Agreement pursuant to any other provision hereof: (a) This Agreement may be terminated by the Company by notice to you and the Selling Stockholders or by you by notice to the Company and the Selling Stockholders at any time prior to the time this Agreement shall become effective as to all its provisions, and any such termination shall be without liability on the part of the Company or the Selling Stockholders to any Underwriter (except for the expenses to be paid or reimbursed pursuant to Section 7 hereof and except to the extent provided in Section 11 hereof) or of any Underwriter to the Company or the Selling Stockholders. (b) This Agreement may also be terminated by you prior to the First Closing Date, and the option referred to in Section 5, if exercised, may be canceled at any time prior to the Second Closing Date, if (i) trading in securities on the Nasdaq National Market or the New York Stock Exchange shall have been suspended or minimum prices shall have been established on such exchange, or (ii) a banking moratorium shall have been declared by 29 30 Illinois, New York, or United States authorities, or (iii) there shall have been any change in financial markets or in political, economic or financial conditions which, in the opinion of the Representatives, either renders it impracticable or inadvisable to proceed with the offering and sale of the Shares on the terms set forth in the Prospectus or materially and adversely affects the market for the Shares, or (iv) there shall have been an outbreak of major armed hostilities between the United States and any foreign power which in the opinion of the Representatives makes it impractical or inadvisable to offer or sell the Shares. Any termination pursuant to this paragraph (b) shall be without liability on the part of any Underwriter to the Company or the Selling Stockholders or on the part of the Company to any Underwriter or the Selling Stockholders (except for expenses to be paid or reimbursed pursuant to Section 7 hereof and except to the extent provided in Section 11 hereof). SECTION 15. Representations and Indemnities to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers, of the Selling Stockholders and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of its or their partners, principals, members, officers or directors or any controlling person, or the Selling Stockholders as the case may be, and will survive delivery of and payment for the Shares sold hereunder. SECTION 16. Notices. All communications hereunder will be in writing and, if sent to the Underwriters will be mailed, delivered or telecopied and confirmed to you c/o William Blair & Company, L.L.C., 222 West Adams Street, Chicago, Illinois 60606, with a copy to Kevin Blatchford, Sidley & Austin, One First National Plaza, Chicago, Illinois 60603, telecopy (312) 853-7036; if sent to the Company will be mailed, delivered or telecopied and confirmed to the Company at its corporate headquarters with a copy to Lawrence S. Wittenberg, Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts 02110, telecopy (617) 248-7100; if sent to the Management Selling Stockholders will be mailed, delivered or telecopied and confirmed to the Agents and the Custodian at such address as they have previously furnished to the Company and the Representatives, with a copy to Jill M. Cohen, Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New York, New York 10017-2590, telecopy (212) 682-5729; and if sent to the Venture Capital Selling Stockholders will be mailed, delivered or telecopied and confirmed to the Agents and the Custodian at such address as they have previously furnished to the Company and the Representatives, with a copy to James Lerner, Kirkland and Ellis, 200 East Randolph Drive, Chicago, Illinois 60601, telecopy (312) 861-2200. SECTION 17. Successors. This Agreement and the Pricing Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors, personal representatives and assigns, and to the benefit of the officers and directors and controlling persons referred to in Section 11, and no other person will have any right or obligation hereunder. The term "successors" shall not include any purchaser of the Shares as such from any of the Underwriters merely by reason of such purchase. SECTION 18. Representation of Underwriters. You will act as Representatives for the 30 31 several Underwriters in connection with this financing, and any action under or in respect of this Agreement taken by you will be binding upon all the Underwriters. SECTION 19. Partial Unenforceability. If any section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other section, paragraph or provision hereof. SECTION 20. Applicable Law. This Agreement and the Pricing Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Selling Stockholders and the several Underwriters including you, all in accordance with its terms. Very truly yours, ONESOURCE INFORMATION SERVICES, INC. By__________________________________________ Chief Executive Officer The Selling Stockholders named in Schedule B hereto, in their individual capacities By__________________________________________ Agent and Attorney-in-Fact 31 32 The foregoing Agreement is hereby confirmed and accepted as of the date first above written. WILLIAM BLAIR & COMPANY, L.L.C. U.S. BANCORP PIPER JAFFRAY INC. ADAMS, HARKNESS & HILL, INC. Acting as Representatives of the several Underwriters named in Schedule A. By William Blair & Company, L.L.C. By__________________________________ Principal 32 33 SCHEDULE A Number of Firm Shares Underwriter to be Purchased - ----------- --------------- William Blair & Company, L.L.C. U.S. Bancorp Piper Jaffray Inc. Adams, Harkness & Hill, Inc. TOTAL 33 34 SCHEDULE B-1 Number of Number of Firm Shares Option Shares to be Sold to be Sold ----------- ------------- Venture Capital Selling Stockholders: Information Partners Capital Fund, L.P. William Blair Venture Partners III Limited Partnership ------------- TOTAL 34 35 SCHEDULE B-2 Number of Option Shares to be Sold ------------- Management Selling Stockholders: Daniel J. Schimmel ------------- TOTAL 35 36 SCHEDULE C [persons who have signed lock-up agreements] James Becker David Dominik (on behalf of BCIP Trust Associates, BCIP Associates and Information Partners) Philip Garlick Martin F. Kahn Roy D. Landon Lotus Development Corporation Gregg S. Newmark Daniel J. Schimmel Mark Van Dine 36 37 Exhibit A ONESOURCE INFORMATION SERVICES, INC. ______ Shares Common Stock(2) PRICING AGREEMENT ___________, 1999 William Blair & Company, L.L.C. U.S. Bancorp Piper Jaffray Inc. Adams, Harkness & Hill, Inc. As Representatives of the Several Underwriters c/o William Blair & Company, L.L.C. 222 West Adams Street Chicago, Illinois 60606 Ladies and Gentlemen: Reference is made to the Underwriting Agreement dated _________________, 1999 (the "Underwriting Agreement") relating to the sale by the Company and the Selling Stockholders and the purchase by the several Underwriters for whom William Blair & Company, L.L.C., U.S. Bancorp Piper Jaffray Inc. and Adams, Harkness & Hill, Inc. are acting as representatives (the "Representatives"), of the above Shares. All terms herein shall have the definitions contained in the Underwriting Agreement except as otherwise defined herein. Pursuant to Section 5 of the Underwriting Agreement, the Company and each of the Selling Stockholders agree with the Representatives as follows: 1. The initial public offering price per share for the Shares shall be $__________. 2. The purchase price per share for the Shares to be paid by the several Underwriters shall be $_____________, being an amount equal to the initial public offering price set forth above less $____________ per share. - ---------------------- (2)Plus an option to acquire up to ___ additional shares to cover over-allotments 37 38 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Selling Stockholders and the several Underwriters, including you, all in accordance with its terms. Very truly yours, ONESOURCE INFORMATION SERVICES, INC. By_______________________________________ Chief Executive Officer The Selling Stockholders named in Schedule B to the Underwriting Agreement, in their individual capacities By_______________________________________ Agent and Attorney-in-Fact The foregoing Agreement is hereby confirmed and accepted as of the date first above written. WILLIAM BLAIR & COMPANY, L.L.C. U.S. BANCORP PIPER JAFFRAY INC. ADAMS, HARKNESS & HILL, INC. Acting as Representatives of the several Underwriters By William Blair & Company, L.L.C. By___________________________________ Principal 38 39 Exhibit B ONESOURCE INFORMATION SERVICES, INC. LOCK-UP AGREEMENT ___________, 1999 William Blair & Company, L.L.C. U.S. Bancorp Piper Jaffray Inc. Adams, Harkness & Hill, Inc. As Representatives of the Several Underwriters c/o William Blair & Company, L.L.C. 222 West Adams Street Chicago, Illinois 60606 Re: Proposed Public Offering by OneSource Information Services, Inc. ---------------------------------------------------------------- Ladies and Gentlemen: The undersigned, a securityholder [and an officer and/or director] of OneSource Information Services, Inc. a Delaware corporation (the "Company"), understands that William Blair & Company, L.L.C. ("William Blair"), U.S. Bancorp Piper Jaffray Inc. and Adams, Harkness & Hill, Inc. propose to enter into an Underwriting Agreement (the "Underwriting Agreement") with the Company and certain stockholders of the Company providing for the public offering of shares (the "Securities") of the Company's common stock, par value $.01 per share (the "Common Stock"). In recognition of the benefit that such an offering will confer upon the undersigned as a securityholder [and an officer and/or director] of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the Underwriting Agreement that, during a period of 180 days from the date of the Underwriting Agreement (the "Lock-Up Period"), the undersigned will not, without the prior written consent of William Blair, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of the Company's Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (the "Lock-Up Shares"), or file any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise. Notwithstanding the foregoing, the undersigned may transfer any or all of the Lock-Up 39 40 Shares (i) as a bona fide gift or gifts or (ii) as a distribution to limited partners or shareholders of such person; provided, however, that in any such case it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the LockUp Shares subject to the provisions of this letter agreement. The transferor shall notify William Blair in writing prior to the transfer and there shall be no further transfer of such Lock-Up Shares except in accordance with this letter agreement. Following expiration of the Lock-Up Period, it is understood that the undersigned may dispose of Lock-Up Shares free of any contractual obligation hereunder. It is understood that, if the Underwriting Agreement is not executed by June 30, 1999 or if the Underwriting Agreement shall terminate or be terminated prior to payment for and delivery of the Securities, you will release the undersigned from the obligations under this letter agreement. Very truly yours, Signature: Print Name: 40 41 Exhibit C [Opinion of Testa, Hurwitz & Thibeault] 41 42 Exhibit D [Opinion of Arnheim Tite & Lewis] 42 EX-3.01 3 2ND AMEND.& RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.01 SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ONESOURCE INFORMATION SERVICES, INC. (INCORPORATED SEPTEMBER 3, 1993) * * * * * * I, Daniel J. Schimmel, President and Chief Executive Officer of OneSource Information Services, Inc. (the "CORPORATION"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, do hereby certify that the Certificate of Incorporation of OneSource Information Services, Inc., as amended, originally incorporated under the name, Datatext Holding Corporation, and subsequently, OneSource Holding Corporation, has been further amended, and restated as amended, in accordance with provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware, and, as amended and restated, is set forth in its entirety as follows: FIRST. The name of the Corporation is OneSource Information Services, Inc. SECOND. The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware 19085. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. THIRD. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 21,000,000 shares, consisting of 20,000,000 shares of Common Stock with a par value of $.01 per share (the "COMMON STOCK") and 1,000,000 shares of Preferred Stock with a par value of $.01 per share (the "PREFERRED STOCK"). A description of the respective classes of stock and a statement of the designations, powers, preferences and rights, and the qualifications, limitations and restrictions of the Preferred Stock and Common Stock are as follows: A. COMMON STOCK 1. GENERAL. All shares of Common Stock will be identical and will entitle the holders thereof to the same rights, powers and privileges. The rights, powers and privileges of the holders of the Common Stock are subject to and qualified by the rights of holders of the Preferred Stock. 2 2. DIVIDENDS. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. 3. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, each issued and outstanding share of Common Stock shall entitle the holder thereof to receive an equal portion of the net assets of the Corporation available for distribution to the holders of Common Stock, subject to any preferential rights of any then outstanding Preferred Stock. 4. VOTING RIGHTS. Except as otherwise required by law or this Second Amended and Restated Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held of record by such holder on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation. Except as otherwise required by law or provided herein, holders of Common Stock shall vote together with holders of the Preferred Stock as a single class, subject to any special or preferential voting rights of any then outstanding Preferred Stock. There shall be no cumulative voting. B. PREFERRED STOCK The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors of the Corporation may determine. Each series shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. Except as otherwise provided in this Second Amended and Restated Certificate of Incorporation, different series of Preferred Stock shall not be construed to constitute different classes of shares for the purpose of voting by classes. The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the undesignated Preferred Stock in one or more series, each with such designations, preferences, voting powers (or special, preferential or no voting powers), relative, participating, optional or other special rights and privileges and such qualifications, limitations or restrictions thereof as shall be stated in the resolution or resolutions adopted by the Board of Directors to create such series, and a certificate of said resolution or resolutions (a "CERTIFICATE OF DESIGNATION") shall be filed in accordance with the General Corporation Law of the State of Delaware. The authority of the Board of Directors with respect to each such series shall include, without limitation of the foregoing, the right to provide that the shares of each such series may be: (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock of the Corporation at such price or prices or at such rates of -2- 3 exchange and with such adjustments, if any; (v) entitled to the benefit of such limitations, if any, on the issuance of additional shares of such series or shares of any other series of Preferred Stock; or (vi) entitled to such other preferences, powers, qualifications, rights and privileges, all as the Board of Directors may deem advisable and as are not inconsistent with law and the provisions of this Amended and Restated Certificate of Incorporation. FIFTH. The Corporation is to have perpetual existence. SIXTH. The following provisions are included for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its Board of Directors and stockholders: 1. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors of the Corporation. 2. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the By-laws of the Corporation, subject to any limitation thereof contained in the By-laws. The stockholders shall also have the power to adopt, amend or repeal the By-laws of the Corporation; PROVIDED, HOWEVER, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the By-laws of the Corporation. 3. Stockholders of the Corporation may take any action by written consent in lieu of a meeting pursuant to the procedure set forth in the By-Laws. 4. Special meetings of stockholders may be called at any time only by the President, the Chairman of the Board of Directors (if any) or a majority of the Board of Directors. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. 5. The books of the Corporation may be kept at such place within or without the State of Delaware as the By-laws of the Corporation may provide or as may be designated from time to time by the Board of Directors of the Corporation. SEVENTH. 1. NUMBER OF DIRECTORS. The number of directors which shall constitute the whole Board of Directors shall be determined by resolution of a majority of the Board of Directors, but in no event shall the number of directors be less than three. The number of directors may be decreased at any time and from time to time by a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more directors. The directors shall be elected at the annual meeting of -3- 4 stockholders by such stockholders as have the right to vote on such election. Directors need not be stockholders of the Corporation. 2. ELECTION OF DIRECTORS. Elections of directors need not be by written ballot except as and to the extent provided in the By-laws of the Corporation. 3. TERMS OF OFFICE. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected. 4. TENURE. Notwithstanding any provisions to the contrary contained herein, each director shall hold office until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. 5. VACANCIES. Unless and until filled by the stockholders, any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board of Directors, may be filled only by vote of a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office, if applicable, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next election and until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. 6. QUORUM. A majority of the total number of the whole Board of Directors shall constitute a quorum at all meetings of the Board of Directors. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each such director so disqualified; provided, however, that in no case shall less than one-third (1/3) of the number so fixed constitute a quorum. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present. 7. ACTION AT MEETING. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law or the Corporation's By-laws. 8. REMOVAL. Any one or more or all of the directors may be removed without cause only by the holders of at least seventy-five percent (75%) of the shares then entitled to vote at an election of directors. Any one or more or all of the directors may be removed with cause only by the holders of at least a majority of the shares then entitled to vote at an election of directors. 9. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided in the By-laws of the Corporation. -4- 5 10. RIGHTS OF PREFERRED STOCK. The provisions of this Article are subject to the rights of the holders of any series of Preferred Stock from time to time outstanding. EIGHTH. No director (including any advisory director) of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any provision of law imposing such liability; provided, however, that, to the extent provided by applicable law, this provision shall not eliminate the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. NINTH. The Board of Directors of the Corporation, when evaluating any offer of another party (a) to make a tender or exchange offer for any equity security of the Corporation or (b) to effect a business combination, shall, in connection with the exercise of its judgment in determining what is in the best interests of the Corporation as whole, be authorized to give due consideration to any such factors as the Board of Directors determines to be relevant, including, without limitation: (i) the interests of the Corporation's stockholders, including the possibility that these interests might be best served by the continued independence of the Corporation; (ii) whether the proposed transaction might violate federal or state laws; (iii) not only the consideration being offered in the proposed transaction, in relation to the then current market price for the outstanding capital stock of the Corporation, but also to the market price for the capital stock of the Corporation over a period of years, the estimated price that might be achieved in a negotiated sale of the Corporation as a whole or in part or through orderly liquidation, the premiums over market price for the securities of other corporations in similar transactions, current political, economic and other factors bearing on securities prices and the Corporation's financial condition and future prospects; and (iv) the social, legal and economic effects upon employees, suppliers, customers, creditors and others having similar relationships with the Corporation, upon the communities in which the Corporation conducts its business and upon the economy of the state, region and nation. In connection with any such evaluation, the Board of Directors is authorized to conduct such investigations and engage in such legal proceedings as the Board of Directors may determine. TENTH. -5- 6 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an "INDEMNITEE"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 6 below, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. 2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any Indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses (including attorneys' fees) which the Court of Chancery of Delaware or such other court shall deem proper. -6- 7 3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo CONTENDERE by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his conduct was unlawful, the Indemnitee shall be considered for the purpose hereof to have been wholly successful with respect thereto. 4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 4. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in the event that the Corporation does not assume the defense pursuant to Section 4 of this Article of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such -7- 8 matter, PROVIDED, HOWEVER, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. Such undertaking may be accepted without reference to the financial ability of such person to make such repayment. 6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification or advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the Corporation determines, by clear and convincing evidence, within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or 2, as the case may be. Such determination shall be made in each instance by (a) a majority vote of the directors of the Corporation who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), even though less than a quorum, (b) if there are no such disinterested directors, or if such disinterested directors so direct, by independent legal counsel (who may be regular legal counsel to the corporation) in a written opinion, (c) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question, or (d) a court of competent jurisdiction. 7. REMEDIES. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 6. Unless otherwise provided by law, the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of the State of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or -8- 9 investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 9. OTHER RIGHTS. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. 10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled. 11. INSURANCE. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. 12. MERGER OR CONSOLIDATION. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation. 13. SAVINGS CLAUSE. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest -9- 10 extent permitted by an applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. DEFINITIONS. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of the State of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). 15. SUBSEQUENT LEGISLATION. If the General Corporation Law of the State of Delaware is amended after adoption of this Article to expand further the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. ELEVENTH. The Corporation reserves the right to amend or repeal any provision contained in this Second Amended and Restated Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation, PROVIDED, HOWEVER, that in addition to any vote of the holders of any class or series of stock of the Corporation required by law, this Second Amended and Restated Certificate of Incorporation or a Certificate of Designation with respect to a series of Preferred Stock, the affirmative vote of the holders of shares of voting stock of the Corporation representing at least seventy-five percent (75%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to (i) reduce or eliminate the number of authorized shares of Common Stock or the number of authorized shares of Preferred Stock set forth in Article FOURTH or (ii) amend or repeal, or adopt any provision inconsistent with, Parts A and B of Article FOURTH and Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH, TENTH and this Article ELEVENTH of this Second Amended and Restated Certificate of Incorporation. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -10- 11 IN WITNESS WHEREOF, the undersigned has hereunto signed his name and affirms that the statements made in this Second Amended and Restated Certificate of Incorporation are true under the penalties of perjury this ____ day of ______________, 1999. ------------------------------ Daniel J. Schimmel President -11- EX-3.04 4 2ND AMENDED AND RESTATED BY-LAWS 1 EXHIBIT 3.04 SECOND AMENDED AND RESTATED BY-LAWS OF ONESOURCE INFORMATION SERVICES, INC. Dated: ____________, 1999 2 BY-LAWS TABLE OF CONTENTS ARTICLE 1 - STOCKHOLDERS.......................................................1 - --------- 1.1 PLACE OF MEETINGS.......................................................1 1.2 ANNUAL MEETING..........................................................1 1.3 SPECIAL MEETINGS........................................................1 1.4 NOTICE OF MEETINGS......................................................1 1.5 VOTING LIST.............................................................1 1.6 QUORUM..................................................................2 1.7 ADJOURNMENTS............................................................2 1.8 VOTING AND PROXIES......................................................2 1.9 ACTION AT MEETING.......................................................3 1.10 INTRODUCTION OF BUSINESS AT MEETINGS...................................3 1.11 ACTION WITHOUT MEETING.................................................6 ARTICLE 2 - DIRECTORS..........................................................6 - --------- 2.1 GENERAL POWERS..........................................................6 2.2 NUMBER; ELECTION AND QUALIFICATION......................................7 2.3 TERMS IN OFFICE.........................................................7 2.4 TENURE..................................................................7 2.5 VACANCIES...............................................................7 2.6 RESIGNATION.............................................................7 2.7 REGULAR MEETINGS........................................................8 2.8 SPECIAL MEETINGS........................................................8 2.9 NOTICE OF SPECIAL MEETINGS..............................................8 2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS.................................8 2.11 QUORUM.................................................................8 2.12 ACTION AT MEETING......................................................9 2.13 ACTION BY WRITTEN CONSENT..............................................9 2.14 REMOVAL................................................................9 2.15 COMMITTEES.............................................................9 2.16 COMPENSATION OF DIRECTORS..............................................9 2.17 AMENDMENTS TO ARTICLE.................................................10 ARTICLE 3 - OFFICERS..........................................................10 - --------- 3.1 ENUMERATION............................................................10 3.2 ELECTION...............................................................10 3.3 QUALIFICATION..........................................................10 3.4 TENURE.................................................................10 3.5 RESIGNATION AND REMOVAL................................................10 3.6 VACANCIES..............................................................11 3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD...................11 3 -ii- 3.8 PRESIDENT..............................................................11 3.9 VICE PRESIDENTS........................................................11 3.10 SECRETARY AND ASSISTANT SECRETARIES...................................11 3.11 TREASURER AND ASSISTANT TREASURERS....................................12 3.12 SALARIES..............................................................12 3.13 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS...............12 ARTICLE 4 - CAPITAL STOCK.....................................................13 - --------- 4.1 ISSUANCE OF STOCK......................................................13 4.2 CERTIFICATES OF STOCK..................................................13 4.3 TRANSFERS..............................................................13 4.4 LOST, STOLEN OR DESTROYED CERTIFICATES.................................13 4.5 RECORD DATE............................................................14 ARTICLE 5 - GENERAL PROVISIONS................................................14 - --------- 5.1 FISCAL YEAR............................................................14 5.2 CORPORATE SEAL.........................................................14 5.3 NOTICES................................................................14 5.4 WAIVER OF NOTICE.......................................................14 5.5 EVIDENCE OF AUTHORITY..................................................15 5.6 FACSIMILE SIGNATURES...................................................15 5.7 RELIANCE UPON BOOKS, REPORTS AND RECORDS...............................15 5.8 TIME PERIODS...........................................................15 5.9 CERTIFICATE OF INCORPORATION...........................................15 5.10 TRANSACTIONS WITH INTERESTED PARTIES..................................15 5.11 SEVERABILITY..........................................................16 5.12 PRONOUNS..............................................................16 ARTICLE 6 - AMENDMENTS........................................................16 - --------- 6.1 BY THE BOARD OF DIRECTORS..............................................16 6.2 BY THE STOCKHOLDERS....................................................16 4 SECOND AMENDED AND RESTATED BY-LAWS OF ONESOURCE INFORMATION SERVICES, INC. (the "CORPORATION") ARTICLE 1 - STOCKHOLDERS 1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at such place within or without the State of Delaware as may be designated from time to time by the Chairman of the Board (if any), the board of directors of the Corporation (the "BOARD OF DIRECTORS") or the President or, if not so designated, at the registered office of the Corporation. 1.2 ANNUAL MEETING. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on a date to be fixed by the Chairman of the Board (if any), Board of Directors or the President (which date shall not be a legal holiday in the place where the meeting is to be held) at the time and place to be fixed by the Chairman of the Board, the Board of Directors or the President and stated in the notice of the meeting. 1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at any time by the Chairman of the Board (if any), a majority of the Board of Directors or the President and shall be held at such place, on such date and at such time as shall be fixed by the Board of Directors or the person calling the meeting. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. 1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notices of all meetings shall state the place, date and hour of the meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the Corporation. 1.5 VOTING LIST. The officer who has charge of the stock ledger of the Corporation shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, 5 -2- either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. 1.6 QUORUM. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. Shares held by brokers which such brokers are prohibited from voting (pursuant to their discretionary authority on behalf of beneficial owners of such shares who have not submitted a proxy with respect to such shares) on some or all of the matters before the stockholders, but which shares would otherwise be entitled to vote at the meeting ("BROKER NON-VOTES") shall be counted, for the purpose of determining the presence or absence of a quorum, both (a) toward the total voting power of the shares of capital stock of the Corporation and (b) as being represented by proxy. If a quorum has been established for the purpose of conducting the meeting, a quorum shall be deemed to be present for the purpose of all votes to be conducted at such meeting, provided that where a separate vote by a class or classes, or series thereof, is required, a majority of the voting power of the shares of such class or classes, or series, present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the voting power of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. 1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these By-Laws by the stockholders present or represented at the meeting and entitled to vote, although less than a quorum, or, if no stockholder is present, by any officer entitled to preside at or to act as Secretary of such meeting. It shall not be necessary to notify any stockholder of any adjournment of less than 30 days if the time and place of the adjourned meeting are announced at the meeting at which adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. 1.8 VOTING AND PROXIES. At any meeting of the stockholders, each stockholder shall have one vote for each share of stock entitled to vote at such meeting held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided in the Certificate of Incorporation. Each stockholder of record entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting (to the extent not otherwise prohibited by the Certificate of Incorporation or these By-laws), may vote or express such consent or dissent in person or may authorize another person or persons to vote or act for such stockholder by written proxy executed by such stockholder or his or her 6 -3- authorized agent or by a transmission permitted by law and delivered to the Secretary of the Corporation. No such proxy shall be voted or acted upon after three years from the date of its execution, unless the proxy expressly provides for a longer period. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Section 1.8 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or reproduction shall be a complete reproduction of the entire original writing or transmission. All voting, including on the election of directors but excepting where otherwise required by law or the Certificate of Incorporation, may take place via a voice vote. Any vote not taken by voice shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. 1.9 ACTION AT MEETING. When a quorum is present at any meeting of stockholders, the holders of a majority of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on such matter) shall decide any matter to be voted upon by the stockholders at such meeting (other than the election of directors), except when a different vote is required by express provision of law, the Certificate of Incorporation or these By-Laws. Any election of directors by the stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at such election, except as otherwise provided by the Certificate of Incorporation. For the purposes of this paragraph, Broker Non-Votes represented at the meeting but not permitted to vote on a particular matter shall not be counted, with respect to the vote on such matter, in the number of (a) votes cast, (b) votes cast affirmatively, or (c) votes cast negatively. 1.10 INTRODUCTION OF BUSINESS AT MEETINGS. A. ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Section 1.10, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.10. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this Section 1.10, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper 7 -4- matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the one hundred twentieth (120th) day nor earlier than the close of business on the one hundred fiftieth (150th) day prior to the first anniversary of the date of the proxy statement delivered to stockholders in connection with the preceding year's annual meeting provided, however, that if either (i) the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such an anniversary date or (ii) no proxy statement was delivered to stockholders in connection with the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of capital stock of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Section 1.10 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy (70) days prior to such annual meeting), a stockholder's notice required by this Section 1.10 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive office of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. 8 -5- B. SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.10. If the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph (A)(2) of this Section 1.10 shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the ninetieth (90th) day prior to such special meeting nor later than the later of (x) the close of business on the sixtieth (60th) day prior to such special meeting or (y) the close of business on the tenth (10th) day following the day on which public announcement is first made of the date of such special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. C. GENERAL. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 1.10 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.10. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.10 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this Section 1.10, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. 9 -6- (3) Notwithstanding the foregoing provisions of this Section 1.10, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 1.10 shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances. 1.11 ACTION WITHOUT MEETING. Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be (1) signed and dated by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and (2) delivered to the Corporation within sixty days of the earliest dated consent by delivery to its registered office in the State of Delaware (in which case delivery shall be by hand or by certified or registered mail, return receipt requested), its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE 2 - DIRECTORS 2.1 GENERAL POWERS. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the Corporation except as otherwise provided by law or the Certificate of Incorporation. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law or the Certificate of Incorporation, may exercise the powers of the full Board of Directors until the vacancy is filled. Without limiting the foregoing, the Board of Directors may: (a) declare dividends from time to time in accordance with law; (b) purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (c) authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, to borrow funds and guarantee obligations, and to do all things necessary in connection therewith; (d) remove any officer of the Corporation with or without cause, and from time to time devolve the powers and duties of any officer upon any other person for the time being; 10 -7- (e) confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (f) adopt from time to time such stock option, stock purchase, bonus or other compensation plans for directors, officers, employees, consultants and agents of the Corporation and its subsidiaries as it may determine; (g) adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees, consultants and agents of the Corporation and its subsidiaries as it may determine; and (h) adopt from time to time regulations, not inconsistent herewith, for the management of the Corporation's business and affairs. 2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which shall constitute the whole Board of Directors shall be determined by resolution of the Board of Directors, but in no event shall be less than three. The number of directors may be decreased at any time and from time to time by a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more directors. The directors shall be elected at the annual meeting of stockholders (or, if so determined by the Board of Directors pursuant to Section 10 hereof, at a special meeting of stockholders), by such stockholders as have the right to vote on such election. Directors need not be stockholders of the Corporation. 2.3 TERMS IN OFFICE. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected. 2.4 TENURE. Notwithstanding any provisions to the contrary contained herein, each director shall hold office until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. 2.5 VACANCIES. Unless and until filled by the stockholders, any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement thereof, may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office, if any, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next election of directors and until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. 2.6 RESIGNATION. Any director may resign by delivering his or her written resignation to the Corporation at its principal office or to the President or Secretary. Such resignation shall 11 -8- be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 2.7 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. 2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors may be held at any time and place, within or without the State of Delaware, designated in a call by the Chairman of the Board (if any), the President, two or more directors, or by one director in the event that there is only a single director in office. 2.9 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting. Notice shall be duly given to each director (i) by giving notice to such director in person, by electronic mail or by telephone at least 48 hours in advance of the meeting, (ii) by sending a telegram or delivering written notice by facsimile transmission or by hand, to his or her last known business or home address at least 48 hours in advance of the meeting, or (iii) by mailing written notice to his or her last known business or home address at least 72 hours in advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. 2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall be deemed to constitute presence in person at such meeting. 2.11 QUORUM. A majority of the total number of the whole Board of Directors shall constitute a quorum at all meetings of the Board of Directors. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each such director so disqualified; provided, however, that in no case shall less than one-third (1/3) of the total number of the whole Board of Directors constitute a quorum. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present. 12 -9- 2.12 ACTION AT MEETING. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, the Certificate of Incorporation or these By-Laws. 2.13 ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent to such action in writing, and the written consents are filed with the minutes of proceedings of the Board of Directors or committee. 2.14 REMOVAL. Unless otherwise provided in the Certificate of Incorporation, any one or more or all of the directors may be removed, without cause, by the holders of at least seventy-five percent (75%) of the shares then entitled to vote at an election of directors. 2.15 COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members of such committee present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at such meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of the General Corporation Law of the State of Delaware, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request. Except as the Board of Directors may otherwise determine or as provided herein, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these By-Laws for the Board of Directors. Adequate provisions shall be made for notice to members of all meeting of committees. One-third (1/3) of the members of any committee shall constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. 2.16 COMPENSATION OF DIRECTORS. Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the Corporation or any of its parent or subsidiary corporations in any other capacity and receiving compensation for such service. 13 -10- 2.17 AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law, the Certificate of Incorporation or these By-Laws, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of a least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast at any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article 2. ARTICLE 3 - OFFICERS 3.1 ENUMERATION. The officers of the Corporation shall consist of a President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, including, but not limited to, a Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries. The Board of Directors may appoint such other officers as it may deem appropriate. 3.2 ELECTION. The President, Treasurer and Secretary shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Other officers may be appointed by the Board of Directors at such meeting or at any other meeting. 3.3 QUALIFICATION. No officer need be a stockholder. Any two or more offices may be held by the same person. 3.4 TENURE. Except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws, each officer shall hold office until his or her successor is elected and qualified, unless a different term is specified in the vote choosing or appointing such officer, or until his or her earlier death, resignation or removal. 3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his or her written resignation to the Chairman of the Board (if any), to the Board of Directors at a meeting thereof, to the Corporation at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Any officer may be removed at any time, with or without cause, by vote of a majority of the entire number of directors then in office. Except as the Board of Directors may otherwise determine, no officer who resigns or is removed shall have any right to any compensation as an officer for any period following the effective date of his or her resignation or removal, or any right to damages on account of such removal, whether his or her compensation be by the month or by the year or otherwise, unless 14 -11- such compensation is expressly provided in a duly authorized written agreement with the Corporation. 3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in any office for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of President, Treasurer and Secretary. Each such successor shall hold office for the unexpired term of his predecessor and until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. 3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and stockholders at which he or she is present and shall perform such duties and possess such powers as are designated by the Board of Directors. If the Board of Directors appoints a Vice-Chairman of the Board, he or she shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties and possess such other powers as may from time to time be designated by the Board of Directors. 3.8 PRESIDENT. The President shall, subject to the direction of the Board of Directors, have general charge and supervision of the business of the Corporation. Unless otherwise provided by the Board of Directors, and provided that there is no Chairman of the Board or that the Chairman and Vice-Chairman, if any, are not available, the President shall preside at all meetings of the stockholders, and, if a director, at all meetings of the Board of Directors. Unless the Board of Directors has designated another officer as the Chief Executive Officer, the President shall be the Chief Executive Officer of the Corporation. The President shall perform such other duties and shall have such other powers as the Board of Directors may from time to time prescribe. The President shall have the power to enter into contracts and otherwise bind the Corporation in matters arising in the ordinary course of the Corporation's business. 3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and possess such powers as the Board of Directors or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and, when so performing, shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors. Unless otherwise determined by the Board of Directors, any Vice President shall have the power to enter into contracts and otherwise bind the Corporation in matters arising in the ordinary course of the Corporation's business. 3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Secretary shall perform such duties and have such powers as are incident to the office of secretary, including without limitation, the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to attend 15 -12- all meetings of stockholders and the Board of Directors and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents. Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the President or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary. In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting. 3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the Corporation, to deposit funds of the Corporation in depositories selected in accordance with these By-Laws, to disburse such funds as ordered by the Board of Directors, to make proper accounts for such funds, and to render as required by the Board of Directors statements of all such transactions and of the financial condition of the Corporation. The Assistant Treasurers shall perform such duties and possess such powers as the Board of Directors, the President or the Treasurer may from time to time prescribe. In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer. 3.12 SALARIES. Officers of the Corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors. 3.13 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which the Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. 16 -13- ARTICLE 4 - CAPITAL STOCK 4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the Corporation or the whole or any part of any issued, authorized capital stock of the Corporation held in its treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine. 4.2 CERTIFICATES OF STOCK. Every holder of stock of the Corporation shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, certifying the number and class of shares owned by such stockholder in the Corporation. Each such certificate shall be signed by, or in the name of the Corporation by, the Chairman or Vice-Chairman, if any, of the Board of Directors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation. Any or all of the signatures on such certificate may be a facsimile. Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the By-Laws, applicable securities laws or any agreement among any number of shareholders or among such holders and the Corporation shall have conspicuously noted on the face or back of such certificate either the full text of such restriction or a statement of the existence of such restriction. 4.3 TRANSFERS. Except as otherwise established by rules and regulations adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate representing such shares, properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the Corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-Laws. 4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, upon such terms and conditions as the President may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the President may require for the protection of the Corporation or any transfer agent or registrar. 17 -14- 4.5 RECORD DATE. The Board of Directors may fix in advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or, to the extent permitted by the Certificate of Incorporation and these By-laws, to express consent (or dissent) to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action. Such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action to which such record date relates. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting (to the extent permitted by the Certificate of Incorporation and these By-laws) when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE 5 - GENERAL PROVISIONS 5.1 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. 5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall be approved by the Board of Directors. 5.3 NOTICES. Except as otherwise specifically provided herein or required by law or the Certificate of Incorporation, all notices required to be given to any stockholder, director, officer, employee or agent of the Corporation shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram or facsimile transmission. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received shall be deemed to be the time of the giving of the notice. 5.4 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be given by law, by the Certificate of Incorporation or by these By-Laws, a waiver of such notice either in writing signed by the person entitled to such notice or such person's duly authorized attorney, or 18 -15- by telegraph, facsimile transmission or any other available method, whether before, at or after the time stated in such waiver, or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice. 5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the Corporation shall, as to all persons who rely on the certificate in good faith, be conclusive evidence of such action. 5.6 FACSIMILE SIGNATURES. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By-Laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. 5.7 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. 5.8 TIME PERIODS. In applying any provision of these By-Laws that requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. 5.9 CERTIFICATE OF INCORPORATION. All references in these By-Laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time. 5.10 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction between the Corporation and one or more of the directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of the directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because such director or officer is present at or participates in the meeting of the Board of Directors or a committee of the Board of Directors which authorizes the contract or transaction or solely because his, her or their votes are counted for such purpose, if: (1) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote 19 -16- of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (2) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee of the Board of Directors, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. 5.11 SEVERABILITY. Any determination that any provision of these By-Laws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these By-Laws. 5.12 PRONOUNS. All pronouns used in these By-Laws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the persons or persons so designated may require. ARTICLE 6 - AMENDMENTS 6.1 BY THE BOARD OF DIRECTORS. Except as is otherwise set forth in these By-Laws, these By-Laws may be altered, amended or repealed, or new by-laws may be adopted, by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present. 6.2 BY THE STOCKHOLDERS. Except as otherwise set forth in these By-Laws, these By-Laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote at any regular meeting of stockholders, or at any special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such special meeting. Notwithstanding the foregoing, none of Paragraphs 1.3, 1.10 or 2.14 may be altered, amended or repealed without the affirmative vote of the holders of shares of voting stock of the Corporation representing at least seventy-five percent (75%) of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote thereon. EX-3.05 5 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.05 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ONESOURCE INFORMATION SERVICES, INC. OneSource Information Services, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "CORPORATION"), DOES HEREBY CERTIFY: FIRST: That pursuant to the authority conferred upon the Board of Directors of the Corporation by the Amended and Restated Certificate of Incorporation of the Corporation (the "CHARTER"), the Board of Directors and Stockholders of the Corporation duly adopted a resolution by written consent setting forth a proposed amendment to the Charter. SECOND: That said amendment would amend the Charter as follows: 1. ARTICLE FOUR, Part A shall be deleted in its entirety and replaced with the following: "ARTICLE FOUR" -------------- Part A. AUTHORIZED SHARES The total number of shares of capital stock which the Corporation has authority to issue is 21,250,000 shares consisting of: (1) 1,250,000 shares of Class P Common Stock, par value $.01 per share ("CLASS P COMMON"); and (2) 20,000,000 shares of Common Stock, par value $.01 per share ("COMMON STOCK"). The Class P Common and Common Stock and any other common stock issued hereafter are referred to collectively as the "COMMON SHARES". The Common Shares shall have the rights, 2 preferences and limitations set forth below. Capitalized terms used but not otherwise defined in Part A or Part B of this Article Four are defined, in Part C." 2. ARTICLE FOUR Part B shall be amended by adding the following Section 8: "Section 8. MANDATORY RECLASSIFICATION. If at any time the Corporation shall effect a firm commitment underwritten public offering of shares of Common Stock in which the aggregate price paid for such shares by the public shall be at least $15,000,000 (a "Qualified IPO"), then effective immediately prior to the closing of the sale of such shares by the Corporation pursuant to such public offering, each outstanding share of Class P Common shall automatically be reclassified into one (1) share of Common Stock plus the number of additional shares of Common Stock (the "Yield Shares") equal to the aggregate Unpaid Yield to which such holder is entitled pursuant to this Part B divided by the price per share to the public for each share of Common Stock in the Qualified IPO. Holders of Class P Common so converted may deliver to the Corporation at its principal office (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to such holders) during its usual business hours, the certificate or certificates for the shares so converted, As promptly as practicable thereafter, the Corporation shall issue and deliver to such holder a certificate or certificates for the number of whole shares of Common Stock to which such holder is entitled, together with any additional shares of Common Stock and cash payment in lieu of fractional shares to which such holder may be entitled pursuant to the terms set forth herein. Until such time as a holder of Class P Common shall surrender his or its certificates therefor as provided above, such certificates shall be deemed to represent the shares of Common Stock to which such holder shall be entitled upon the surrender thereof. THIRD: That said amendment was duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, the Corporation has caused this certificate of amendment to be signed by Daniel Schimmel, its President, as of this 2lst day of April, 1999. ONESOURCE INFORMATION SERVICES, INC. By: /s/ Daniel Schimmel ---------------------- Daniel Schimmel President EX-4.01 6 SPECIMEN CERTIFICATE OF COMMON STOCK 1 EXHIBIT 4.01 ONESOURCE INFORMATION SERVICES, INC. COMMON STOCK INCORPORATED UNDER THE LAWS OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS AND RESTRICTIONS CUSIP 68272J 10 6 THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF ONESOURCE INFORMATION SERVICES, INC. transferable on the books of the Corporation by the holder hereof in person or by a duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated Secretary Chief Executive Officer COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE ONESOURCE INFORMATION SERVICES, INC. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - _________ Custodian ________ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with under Uniform Gifts to Minors right of survivorship and not as tenants in common Act _______________________________ (State) Additional abbreviations may also be used though not in the above list. 2 For value received, _________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint___________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated, ________________________ ___________________________________________ Notice: The signature(s) to this assignment must correspond with the name(s) as written upon the face of the certificate, in every particular, without alteration or enlargement, or any change whatever. Signature Guaranteed: __________________________________________________________ The signature(s) must be guaranteed by an eligible guarantor institution, (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. EX-5.01 7 OPINION OF TESTA, HURWITZ AND THIBEAULT, LLP 1 EXHIBIT 5.01 April 21, 1999 OneSource Information Services, Inc. 150 CambridgePark Drive Cambridge, Massachusetts 02140 RE: Registration Statement on Form S-1 (Registration Statement No. 333-73263) -------------------------------------- Ladies and Gentlemen: This opinion relates to an aggregate of 4,181,400 shares of Common Stock, par value $.01 per share (the "Common Stock"), of OneSource Information Services, Inc. (the "Company"), which are the subject matter of a Registration Statement on Form S-1 with the Securities and Exchange Commission (the "Commission") as filed on March 3, 1999, as amended by Amendment No. 1 to Registration Statement on Form S-1 as filed with the Commission on April 22, 1999 (the "Registration Statement"). The 4,181,400 shares of Common Stock covered by the Registration Statement consist of 2,500,000 shares being sold by the Company, 1,136,000 shares being sold by certain stockholders of the Company and 545,400 shares subject to an over-allotment option granted by certain stockholders to the underwriters to be named in the prospectus (the "Prospectus") incorporated by reference in the Registration Statement. Based upon such investigation as we have deemed necessary, we are of the opinion that when the 2,500,000 shares of Common Stock to be sold by the Company pursuant to the Prospectus have been issued and paid for in accordance with the terms described in the Prospectus, such shares of Common Stock will have been validly issued and will be fully paid and nonassessable. Further, we are of the opinion that the 1,136,000 shares of Common Stock to be sold by the stockholders of the Company pursuant to the Prospectus have been validly issued and are fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm in the Prospectus under the caption "Legal Matters." Very truly yours, TESTA, HURWITZ & THIBEAULT, LLP EX-10.02 8 1999 STOCK OPTION INCENTIVE PLAN 1 EXHIBIT 10.02 ONESOURCE INFORMATION SERVICES, INC. 1999 STOCK OPTION AND INCENTIVE PLAN 1. PURPOSE AND ELIGIBILITY The purpose of this 1999 Stock Option and Incentive Plan (the "PLAN") of OneSource Information Services, Inc. (the "COMPANY") is to provide stock options and other equity interests in the Company (each an "AWARD") to employees, officers, directors, consultants and advisors of the Company and its Subsidiaries, all of whom are eligible to receive Awards under the Plan. Any person to whom an Award has been granted under the Plan is called a "PARTICIPANT". Additional definitions are contained in Section 8. 2. ADMINISTRATION a. ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered by the Board of Directors of the Company (the "BOARD"). The Board, in its sole discretion, shall have the authority to grant and amend Awards, to adopt, amend and repeal rules relating to the Plan and to interpret and correct the provisions of the Plan and any Award. All decisions by the Board shall be final and binding on all interested persons. Neither the Company nor any member of the Board shall be liable for any action or determination relating to the Plan. b. APPOINTMENT OF COMMITTEES. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a "COMMITTEE"). All references in the Plan to the "BOARD" shall mean such Committee or the Board. c. DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by applicable law, the Board may delegate to one or more executive officers of the Company the power to grant Awards and exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the maximum number of Awards to be granted and the maximum number of shares issuable to any one Participant pursuant to Awards granted by such executive officers. 3. STOCK AVAILABLE FOR AWARDS a. NUMBER OF SHARES. Subject to adjustment under Section 3(c), the aggregate number of shares of Common Stock of the Company (the "COMMON STOCK") that may be issued pursuant to the Plan is 800,000 shares. If any Award expires, or is terminated, surrendered or forfeited, in whole or in part, the unissued Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. If shares of Common Stock issued pursuant to the Plan are repurchased by, or are surrendered or forfeited to, the Company at no more than 2 cost, such shares of Common Stock shall again be available for the grant of Awards under the Plan; provided, however, that the cumulative number of such shares that may be so reissued under the Plan will not exceed 600,000 shares. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. b. PER-PARTICIPANT LIMIT. Subject to adjustment under Section 3(c), no Participant may be granted Awards during any one fiscal year to purchase more than 100,000 shares of Common Stock. c. ADJUSTMENT TO COMMON STOCK. In the event of any stock split, stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off, split-up, or other similar change in capitalization or event, (i) the number and class of securities available for Awards under the Plan and the per-Participant share limit, (ii) the number and class of securities, vesting schedule and exercise price per share subject to each outstanding Option, (iii) the repurchase price per security subject to repurchase, and (iv) the terms of each other outstanding stock-based Award shall be adjusted by the Company (or substituted Awards may be made) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is appropriate. If Section 7(e)(i) applies for any event, this Section 3(c) shall not be applicable. 4. STOCK OPTIONS a. GENERAL. The Board may grant options to purchase Common Stock (each, an "OPTION") and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option and the Common Stock issued upon the exercise of each Option, including vesting provisions, repurchase provisions and restrictions relating to applicable federal or state securities laws, as it considers advisable. b. INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an "incentive stock option" as defined in Section 422 of the Code (an "INCENTIVE STOCK OPTION") shall be granted only to employees of the Company and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Board and the Company shall have no liability if an Option or any part thereof that is intended to be an Incentive Stock Option does not qualify as such. An Option or any part thereof that does not qualify as an Incentive Stock Option is referred to herein as a "NONSTATUTORY STOCK OPTION". c. EXERCISE PRICE. The Board shall establish the exercise price (or determine the method by which the exercise price shall be determined) at the time each Option is granted and specify it in the applicable option agreement. d. DURATION OF OPTIONS. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement. -2- 3 e. EXERCISE OF OPTION. Options may be exercised only by delivery to the Company of a written notice of exercise signed by the proper person together with payment in full as specified in Section 4(f) for the number of shares for which the Option is exercised. f. PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of an Option shall be paid for by one or any combination of the following forms of payment: (i) by check payable to the order of the Company; (ii) except as otherwise explicitly provided in the applicable option agreement, and only if the Common Stock is then publicly traded, delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price, or delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price; or (iii) to the extent explicitly provided in the applicable option agreement, by (x) delivery of shares of Common Stock owned by the Participant valued at fair market value (as determined by the Board or as determined pursuant to the applicable option agreement), (y) delivery of a promissory note of the Participant to the Company (and delivery to the Company by the Participant of a check in an amount equal to the par value of the shares purchased), or (z) payment of such other lawful consideration as the Board may determine. 5. RESTRICTED STOCK a. GRANTS. The Board may grant Awards entitling Participants to acquire shares of Common Stock, subject to (i) delivery to the Company by the Participant of a check in an amount at least equal to the par value of the shares purchased, and (ii) the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price from the Participant in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, a "RESTRICTED STOCK AWARD"). b. TERMS AND CONDITIONS. The Board shall determine the terms and conditions of any such Restricted Stock Award. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). After the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or, if the Participant has died, to the beneficiary designated by a Participant, in a manner determined by the Board, to receive amounts due or exercise rights of the Participant in the event of the Participant's death (the "DESIGNATED BENEFICIARY"). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's estate. 6. OTHER STOCK-BASED AWARDS -3- 4 The Board shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Board may determine, including, without limitation, the grant of shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights, phantom stock awards or stock units. 7. GENERAL PROVISIONS APPLICABLE TO AWARDS a. TRANSFERABILITY OF AWARDS. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees. b. DOCUMENTATION. Each Award under the Plan shall be evidenced by a written instrument in such form as the Board shall determine or as executed by an officer of the Company pursuant to authority delegated by the Board. Each Award may contain terms and conditions in addition to those set forth in the Plan provided that such terms and conditions do not contravene the provisions of the Plan. c. BOARD DISCRETION. The terms of each type of Award need not be identical, and the Board need not treat Participants uniformly. d. TERMINATION OF STATUS. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant's legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award. e. ACQUISITION OF THE COMPANY (i) CONSEQUENCES OF AN ACQUISITION. (A) ACQUISITION INTENDED TO BE ACCOUNTED FOR AS A POOLING-OF-INTERESTS. With respect to an Acquisition intended to be accounted for as a pooling-of-interests: (x) all outstanding Awards shall remain the obligation of the Company or be assumed by the surviving or acquiring entity, and there shall be automatically substituted for the shares of Common Stock then subject to such Awards the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition and (y) if a recipient of an Award is terminated by the surviving or acquiring Company without Cause (as defined in the applicable option agreement) before the first anniversary of the consummation of the Acquisition, then upon the consummation of the Acquisition, (1) all Options then outstanding shall become immediately exercisable in full and will terminate, to the extent unexercised, on their scheduled expiration date, and if the shares of Common Stock subject to such Options are -4- 5 subject to repurchase provisions, then such repurchase provisions shall immediately lapse; (2) all Restricted Stock Awards then outstanding shall become free of all repurchase provisions; and (3) all other stock-based Awards shall become exercisable, realizable or vested in full, or shall be free of all repurchase provisions, as the case may be (B) ACQUISITION INTENDED TO BE ACCOUNTED FOR UNDER THE PURCHASE METHOD. Unless otherwise expressly provided in the applicable Option or Award, upon the occurrence of an Acquisition intended to be accounted for under the purchase method, the Board or the board of directors of the surviving or acquiring entity (as used in this Section 7(e)(i)(B), also the "BOARD"), shall, as to outstanding Awards (on the same basis or on different bases, as the Board shall specify), make appropriate provision for the continuation of such Awards by the Company or the assumption of such Awards by the surviving or acquiring entity and by substituting on an equitable basis for the shares then subject to such Awards either (a) the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition, (b) shares of stock of the surviving or acquiring corporation or (c) such other securities as the Board deems appropriate, the fair market value of which (as determined by the Board in its sole discretion) shall not materially differ from the fair market value of the shares of Common Stock subject to such Awards immediately preceding the Acquisition. In addition to or in lieu of the foregoing, with respect to outstanding Options, the Board may, upon written notice to the affected optionees, provide that one or more Options must be exercised, to the extent then exercisable or to be exercisable as a result of the Acquisition, within a specified number of days of the date of such notice, at the end of which period such Options shall terminate; or terminate one or more Options in exchange for a cash payment equal to the excess of the fair market value (as determined by the Board in its sole discretion) of the shares subject to such Options (to the extent then exercisable or to be exercisable as a result of the Acquisition) over the exercise price thereof. (C) ACQUISITION DEFINED. An "ACQUISITION" shall mean: (x) any merger or consolidation after which the voting securities of the Company outstanding immediately prior thereto represent (either by remaining outstanding or by being converted into voting securities of the surviving or acquiring entity) less than 50% of the combined voting power of the voting securities of the Company or such surviving or acquiring entity outstanding immediately after such event; or (y) any sale of all or substantially all of the assets or capital stock of the Company (other than in a spin-off or similar transaction) or (z) any other acquisition of the business of the Company, as determined by the Board. (ii) ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Awards under the Plan in substitution for stock and stock-based awards issued by such entity or an affiliate thereof. The substitute Awards shall be granted on such terms and conditions as the Board considers appropriate in the circumstances. (iii) POOLING-OF INTERESTS-ACCOUNTING. If the Company proposes to engage in an Acquisition intended to be accounted for as a pooling-of-interests, and in the event that the provisions of this Plan or of any Award hereunder, or any actions of the Board taken in -5- 6 connection with such Acquisition, are determined by the Company's or the acquiring company's independent public accountants to cause such Acquisition to fail to be accounted for as a pooling-of-interests, then such provisions or actions shall be amended or rescinded by the Board, without the consent of any Participant, to be consistent with pooling-of-interests accounting treatment for such Acquisition. (iv) PARACHUTE AWARDS. Notwithstanding the provisions of Section 7(e)(i)(A), if, in connection with an Acquisition described therein, a tax under Section 4999 of the Code would be imposed on the Participant (after taking into account the exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of the Code), then the number of Awards which shall become exercisable, realizable or vested as provided in such section shall be reduced (or delayed), to the minimum extent necessary, so that no such tax would be imposed on the Participant (the Awards not becoming so accelerated, realizable or vested, the "PARACHUTE AWARDS"); provided, however, that if the "AGGREGATE PRESENT VALUE" of the Parachute Awards would exceed the tax that, but for this sentence, would be imposed on the Participant under Section 4999 of the Code in connection with the Acquisition, then the Awards shall become immediately exercisable, realizable and vested without regard to the provisions of this sentence. For purposes of the preceding sentence, the "AGGREGATE PRESENT VALUE" of an Award shall be calculated on an after-tax basis (other than taxes imposed by Section 4999 of the Code) and shall be based on economic principles rather than the principles set forth under Section 280G of the Code and the regulations promulgated thereunder. All determinations required to be made under this Section 7(e)(iv) shall be made by the Company. f. WITHHOLDING. Each Participant shall pay to the Company, or make provisions satisfactory to the Company for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. The Board may allow Participants to satisfy such tax obligations in whole or in part by transferring shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their fair market value (as determined by the Board or as determined pursuant to the applicable option agreement). The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant. g. AMENDMENT OF AWARDS. The Board may amend, modify or terminate any outstanding Award including, but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that, except as otherwise provided in Section 7(e)(iii), the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant. h. CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been -6- 7 satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations. i. ACCELERATION. The Board may at any time provide that any Options shall become immediately exercisable in full or in part, that any Restricted Stock Awards shall be free of some or all restrictions, or that any other stock-based Awards may become exercisable in full or in part or free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be, despite the fact that the foregoing actions may (i) cause the application of Sections 280G and 4999 of the Code if a change in control of the Company occurs, or (ii) disqualify all or part of the Option as an Incentive Stock Option. 8. MISCELLANEOUS a. DEFINITIONS. (i) "COMPANY," for purposes of eligibility under the Plan, shall include any present or future subsidiary corporations of OneSource Information Services, Inc., as defined in Section 424(f) of the Code (a "SUBSIDIARY"), and any present or future parent corporation of OneSource Information Services, Inc., as defined in Section 424(e) of the Code. For purposes of Awards other than Incentive Stock Options, the term "COMPANY" shall include any other business venture in which the Company has a direct or indirect significant interest, as determined by the Board in its sole discretion. (ii) "CODE" means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. (iii) "EMPLOYEE" for purposes of eligibility under the Plan shall include a person to whom an offer of employment has been extended by the Company. b. NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan. c. NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder thereof. d. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective after adoption by the Board on a date determined by the Board. No Awards shall be granted under the Plan -7- 8 after the completion of ten years from the date on which the Plan was adopted by the Board, but Awards previously granted may extend beyond that date. e. AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan or any portion thereof at any time. f. GOVERNING LAW. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law. -8- 9 Adopted by the Board of Directors on February 17, 1999 Approved by the stockholders on April 21, 1999 --------------------- -9- EX-10.03 9 1999 EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 10.03 ONESOURCE INFORMATION SERVICES, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN ARTICLE 1 - PURPOSE. This 1999 Employee Stock Purchase Plan (the "PLAN") is intended to encourage stock ownership by all eligible employees of OneSource Information Services, Inc. (the "COMPANY"), a Delaware corporation, and its participating subsidiaries (as defined in Article 17) so that they may share in the growth of the Company by acquiring or increasing their proprietary interest in the Company. The Plan is designed to encourage eligible employees to remain in the employ of the Company and its participating subsidiaries. The Plan is intended to constitute an "employee stock purchase plan" within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the "CODE"). ARTICLE 2 - ADMINISTRATION OF THE PLAN. The Plan may be administered by a committee appointed by the Board of Directors of the Company (the "COMMITTEE"). The Committee shall consist of not less than two members of the Company's Board of Directors. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. The Committee may select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. The interpretation and construction by the Committee of any provisions of the Plan or of any option granted under it shall be final, unless otherwise determined by the Board of Directors. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best, provided that any such rules and regulations shall be applied on a uniform basis to all employees under the Plan. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. In the event the Board of Directors fails to appoint or refrains from appointing a Committee, the Board of Directors shall have all power and authority to administer the Plan. In such event, the word "COMMITTEE" wherever used herein shall be deemed to mean the Board of Directors. ARTICLE 3 - ELIGIBLE EMPLOYEES. All employees of the Company or any of its participating subsidiaries whose customary employment is more than 20 hours per week and for more than five months in any calendar year and who have completed at least three months service shall be eligible to receive options under the Plan to purchase common stock of the Company, and all eligible employees shall have the same rights and privileges hereunder. Persons who are eligible employees on the first business day of any Payment Period (as defined in Article 5) shall receive their options as of such day. Persons who become eligible employees after any date on which options are granted under the Plan shall be granted options on the first day of the next succeeding Payment Period on which options are granted to eligible employees under the 2 -2- Plan. In no event, however, may an employee be granted an option if such employee, immediately after the option was granted, would be treated as owning stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or of any parent corporation or subsidiary corporation, as the terms "parent corporation" and "subsidiary corporation" are defined in Section 424(e) and (f) of the Code. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply, and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee. ARTICLE 4 - STOCK SUBJECT TO THE PLAN. The stock subject to the options under the Plan shall be shares of the Company's authorized but unissued common stock, par value $.01 par value per share (the "COMMON STOCK"), or shares of Common Stock reacquired by the Company, including shares purchased in the open market. The aggregate number of shares which may be issued pursuant to the Plan is 100,000, subject to adjustment as provided in Article 12. If any option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject thereto shall again be available under the Plan. ARTICLE 5 - PAYMENT PERIOD AND STOCK OPTIONS. The first Payment Period during which payroll deductions will be accumulated under the Plan shall commence on the later to occur of June 1, 1999 and the first day of the first calendar month following effectiveness of the Form S-8 registration statement filed with the Securities and Exchange Commission covering the shares to be issued pursuant to the Plan and shall end on December 31, 1999. For the remainder of the duration of the Plan, Payment Periods shall consist of the six-month periods commencing on January 1 and July 1 and ending on June 30 and December 31, respectively, of each calendar year. Twice each year, on the first business day of each Payment Period, the Company will grant to each eligible employee who is then a participant in the Plan an option to purchase on the last day of such Payment Period, at the Option Price hereinafter provided for, a maximum of 1,000 shares, on condition that such employee remains eligible to participate in the Plan throughout the remainder of such Payment Period. The participant shall be entitled to exercise the option so granted only to the extent of the participant's accumulated payroll deductions on the last day of such Payment Period. If the participant's accumulated payroll deductions on the last day of the Payment Period would enable the participant to purchase more than 1,000 shares except for the 1,000-share limitation, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the 1,000 shares shall be promptly refunded to the participant by the Company, without interest. The Option Price per share for each Payment Period shall be the lesser of (i) 85% of the average market price of the Common Stock on the first business day of the Payment Period and (ii) 85% of the average market price of the Common Stock on the last business day of the Payment Period, in either event rounded up TO the nearest cent. The foregoing limitation on the number of shares subject to option and the Option Price shall be subject to adjustment as provided in Article 12. For purposes of the Plan, the term "average market price" on any date means (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the NASDAQ 3 -3- National Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the average of the closing bid and asked prices last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the NASDAQ National Market; or (iv) if the Common Stock is not publicly traded, the fair market value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. For purposes of the Plan, the term "business day" means a day on which there is trading on the NASDAQ National Market or the aforementioned national securities exchange, whichever is applicable pursuant to the preceding paragraph; and if neither is applicable, a day that is not a Saturday, Sunday or legal holiday in Massachusetts. No employee shall be granted an option which permits the employee's right to purchase stock under the Plan, and under all other Section 423(b) employee stock purchase plans of the Company and any parent or subsidiary corporations, to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined on the date or dates that options on such stock were granted) for each calendar year in which such option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code. If the participant's accumulated payroll deductions on the last day of the Payment Period would otherwise enable the participant to purchase Common Stock in excess of the Section 423(b)(8) limitation described in this paragraph, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the shares actually purchased shall be promptly refunded to the participant by the Company, without interest. ARTICLE 6 - EXERCISE OF OPTION. Each eligible employee who continues to be a participant in the Plan on the last day of a Payment Period shall be deemed to have exercised his or her option on such date and shall be deemed to have purchased from the Company such number of full shares of Common Stock reserved for the purpose of the Plan as the participant's accumulated payroll deductions on such date will pay for at the Option Price, subject to the 1,000-share limit of the option and the Section 423(b)(8) limitation described in Article 5. If the individual is not a participant on the last day of a Payment Period, the he or she shall not be entitled to exercise his or her option. Only full shares of Common Stock may be purchased under the Plan. Unused payroll deductions remaining in a participant's account at the end of a Payment Period by reason of the inability to purchase a fractional share shall be carried forward to the next Payment Period. ARTICLE 7 - AUTHORIZATION FOR ENTERING THE PLAN. An employee may elect to enter the Plan by filling out, signing and delivering to the Company an authorization: A. Stating the percentage to be deducted regularly from the employee's pay; B. Authorizing the purchase of stock for the employee in each Payment Period in accordance with the terms of the Plan; and C. Specifying the exact name or names in which stock purchased for the employee is to be issued as provided under Article 11 hereof. 4 -4- Such authorization must be received by the Company at least ten days before the first day of the next succeeding Payment Period and shall take effect only if the employee is an eligible employee on the first business day of such Payment Period. Unless a participant files a new authorization or withdraws from the Plan, the deductions and purchases under the authorization the participant has on file under the Plan will continue from one Payment Period to succeeding Payment Periods as long as the Plan remains in effect. The Company will accumulate and hold for each participant's account the amounts deducted from his or her pay. No interest will be paid on these amounts. ARTICLE 8 - MAXIMUM AMOUNT OF PAYROLL DEDUCTIONS. An employee may authorize payroll deductions in an amount (expressed as a whole percentage) not less than one percent (1%) but not more than ten percent (10%) of the employee's total compensation, including base pay or salary and any overtime, bonuses or commissions. ARTICLE 9 - CHANGE IN PAYROLL DEDUCTIONS. Deductions may not be increased or decreased during a Payment Period. However, a participant may withdraw in full from the Plan. ARTICLE 10 - WITHDRAWAL FROM THE PLAN. A participant may withdraw from the Plan (in whole but not in part) at any time prior to the last day of a Payment Period by delivering a withdrawal notice to the Company. To re-enter the Plan, an employee who has previously withdrawn must file a new authorization at least ten days before the first day of the next Payment Period in which he or she wishes to participate. The employee's re-entry into the Plan becomes effective at the beginning of such Payment Period, provided that he or she is an eligible employee on the first business day of the Payment Period. ARTICLE 11 - ISSUANCE OF STOCK. Certificates for stock issued to participants shall be delivered as soon as practicable after each Payment Period by the Company's transfer agent. Stock purchased under the Plan shall be issued only in the name of the participant, or if the participant's authorization so specifies, in the name of the participant and another person of legal age as joint tenants with rights of survivorship. ARTICLE 12 - ADJUSTMENTS. Upon the happening of any of the following described events, a participant's rights under options granted under the Plan shall be adjusted as hereinafter provided: A. In the event that the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if, upon a reorganization, split-up, liquidation, recapitalization or the like of the Company, the shares of Common Stock shall be exchanged for other securities of the Company, each participant shall be entitled, subject to the conditions herein 5 -5- stated, to purchase such number of shares of Common Stock or amount of other securities of the Company as were exchangeable for the number of shares of Common Stock that such participant would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or exchange; and B. In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which shall at the time be subject to option hereunder, each participant upon exercising such an option shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which the participant is exercising his or her option and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as is equal to the number of shares thereof and the amount of cash in lieu of fractional shares, respectively, which the participant would have received if the participant had been the holder of the shares as to which the participant is exercising his or her option at all times between the date of the granting of such option and the date of its exercise. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Article 4 hereof which are subject to options which have been or may be granted under the Plan and the limitations set forth in the second paragraph of Article 5 shall also be appropriately adjusted to reflect the events specified in paragraphs A and B above. Notwithstanding the foregoing, any adjustments made pursuant to paragraphs A or B shall be made only after the Committee, based on advice of counsel for the Company, determines whether such adjustments would constitute a "modification" (as that term is defined in Section 424 of the Code). If the Committee determines that such adjustments would constitute a modification, it may refrain from making such adjustments. If the Company is to be consolidated with or acquired by another entity in a merger, a sale of all or substantially all of the Company's assets or otherwise (an "ACQUISITION"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "SUCCESSOR BOARD") shall, with respect to options then outstanding under the Plan, either (i) make appropriate provision for the continuation of such options by arranging for the substitution on an equitable basis for the shares then subject to such options either (a) the consideration payable with respect to the outstanding shares of the Common Stock in connection with the Acquisition, (b) shares of stock of the successor corporation, or a parent or subsidiary of such corporation, or (c) such other securities as the Successor Board deems appropriate, the fair market value of which shall not materially exceed the fair market value of the shares of Common Stock subject to such options immediately preceding the Acquisition; or (ii) terminate each participant's options in exchange for a cash payment equal to the excess of (a) the fair market value on the date of the Acquisition, of the number of shares of Common Stock that the participant's accumulated payroll deductions as of the date of the Acquisition could purchase, at an option price determined with reference only to the first business day of the applicable Payment Period and subject to the [NUMBER]-share, Code Section 423(b)(8) and fractional-share limitations on the amount of stock a participant would be entitled to purchase, over (b) the result of multiplying such number of shares by such option price. The Committee or Successor Board shall determine the adjustments to be made under this Article 12, and its determination shall be conclusive. ARTICLE 13 - NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS. An option granted under the Plan may not be transferred or assigned and may be exercised only by the participant. 6 -6- ARTICLE 14 - TERMINATION OF EMPLOYEE'S RIGHTS. Whenever a participant ceases to be an eligible employee because of retirement, voluntary or involuntary termination, resignation, layoff, discharge, death or for any other reason, his or her rights under the Plan shall immediately terminate, and the Company shall promptly refund, without interest, the entire balance of his or her payroll deduction account under the Plan. Notwithstanding the foregoing, eligible employment shall be treated as continuing intact while a participant is on military leave, sick leave or other bona fide leave of absence, for up to 90 days, or for so long as the participant's right to re-employment is guaranteed either by statute or by contract, if longer than 90 days. ARTICLE 15 - TERMINATION AND AMENDMENTS TO PLAN. The Plan may be terminated at any time by the Company's Board of Directors but such termination shall not affect options then outstanding under the Plan. It will terminate in any case when all or substantially all of the unissued shares of stock reserved for the purposes of the Plan have been purchased. If at any time shares of stock reserved for the purpose of the Plan remain available for purchase but not in sufficient number to satisfy all then unfilled purchase requirements, the available shares shall be apportioned among participants in proportion to the amount of payroll deductions accumulated on behalf of each participant that would otherwise be used to purchase stock, and the Plan shall terminate. Upon such termination or any other termination of the Plan, all payroll deductions not used to purchase stock will be refunded, without interest. The Committee or the Board of Directors may from time to time adopt amendments to the Plan provided that, without the approval of the stockholders of the Company, no amendment may (i) increase the number of shares that may be issued under the Plan; (ii) change the class of employees eligible to receive options under the Plan, if such action would be treated as the adoption of a new plan for purposes of Section 423(b) of the Code; or (iii) cause Rule 16b-3 under the Securities Exchange Act of 1934 to become inapplicable to the Plan. ARTICLE 16 - LIMITS ON SALE OF STOCK PURCHASED UNDER THE PLAN. The Plan is intended to provide shares of Common Stock for investment and not for resale. The Company does not, however, intend to restrict or influence any employee in the conduct of his or her own affairs. An employee may, therefore, sell stock purchased under the Plan at any time the employee chooses, subject to compliance with any applicable federal or state securities laws and subject to any restrictions imposed under Article 21 to ensure that tax withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK. ARTICLE 17 - PARTICIPATING SUBSIDIARIES. The term "participating subsidiary" shall mean any present or future subsidiary of the Company, as that term is defined in Section 424(f) of the Code, which is designated from time to time by the Board of Directors to participate in the Plan. The Board of Directors shall have the power to make such designation before or after the Plan is approved by the stockholders. ARTICLE 18 - OPTIONEES NOT STOCKHOLDERS. 7 -7- Neither the granting of an option to an employee nor the deductions from his or her pay shall constitute such employee a stockholder of the shares covered by an option until such shares have been actually purchased by the employee. ARTICLE 19 - APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Common Stock pursuant to options granted under the Plan will be used for general corporate purposes. ARTICLE 20 - NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By electing to participate in the Plan, each participant agrees to notify the Company in writing immediately after the participant transfers Common Stock acquired under the Plan, if such transfer occurs within two years after the first business day of the Payment Period in which such Common Stock was acquired. Each participant further agrees to provide any information about such a transfer as may be requested by the Company or any subsidiary corporation in order to assist it in complying with the tax laws. Such dispositions generally are treated as "disqualifying dispositions" under Sections 421 and 424 of the Code, which have certain tax consequences to participants and to the Company and its participating subsidiaries. ARTICLE 21 - WITHHOLDING OF ADDITIONAL INCOME TAXES. By electing to participate in the Plan, each participant acknowledges that the Company and its participating subsidiaries are required to withhold taxes with respect to the amounts deducted from the participant's compensation and accumulated for the benefit of the participant under the Plan, and each participant agrees that the Company and its participating subsidiaries may deduct additional amounts from the participant's compensation, when amounts are added to the participant's account, used to purchase Common Stock or refunded, in order to satisfy such withholding obligations. Each participant further acknowledges that when Common Stock is purchased under the Plan the Company and its participating subsidiaries may be required to withhold taxes with respect to all or a portion of the difference between the fair market value of the Common Stock purchased and its purchase price, and each participant agrees that such taxes may be withheld from compensation otherwise payable to such participant. It is intended that tax withholding will be accomplished in such a manner that the full amount of payroll deductions elected by the participant under Article 7 will be used to purchase Common Stock. However, if amounts sufficient to satisfy applicable tax withholding obligations have not been withheld from compensation otherwise payable to any participant, then, notwithstanding any other provision of the Plan, the Company may withhold such taxes from the participant's accumulated payroll deductions and apply the net amount to the purchase of Common Stock, unless the participant pays to the Company, prior to the exercise date, an amount sufficient to satisfy such withholding obligations. Each participant further acknowledges that the Company and its participating subsidiaries may be required to withhold taxes in connection with the disposition of stock acquired under the Plan and agrees that the Company or any participating subsidiary may take whatever action it considers appropriate to satisfy such withholding requirements, including deducting from compensation otherwise payable to such participant an amount sufficient to satisfy such withholding requirements or conditioning any disposition of Common Stock by the participant upon the payment to the Company or such subsidiary of an amount sufficient to satisfy such withholding requirements. 8 -8- ARTICLE 22 - GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver shares of Common Stock under the Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to identify shares of Common Stock issued under the Plan on its stock ownership records and send tax information statements to employees and former employees who transfer title to such shares. ARTICLE 23 - GOVERNING LAW. The validity and construction of the Plan shall be governed by the laws of [STATE], without giving effect to the principles of conflicts of law thereof. ARTICLE 24 - APPROVAL OF BOARD OF DIRECTORS AND STOCKHOLDERS OF THE COMPANY. The Plan was adopted by the Board of Directors on February 17, 1999 and was approved by the stockholders of the Company on April 21, 1999. EX-10.14 10 STOCKHOLDERS AGREEMENT 1 EXHIBIT 10.14 STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT is made as of September 8, 1993, by and between OneSource Holding Corporation, a Delaware Corporation (the "Company") , William Blair Venture Partners III Limited Partnership ("William Blair"), Information Partners Capital Fund, L.P. ("Information Partners"), Silicon Valley Bank ("Silicon"), and certain other persons listed on Schedule A (William Blair, Information Partners, Silicon, and such other persons are collectively referred to herein as the "Stockholders," and each as a "Stockholder"). Unless otherwise indicated herein, capitalized terms used herein are defined in paragraph 9 hereof. WHEREAS, the Company, as of the date hereof, is authorized by its Certificate of Incorporation to issue capital stock consisting of 100,000 shares of its Class P Common Stock, par value $. 01 per share (the "Class P Common"), and 1, 500, 000 shares of its Common Stock, par value $.01 per share ("Common"). The Class P Common and the Common are collectively referred to herein as "Common Stock". WHEREAS, at the Closing, pursuant to a Stock Purchase Agreement between the Company and certain of the Stockholders, dated as of the date hereof (the "Purchase Agreement"), certain of the Stockholders will purchase from the Company the number of shares of Common Stock set forth opposite such Stockholder's name on the Schedule of Purchasers attached to the Purchase Agreement. WHEREAS, the parties hereto desire to restrict the sale, assignment, transfer, encumbrance or other disposition of the Common Stock and to provide for certain rights and obligations in respect thereto as hereinafter provided. NOW, THEREFORE, the parties to this Agreement hereby agree as follows: 1. VOTING AGREEMENT. (a) From and after the Closing (as defined in the Purchase Agreement) and until the provisions of this paragraph 1 cease to be effective, each holder of Investor Shares shall vote all of his Investor Shares and shall take all other necessary or desirable actions within his control (whether in his capacity as a stockholder or officer of the Company or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary and desirable actions within its control (including, without limitation, calling special board and stockholder meetings), so that: (i) subject to paragraph l(e) below, the authorized number of directors on the Company's board of directors (the "Board") shall be established at two directors; (ii) the following persons shall be elected to the Board: 2 -2- (A) one representative designated by the holders of the William Blair Shares (the "Blair Director"); and (B) one representative designated by the holders of the Information Partners Shares (the "IP Director"); provided that, in the event that William Blair or Information Partners cease to own at least 25% of the William Blair Shares or the Information Partners shares, respectively, which it originally purchased pursuant to the Purchase Agreement, the right to designate their one representative will be transferred to the other group; (iii) the removal from the Board (with or without cause) of any representative designated hereunder by the holders of a majority of the William Blair Shares or the Information Partners Shares shall be at William Blair's or Information Partners' written request, respectively, but only upon such written request and under no other circumstances (in each case, determined on the basis of a vote of the holders of a majority of the shares of Common Stock held by such persons); (iv) in the event that any representative designated hereunder by the holders of a majority of the William Blair Shares or the Information Partners Shares for any reason ceases to serve as a member of the Board during his term of office, the resulting vacancy on the Board shall be filled by a representative designated by the William Blair or Information Partners, respectively, as provided hereunder; (b) From and after the Closing (as defined in the Purchase Agreement) and until the provisions of this paragraph 1 cease to be effective, the Company shall vote all shares of common stock of OneSource Information Services, Inc. ("OneSource") and shall take all other necessary or desirable actions within its control, so that: (i) subject to paragraph 1 (e) below, the authorized number of directors on the board of directors of OneSource (the "OneSource Board") shall be established at five directors; (ii) the following persons shall be elected to the OneSource Board: (A) one representative designated by the holders of the William Blair Shares; and (B) one representative designated by the holders of the Information Partners Shares; (C) the President of OneSource; 3 -3- (D) the Chairman of OneSource; and (E) one representative to be mutually agreed upon by the holders of the William Blair Shares and the holders of the Information Partners Shares; provided that, in the event that William Blair or Information Partners cease to own at least 25% of the William Blair Shares or the Information Partners Shares, respectively, which it originally purchased pursuant to the Purchase Agreement, the right to designate their one representative will be transferred to the other group and the right to designate pursuant to subparagraph (E) above will be made solely by the group which has the right to designate directors pursuant to subparagraphs (A) and (B) above; (c) The Company shall pay the reasonable out-of-pocket expenses incurred by each director in connection with attending the meetings of the Board and any committee thereof. (d) The provisions of this paragraph 1 shall terminate automatically and be of no further force and effect upon the first to occur of (i) the tenth anniversary of the date hereof unless extended by the parties hereto in accordance with (or any similar provision then in force) Section 218 of the Delaware General Corporation Law, or (ii) a Qualified Public Offering. (e) If any party fails to designate a representative to fill a directorship or committee membership pursuant to the terms of this paragraph 1 within 30 days after such vacancy occurs, the election of a person to such directorship shall be accomplished in accordance with the Company's or OneSource's bylaws, as the case may be, and applicable law; provided that in the event that such party then designates a representative to fill such membership such designee will replace the person elected. 2. RESTRICTIONS ON TRANSFER OF STOCKHOLDER SHARES. (a) TRANSFER OF STOCKHOLDER SHARES. No holder of Stockholder Shares shall sell, transfer, assign, pledge or otherwise dispose of (a "Transfer") any interest in any Stockholder Shares except pursuant to the provisions of this paragraph 2 or pursuant to an Exempt Transfer (as defined in paragraph 2(e)). (b) NOTICE OF PROPOSED TRANSFER. Prior to making any Transfer of any Stockholder Shares (other than an Exempt Transfer) , the transferring holder of Stockholder Shares (the "Transferring Stockholder") shall deliver a written notice (the "Sale Notice") to the Company and the holders of Investor Shares. The Sale Notice shall disclose in reasonable detail the proposed number and class of Stockholder Shares to be transferred (the "Offered Shares") and the proposed terms and conditions of the Transfer, which shall be in the form of a sale of such Offered Shares solely for cash (payable at closing or in specified installments). 4 -4- (c) FIRST OFFER RIGHT. The Company may elect to purchase all or any portion of the Offered Shares at the price and on the terms specified in the Sale Notice by delivering written notice of such election to the Transferring Stockholder and the holders of Investor Shares as soon as practicable but in any event within 15 days after the delivery of the Sale Notice. If the Company has not elected to purchase all of the Offered Shares within such 15-day period, each holder of Investor Shares (other than the Transferring Stockholder) may elect to purchase up to his Pro Rata Share (as defined below) of the Offered Shares at the price and on the terms specified in the Sale Notice by delivering written notice of such election to the Transferring Stockholder and all other holders as soon as practicable but in any event within 45 days after delivery of the Sale Notice. Any Offered Shares not elected to be purchased by the end of such 30-day period shall be reoffered for an additional 10-day period by the Transferring Stockholder on pro rata basis to the holders of Investor Shares who have elected to purchase their Pro Rata Share. If the Company or any holder of Investor Shares has elected to purchase Offered Shares from the Transferring Stockholder, the transfer of such shares shall be consummated as soon as practicable after the delivery of the election notices, but in any event within 90 days after delivery of the Sale Notice. To the extent that the Company and the holders of Investor Shares have not elected to purchase all of the Offered Shares, the Transferring Stockholder may, within 12 0 days after the end of the 40-day notice period, transfer the balance of such Offered Shares to one or more third parties at a price no less than 95% of the price per share specified in the Sale Notice and on other terms no more favorable to the transferees than offered to the Company and the holders of Investor Shares in the Sale Notice. Each holder's "Pro Rata Share" shall be based upon such holder's percentage ownership of the Investor Shares on a fully-diluted basis. The Transferring Stockholder's ability to effect any Transfer pursuant to this Section 2(c), whether to the Company, the other holders of Investor Shares or any third party, shall in all cases be subject to the participation rights of other holders of Investor Shares pursuant to Section 2(d) below. (d) PARTICIPATION RIGHTS. Each holder of Investor Shares (other than the Transferring Stockholder) may elect to participate in the contemplated Transfer by delivering written notice to the Transferring Stockholder within 30 days after delivery of the Sale Notice. If any holders of Investor Shares have elected to participate in such Transfer, the Transferring Stockholder and such other holders shall be entitled to include in the contemplated Transfer, at the same price and on the same terms, a number of such class or classes of Stockholder Shares (the "Included Shares") equal to the product of (i) the quotient determined by dividing the percentage of such class of the Stockholder Shares owned by such person by the aggregate percentage of such class of the Stockholder Shares owned by the Transferring Stockholder and all holders electing to participate in such Transfer and (ii) the number of such class of Offered Shares. For purposes of this paragraph, each series of a given class will be treated the same for the determination of the number of Stockholder Shares used in the calculation above. FOR EXAMPLE, if the contemplated Transfer involves 100 Offered Shares of a certain class and if the Transferring Stockholder 5 -5- at such time owns 30% of all Stockholder Shares of such class and if one other holder elects to participate and owns 20% of all Stockholder Shares of such class, the Transferring Stockholder would be entitled to sell 60 shares ((30% [dividend sign] 50%) x 100 shares) and the other holder would be entitled to sell 40 shares ((20% [dividend sign] 50%) x 100 shares). Each holder of Stockholder Shares shall use best efforts to obtain the agreement of the prospective transferee (s) to the participation of the other holders in any contemplated Transfer, and each holder shall not transfer any of its Stockholder Shares to the prospective transferee (s) if the prospective transferee (s) declines to allow the participation of the other holders. (e) PERMITTED TRANSFERS. The restrictions contained in this Section 2 shall not apply to (i) any Transfer of Stockholder Shares by any Stockholder among its Affiliates, (ii) a Public Sale, (iii) a Sale of the Company, (iv) a Transfer of Stockholder Shares by any Stockholder pursuant to the laws of descent and distribution or among such Stockholder's Family Group, or (v) a Transfer pursuant to paragraph 2(c) or paragraph 2(d) above. Any Transfer permitted by this Section 2(e) is referred to herein as an "Exempt Transfer." (f) TERMINATION OF RESTRICTIONS. The restrictions set forth in this paragraph 2 shall continue with respect to each Stockholder Share until the earlier of (i) the date on which such Stockholder Share has been transferred in a Public Sale, (ii) the consummation of a Sale of the Company or (iii) the consummation of a Qualified Public Offering. 3. SALE OF THE COMPANY. (a) Notwithstanding any provision to the contrary contained herein, the holders of a majority of the William Blair Shares and the holders of a majority of the Information Partners Shares (collectively, the "Sale Stockholders") may require that the Company enter into a Sale of the Company; provided, however, that in the event that William Blair and/or Information Partners cease to hold at least 25% of the William Blair Shares or Information Partners Shares, respectively, which were originally purchased by William Blair or Information Partners pursuant to the Purchase Agreement, the William Blair Shares in the case of William Blair, and the Information Partners Shares in the case of Information Partners, will not have the right to require or the right to prevent the other group from requiring that the Company enter into a Sale of the Company pursuant to this paragraph 3 (collectively an "Approved Sale"). (b) If the Company enters into a Sale of the Company pursuant to Section 3(a), each holder of Stockholder Shares shall vote for, consent to and raise no objection against such Approved Sale. If the Approved Sale is structured as a (i) merger or consolidation, each holder of Stockholder Shares shall waive any dissenters rights, appraisal rights or similar rights in connection with such merger or consolidation, or (ii) sale of stock, each holder of Stockholder Shares shall agree to sell all of his Stockholder Shares and rights to acquire Stockholder Shares on the terms and conditions approved by the Board and pursuant to the Approved Sale. Each 6 -6- holder of Stockholder Shares shall take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Company. (c) The obligations of the holders of the Stockholder Shares with respect to the Approved Sale of the Company are also subject to the satisfaction of the following conditions: (i) the consideration received in an Approved Sale shall be distributed among the holders of Stockholder Shares in the manner which such proceeds would be distributed in a complete liquidation of the Company pursuant to the rights and preferences set forth in the Certificate of Incorporation as in effect immediately prior to such Approved Sale; and (ii) all holders of then currently exercisable rights to acquire, directly or indirectly, shares of any class of Common Stock will be given an opportunity either to (A) exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of Common Stock or (B) upon the consummation of the Approved Sale, receive in exchange for such rights consideration equal to the amount determined by multiplying (1) the same amount of consideration per share of such class of Common Stock receivable by the holders of such class of Common Stock in connection with the Approved Sale less the exercise price or conversion price per share of such class of Common Stock of such right to acquire, directly or indirectly, such class of Common Stock by (2) the number of shares of such class of Common Stock represented by such rights. (d) If the Company or the Sale Stockholders enter into any negotiation or transaction for which Rule 506 promulgated under the Securities Act (or any similar rule then in effect) may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization) , the holders of Stockholder Shares will, at the request of the Board, appoint a purchaser representative (as such term is defined in Rule 501 promulgated under the Securities Act) reasonably acceptable to the Board. If any holder of Stockholder Shares appoints the purchaser representative designated by the Board, the Company will pay the fees of such purchaser representative, but if any holder of Stockholder Shares declines to appoint the purchaser representative designated by the Board, such holder will appoint another purchaser representative (reasonably acceptable to the Board), and such holder will be responsible for the fees of the purchaser representative so appointed. (e) Each holder of Stockholder Shares (other than Silicon) will bear its pro rata share (based upon the aggregate proceeds received by such Stockholder) of the costs of any sale of Stockholder Shares pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Stockholder Shares and are not otherwise paid by the Company or the acquiring party. Costs incurred by any holder of Stockholder Shares on its own behalf will not be considered costs of the transaction hereunder. (f) The provisions of this Section 3 will terminate upon the completion of a Qualified Public Offering. 4. LIMITED PREEMPTIVE RIGHTS. 7 -7- (a) Except for the issuance of Common Stock (i) to the Company's or its Subsidiaries' employees (or pursuant to options or rights granted to persons who were employees at the Company or its Subsidiaries as of the date of grant) or (ii) pursuant to a public offering registered under the Securities Act, if the Company or any of its Subsidiaries authorizes the issuance or sale of any of its securities (other than as a dividend on the outstanding common Stock) to a Person (or group of affiliated Persons) who holds, or would hold after giving effect to such issuance or sale, at least 5% of the outstanding Common Stock or securities convertible or exercisable into at least 5% of the outstanding Common Stock, the Company shall first offer to sell to each holder of Investor Shares a portion of such stock or securities equal to the quotient determined by dividing (A) the number of shares of Common Stock held by such holder by (B) the total number of shares of outstanding Common Stock. Each Purchaser shall be entitled to purchase such stock or securities at the most favorable price and on the most favorable terms as such stock or securities are to be offered to such other Persons. The purchase price for all stock and securities offered to the Purchasers shall be payable in cash. (b) In order to exercise its purchase rights hereunder, a holder of Investor Shares must within 30 days after receipt of written notice from the Company describing in reasonable detail the stock or securities being offered, the purchase price thereof, the payment terms and such holder's percentage allotment deliver a written notice to the Company describing its election hereunder. If all of the stock and securities offered to the holders of Investor Shares is not fully subscribed by such holders, the remaining stock and securities shall be reoffered by the Company to the holders purchasing their full allotment upon the terms set forth in this paragraph, except that such holders must exercise their purchase rights within five days after receipt of such reoffer. (c) Upon the expiration of the offering periods described above, the Company shall be entitled to sell such stock or securities which the holders of Investor Shares have not elected to purchase during the 90 days following such expiration on terms and conditions no more favorable to the purchasers thereof than those offered to such holders. Any stock or securities offered or sold by the Company to a Person (or group of affiliated Persons) who held 5% of the outstanding Common Stock after such 90-day period must be reoffered to the holders of Investor Shares pursuant to the terms of this paragraph. (d) The rights under this paragraph shall terminate upon completion of a Qualified Public Offering. 5. INITIAL PUBLIC OFFERING. In the event that the Company, the holders of a majority of the William Blair Shares and the holders of a majority of the Information Partners Shares approve an initial public offering and sale of the Company's equity securities (a "Public Offering") pursuant to an effective registration statement under the Securities Act, the Stockholders will take all necessary and desirable actions reasonably required in connection with the consummation of the Public Offering, provided that minority stockholders of the Company shall not be required to take any actions other than those typically applicable to minority 8 -8- stockholders. In the event that such Public offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the Common Stock structure will adversely affect the marketability of the offering, the Stockholders will vote for a recapitalization and/or exchange of the Stockholder Shares into securities the managing underwriters and the Board find acceptable; provided that the resulting securities provide each Stockholder with the same relative economic interest as such Stockholder had prior to such recapitalization and/or exchange and is consistent with the rights and preferences set forth in the Certificate of Incorporation as in effect immediately prior to such Public Offering. The Company will not file any registration statement under the Securities Act that refers to Silicon by name or otherwise as the holder of any securities of the Company, except to the extent required by applicable laws and regulations. 6. COVENANTS. (a) FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company shall deliver to each Qualified Holder: (i) as soon as available but in any event within 60 days after the end of each quarterly accounting period in each fiscal year, unaudited consolidating and consolidated statements of income and cash flows of the Company and its Subsidiaries for such quarterly period and for the period from the beginning of the fiscal year to the end of such quarter, and consolidating and consolidated balance sheets of the Company and its Subsidiaries as of the end of such quarterly period, setting forth in each case comparisons to the annual budget and to the corresponding period in the preceding fiscal year, and all such statements shall be prepared in accordance with generally accepted accounting principles, consistently applied, subject to the absence of footnote disclosures and to normal year-end adjustments; (ii) within 120 days after the end of each fiscal year, consolidating and consolidated statements of income and cash flows of the Company and its Subsidiaries for such fiscal year, consolidating and consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal year, setting forth in each case comparisons to the annual budget and to the preceding fiscal year, all prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by (A) with respect to the consolidated portions of such statements, an opinion of an independent accounting firm of national recognized standing and (B) a copy of such firm's annual management letter to the board of directors; (iii) promptly upon receipt thereof, any additional reports, management letters or other information concerning significant aspects of the Company's operations or financial affairs given to the Company by its independent accountants (and not otherwise contained in other materials provided hereunder); and (iv) at least 30 days prior to the beginning of each fiscal year, an annual budget prepared on a monthly basis for the Company and its Subsidiaries for such fiscal year (displaying 9 -9- anticipated statements of income and cash flows and balance sheets), and promptly upon preparation thereof any other budgets prepared by the Company and any revisions of such annual or other budgets. Except as otherwise required by law or judicial order or decree or by any governmental agency or authority, each Stockholder entitled to receive information regarding the Company and its Subsidiaries under this paragraph 6(a) shall use its best efforts to maintain the confidentiality of all nonpublic information obtained by it hereunder which the Company has reasonably designated as proprietary or confidential in nature; provided that each such Stockholder may disclose such information in connection with the sale or transfer of any Stockholder Shares if such Stockholder's transferee agrees in writing to be bound by the provisions hereof. (b) INSPECTION OF PROPERTY. The Company shall permit any representatives designated by any Qualified Holder upon reasonable notice and during normal business hours and such other times as any such holder may reasonably request, to (i) visit and inspect any of the properties of the Company and its Subsidiaries, (ii) examine the corporate and financial records of the Company and its Subsidiaries and make copies, thereof or extracts therefrom and (iii) discuss the affairs, finances and accounts of any such entities with the directors, officers, key employees and independent accountants of the Company and its Subsidiaries. The presentation of an executed copy of this Agreement by any Qualified Holder to the Company's independent accountants shall constitute the Company's permission to its independent accountants to participate in such discussions. 7. LEGEND. Each certificate evidencing Stockholder Shares and each certificate issued in exchange for or upon the transfer of any Stockholder Shares (if such shares remain Stockholder Shares as defined herein after such Transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form: "The securities represented by this certificate are subject to certain transfer and voting restrictions pursuant to a Stockholders Agreement dated as of September, 1993, among the issuer of such securities (the "Company") and certain of the Company's stockholders. A copy of such Stockholders Agreement will be furnished without charge by the Company to the holder hereof upon written request." The Company shall imprint such legend on certificates evidencing Stockholder Shares outstanding prior to the date hereof. The legend set forth above shall be removed from the certificates evidencing any shares which cease to be Stockholder Shares in accordance with paragraph 9 hereof. 8. TRANSFER. Prior to Transferring any Stockholder Shares immediately (other than in a Public Sale or in a Sale of the Company) to any person or entity, the transferring Stockholder 10 -10- shall cause the prospective transferee to execute and deliver to the Company and the other Stockholders a counterpart of this Agreement. 9. DEFINITIONS. "AFFILIATE" of a Stockholder means any other person, entity or investment fund controlling, controlled by or under common control with the Stockholder and, in the case of an Investor which is a partnership, any partner of the Investor. "CERTIFICATE OF INCORPORATION" means the Company's certificate of incorporation in effect at the time as of which any determination is being made. "FAMILY GROUP" means a stockholder's spouse and descendants (whether or not adopted) and any trust solely for the benefit of the Stockholder and/or the Stockholder's spouse and/or descendants. "INDEPENDENT THIRD PARTY" means any person who, immediately prior to the contemplated transaction, does not own in excess of 5% of the Company's Common Stock on a fully-diluted basis (a "5% Owner)", who is not controlling, controlled by or under common control with any such 5% Owner and who is not the spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for the benefit of such 5% Owner and/or such other person. "INFORMATION PARTNERS SHARES" means (i) any shares of Common Stock purchased by Information Partners and the persons set forth on Schedule A pursuant to the Purchase Agreement (the "Information Partners Group"), (ii) any equity securities issued or issuable directly or indirectly with respect to the Common Stock referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization and (iii) any other shares of Common Stock originally issued to the Information Partners Group. As to any particular shares constituting Information Partners Shares, such shares will cease to be Information Partners Shares when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act. "INVESTOR SHARES" means the William Blair Shares and the Information Partners Shares. "PERSON" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision hereof. "PUBLIC SALE" means any sale of Stockholder Shares to the public pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 adopted under the Securities Act. 11 -11- "QUALIFIED HOLDERS" means any holder (or group of affiliated holders) of Investor Shares representing 5% or more of the outstanding Investor Shares. "QUALIFIED PUBLIC OFFERING" means the sale in an underwritten public offering registered under the Securities Act of shares of the Company's Common Stock having an aggregate value of at least $10 million. "SALE OF THE COMPANY" means the sale of the Company to an Independent Third Party or group of Independent Third Parties pursuant to which such party or parties acquire (i) capital stock of the Company possessing the voting power under normal circumstances to elect a majority of the Company's board of directors (whether by merger, consolidation, sale, transfer or exchange of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SILICON SHARES" means (i) any shares of Common Stock issued or issuable pursuant to that certain Stock Purchase Warrant ("Warrant") issued by the Company to Silicon, dated the date hereof and (ii) any equity securities issued or issuable directly or indirectly with respect to the Common Stock referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular shares constituting Silicon Shares, such shares will cease to be Silicon Shares when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act. "STOCKHOLDER SHARES" means the Information Partners Shares, the William Blair Shares and the Silicon Shares. "SUBSIDIARY" means any corporation of which the securities having a majority of the ordinary voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Company either directly or through one or more Subsidiaries. "WILLIAM BLAIR SHARES" means (i) any Common Stock purchased by William Blair pursuant to the Purchase Agreement, (ii) any equity securities issued or issuable directly or indirectly with respect to the Common Stock referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization and (iii) any other shares of Common Stock originally issued to William Blair. As to any particular shares constituting William Blair Shares, such shares will cease to be William Blair Shares when they have been (x) effectively registered under the Securities Act and 12 -12- disposed of in accordance with the registration statement covering them, or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act. 10. TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted Transfer of any Stockholder Shares in violation of any provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Stockholder Shares as the owner of such shares for any purpose. 11. AMENDMENT AND WAIVER. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the Company or the Stockholders unless such modification, amendment or waiver is approved in writing by the Company and the holders of at least a majority of the then outstanding William Blair Shares and the holders of at least a majority of the then outstanding Information Partners Shares, respectively; provided, however, that in the event that such amendment or waiver would adversely affect a holder or group of holders of Stockholder Shares in a manner different from any other holder of Stockholder Shares, then such amendment or waiver will require the consent of such holder or holders of a majority of the Stockholder Shares of the group adversely affected. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 12. SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 13. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, this document, the Purchase Agreement, the Warrant, and the Registration Agreement between the Company and the Stockholders embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 14. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Stockholders and any subsequent holders of Stockholder Shares and the respective successors and assigns of each of them, so long as they hold Stockholder Shares. 13 -13- 15. COUNTERPARTS. This Agreement may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement. 16. REMEDIES. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that the Company and any Stockholder shall have the right to injunctive relief, in addition to all of its rights and remedies at law or in equity, to enforce the provisions of this Agreement. Nothing contained in this Agreement shall be construed to confer upon any Person who is not a signatory hereto any rights or benefits, as a third party beneficiary or otherwise. 17. ARBITRATION. (a) ARBITRATION. In the event of disputes between the parties with respect to the terms and conditions of this Agreement, such disputes shall be resolved by and through an arbitration proceeding to be conducted under the auspices of the American Arbitration Association (or any like organization successor thereto) at Boston, Massachusetts. Such arbitration proceeding shall be conducted in as expedited a manner as is then permitted by the commercial arbitration rules (formal or informal) of the American Arbitration Association, and the arbitrator or arbitrators in any such arbitration shall be persons who are expert in the subject matter of the dispute. Both the foregoing agreement of the parties to arbitrate any and all such claims, and the results, determination, finding, judgment and/or award rendered through such arbitration, shall be final and binding on the parties hereto and may be specifically enforced by legal proceedings. The parties agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may, in his or its sole discretion, ask for specific performance and/or injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (b) PROCEDURE. Such arbitration may be initiated by written notice from either party to the other which shall be a compulsory and binding proceeding on each party. The arbitration shall be conducted before a panel of arbitrators selected in accordance with the rules of the American Arbitration Association. The costs of said arbitrators and the arbitration shall be borne equally by the parties thereto. Each party shall bear separately the cost of their respective attorneys, witnesses and experts in connection with such arbitration. Time is of the essence of this arbitration procedure, and the arbitrators shall be instructed and required to render their decision within ten (10) days following completion of the arbitration. (c) VENUE AND JURISDICTION. Any and all legal proceedings to enforce this Agreement (including any action to compel arbitration hereunder or to enforce any award or judgment rendered thereby), shall be governed in accordance with this paragraph 17. 18. NOTICES. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or received by certified mail, return receipt requested, or sent by 14 -14- reputable overnight courier service (charges prepaid) to the Company at the address set forth below and to any other recipient at the address indicated on the schedules hereto and to any subsequent holder of Stockholder Shares subject to this Agreement at such address as indicated by the Company's records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder when delivered personally, three days after deposit in the U.S. mail and one day after deposit with a reputable overnight courier service. The Company's address is: OneSource Holding Corporation c/o Information Partners Capital Fund, L.P. Two Copley Place Boston, MA 02116 Attention: David Dominik With copies to: Information Partners Capital Fund, L.P. Two Copley Place Boston, MA 02116 Attention: David Dominik and William Blair Venture Partners 135 South LaSalle Street Chicago, Illinois 60603 Attention: Gregg Newmark 19. GOVERNING LAW. All issues concerning this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Delaware. 20. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. * * * * * 15 -15- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. ONESOURCE HOLDING CORPORATION By: ________________________________________ Its: _______________________________________ WILLIAM BLAIR VENTURE PARTNERS III LIMITED PARTNERSHIP By: William Blair Venture Management Company Its: General Partner By: ________________________________________ Its: General Partner INFORMATION PARTNERS CAPITAL FUND, L. P. By: Information Partners Its: General Partner By: ________________________________________ Its: General Partner BCIP ASSOCIATES By: ________________________________________ Its: _______________________________________ BCIP TRUST ASSOCIATES, L.P. By: ________________________________________ Its: _______________________________________ SILICON VALLEY BANK By: ________________________________________ 16 -16- Its: _______________________________________ SCHEDULE A OTHER SHAREHOLDERS BCIP Associates BCIP Trust Associates, L.P. EX-10.15 11 AMEND. NO.1 TO STOCKHOLDERS AGREEMENT 1 EXHIBIT 10.15 AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT This Amendment No. 1 to Stockholders Agreement is made as of April 21, 1999, by and among OneSource Information Services, Inc., a Delaware corporation ("OneSource"), William Blair Venture Partners III Limited Partnership, Information Partners Capital Fund, L.P., BCIP Associates, and BCIP Trust Associates, L.P. WHEREAS, the parties hereto are parties to that certain Stockholders Agreement dated as of September 8, 1993 (the "Stockholders Agreement"), pursuant to which the parties agreed to provide for certain rights and obligations with respect to the shares held by them of Class P Common Stock, par value $.01 per share and Common Stock, $.01 par value per share of OneSource; WHEREAS, pursuant to Section 11 of the Stockholders Agreement, such agreement may be amended with the consent of the parties hereto, such parties being the holders of at least a majority of the currently outstanding William Blair Shares and the holders of at least a majority of the currently outstanding Information Partners Shares; and WHEREAS, the parties hereto desire to amend the Stockholders Agreement as set forth below. NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The Stockholders Agreement shall be amended to add a new Section 21 as follows: "21. TERMINATION. This Agreement shall terminate in its entirety upon the consummation by the Company of a Qualified Public Offering." 2. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the Stockholders Agreement. 3. This Amendment No. 1 may be executed in counterparts, each of which shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same instrument. 4. In all other respects, the Stockholders Agreement shall remain in full force and effect. 2 IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of the day and year first above written. ONESOURCE INFORMATION SERVICES, INC. By: /s/ Daniel Schimmel ---------------------------------------- Daniel Schimmel President WILLIAM BLAIR VENTURE PARTNERS III LIMITED PARTNERSHIP By: William Blair Venture Management Company Its General Partner By: /s/ Gregg Newmark ----------------------------------- Name: Gregg Newmark Title: INFORMATION PARTNERS CAPITAL FUND, L.P. By: Information Partners Its General Partner By: /s/ David Dominik ------------------------------------ Name: David Dominik Title: BCIP ASSOCIATES By: /s/ David Dominik ---------------------------------------- Name: David Dominik Title: BCIP TRUST ASSOCIATES, L.P. By: /s/ David Dominik ---------------------------------------- Name: David Dominik Title: EX-10.16 12 FORM OF FEE TERMINATION AGREEMENT 1 Exhibit 10.16 FEE TERMINATION AGREEMENT ------------------------- AGREEMENT, dated as of _______________, 1999, by and between OneSource Information Services, Inc., a Delaware corporation (the "Company"), Bain Capital, Inc. ("Bain") and William Blair Venture Partners III Limited Partnership ("Blair"). The Company currently pays each of Bain and Blair an annual advisory fee of $100,000 for services which they render to the Company (the "Advisory Fee"). The Company is currently contemplating an initial public offering of its common stock (the "IPO"). In connection with the IPO, the Company desires that the Advisory Fee be terminated and to compensate Bain and Blair for such termination and for services previously rendered, and Bain and Blair are willing to terminate the Advisory Fee for the consideration described below. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the parties hereto agree as follows 1. FEE TERMINATION. Upon the consummation of the IPO, Bain and Blair hereby agree that the Company's obligation to pay Bain and Blair the Advisory Fee is hereby terminated. In consideration for the foregoing termination and for services previously rendered to the Company, upon the closing of the IPO, the Company shall pay to each of Bain and Blair an amount equal to $500,000, payable in cash by wire transfer of immediately available funds. 2. Miscellaneous. ------------- (a) ASSIGNMENT. This Agreement shall be binding upon the parties hereto and their successors and assigns. (b) AMENDMENTS. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. (c) GOVERNING LAW. This Agreement shall be governed in all respects, including validity interpretation and effects, by the laws of the State of Delaware, without regard to the principles of conflicts of laws thereof (d) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court or a governmental agency of competent jurisdiction to be invalid, void or unenforceable, or cause any party hereto to be in violation of any applicable provision of law, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected impaired or invalidated. 2 -2- IN WITNESS WHEREOF, Purchaser and Seller have caused this Agreement to be signed as of the date first above written. ONESOURCE INFORMATION SERVICES, INC. By: ------------------------------------------ Its: ----------------------------------------- BAIN CAPITAL, INC. By: ------------------------------------------ A Managing Director WILLIAM BLAIR VENTURE PARTNERS II LIMITED PARTNERSHIP By: William Blair Venture Management Company Its: General Partner By: ------------------------------------------ A General Partner EX-10.17 13 STOCK REDEMPTION AGREEMENT 1 EXHIBIT 10.17 STOCK REDEMPTION AGREEMENT THIS STOCK REDEMPTION AGREEMENT, dated as of April 21, 1999 (this "Agreement"), is made by and among OneSource Information services, Inc., a Delaware corporation (the "Company"), and the persons set forth on the "Schedule of Class P Stockholders" attached hereto (hereinafter referred to collectively as the "Class P Stockholders" and individually as a "Class P Stockholder"). WHEREAS, the shares of the Company's Class P Common Stock, par value $.0l per share (the "Class P Common Stock"), are to be reclassified in connection with the Company's initial public offering (the "IPO"); and WHEREAS, the shares of the Company's Common Stock, par value $.0l per share (the "Common Stock"), will be issued in the reclassification and the Company desires to purchase, and the Class P Stockholders desire to sell, certain of these shares; NOW, THEREFORE, The parties hereto agree as follows: 1. PURCHASE AND SALE. Each Class P Stockholder will sell to the Company and the Company will purchase from each Class P Stockholder, the number of shares of Common Stock issued as "Yield Shares" to such Class P Stockholder under Article Four, Part B, Section 8 of the Company's Amended and Restated Certificate of Incorporation, as amended, at a purchase price per share equal to the price to the public for each share of Common Stock in the IPO. Each Class P Stockholder hereby irrevocably constitutes and appoints the Company as his or her attorney-in-fact and agent to execute and deliver all documents necessary or appropriate to effect such sale and to complete the transaction described in this Agreement. 2. THE CLOSING. The closing of the sales and purchases of the Common Stock (the "Closing") will take place at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts 02110 on the date of the closing of the IPO (the "Closing Date"), or at such other place or on such other date as may be mutually agreeable to the Company and the Class P Stockholders. At the Closing, each Class P Stockholder will deliver to the Company a certificate or certificates evidencing the number of shares of Common Stock to be purchased by the Company against payment of the purchase price therefor by delivery of a cashier's or certified check or checks of immediately available funds or by wire transfer to a bank account designated by such Class P Stockholder. 3. AMENDMENTS AND WAIVERS; TERMINATION. Except as otherwise provided herein, no modification, amendment or waiver of any provision hereof shall be effective against the Company or the Class P Stockholders unless such modification, amendment or waiver is approved in writing by the Company and the holders of at least a majority of the outstanding 2 -2- shares of Class P Common Stock; provided that any amendment which treats any holder of Class P Common Stock in a manner different from any other holder of Class P Common Stock shall require the consent of the holders of all Class P Common Stock. The failure of any party to enforce any provision of this Agreement or under any agreement contemplated hereby or under the Company's certificate of incorporation or bylaws shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement, any agreement referred to herein, the Company's certificate of incorporation, or bylaws in accordance with their terms. If the Closing has not occurred on or before December 31, 1999, this Agreement shall terminate and have no further force or effect. 4. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of such parties whether so expressed or not. 5. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable under any applicable law or rule in any jurisdiction, such provision will be ineffective only to the extent of such invalidity, illegality or unenforceability in such jurisdiction, without invalidating the remainder of this Agreement in such jurisdiction or any provision hereof in any other jurisdiction. 6. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same agreement. 7. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 8. GOVERNING LAW. All issues concerning the enforceability, validity and binding effect of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Delaware. 9. NOTICES. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when personally delivered or received by certified mail, return receipt requested, or sent by guaranteed overnight courier service. Notices, demands and communications will be sent to each Class P Stockholders at such Class P Stockholder's address as indicated in the Company's books and records of the Company's transfer agent and registrar and to the Company at the address indicated below: NOTICES TO THE COMPANY: 3 -3- OneSource Information Services, Inc. 150 Cambridge Park Drive Cambridge, MA 02140 Attention: President WITH A COPY TO: Testa, Hurwitz & Thibeault, LLP High Street Tower 125 High Street Boston, MA 02110 Attention: Lawrence S. Wittenberg, Esq. or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. * * * * * 4 -4- IN WITNESS WHEREOF, the parties hereto have executed this Agreement o the day and year first above written. ONESOURCE INFORMATION SERVICES, INC. By: /s/ Daniel Schimmel -------------------------------------- Its: President WILLIAM BLAIR VENTURE PARTNERS III LIMITED PARTNERSHIP By: William Blair Venture Management Company Its: General Partner By: /s/ Gregg Newmark -------------------------------------- Its: General Partner INFORMATION PARTNERS CAPITAL FUND, L.P. By: Information Partners Its: General Partner By: /s/ David Dominik -------------------------------------- Its: General Partner BCIP ASSOCIATES By: /s/ David Dominik -------------------------------------- Its: General Partner BCIP TRUST ASSOCIATES, L.P. By: /s/ David Dominik -------------------------------------- Its: General Partner 5 -5- /s/ Martin F. Kahn ------------------------------------------ Martin F. Kahn /s/ Daniel J. Schimmel ------------------------------------------ Daniel J. Schimmel /s/ Roland Perkins ------------------------------------------ Roland Perkins /s/ James A. Becker ------------------------------------------ James A. Becker /s/ Brett Tomlinson ------------------------------------------ Brett Tomlinson /s/ Roy Landon ------------------------------------------ Roy Landon /s/ Phil Garlick ------------------------------------------ Phil Garlick /s/ Reilly F. Cobb ------------------------------------------ Reilly F. Cobb /s/ Mark C. VanDine ------------------------------------------ Mark C. VanDine /s/ Anthony J. Baublis ------------------------------------------ Anthony J. Baublis /s/ Terence S. Murtaugh ------------------------------------------ Terence S. Murtaugh 6 -6- ------------------------------------------ Karen G. Cruise /s/ Frank J. Hermes ------------------------------------------ Frank J. Hermes 7 SCHEDULE OF CLASS P STOCKHOLDERS NAMES AND ADDRESSES - ------------------- William Blair Venture Partners III Limited Partnership 135 South LaSalle Street Chicago, Illinois 60603 Information Partners Capital Fund, L.P. Two Copley Place Boston, MA 02116 Attention: David Dominik BCIP Associates c/o Information Partners Capital Fund, L.P. Two Copley Place Boston, MA 02116 Attention: David Dominik BCIP Trust Associates, L.P. c/o Information Partners Capital Fund, L.P. Two Copley Place Boston, MA 02116 Attention: David Dominik Martin F. Kahn c/o Cadence Information Associates 767 5th Avenue, 43rd Fl. New York, N.Y. 10153 Daniel J. Schimmel c/o OneSource Information Services, Inc. 150 CambridgePark Drive Cambridge, MA 02140 8 -8- Roland Perkins 83 Lincoln Road Wayland, MA 01778 James A. Becker c/o OneSource Information Services, Inc. 150 CambridgePark Drive Cambridge, MA 02140 Brett Tomlinson 34 Elmhurst Road Arlington, MA 02174 Roy Landon c/o OneSource Information Services, Inc. 150 CambridgePark Drive, Cambridge, MA 02140 Phillip Garlick c/o OneSource Information Services, Inc. 150 CambridgePark Drive Cambridge, MA 02140 Reilly F. Cobb 50 Bellingham Road Chestnut Hill, MA 02167 Mark C. VanDine c/o OneSource Information Services, Inc. 150 CambridgePark Drive Cambridge, MA 02140 Anthony J. Baublis 65 Century Way Gardner, MA 01440 Terrence S. Murtaugh 21 Dean Street Belmon, MA 02178 Karen G. Cruise 1 Starwood Crossing Andover, MA 01929 9 -9- Frank J. Hermes 80 Woodmere Drive Sudbury, MA 01776 EX-23.02 14 CONSENT OF PRICEWATERHOUSECOOPERS, LLP 1 Exhibit 23.02 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated February 26, 1999, except for Note 6, as to which the date is April 13, 1999, relating to the consolidated financial statements of OneSource Information Services, Inc., which appears in such Prospectus. We also consent to the application of such report to the Consolidated Financial Statement Schedules for the three years ended December 31, 1998 listed under Item 16.(b) of this Registration Statement when such schedules are read in conjunction with the consolidated financial statements referred to in our report. The audits referred to in such reports also included these schedules. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts April 22, 1999 EX-23.03 15 CONSENT OF SIMBA INFORMATION, INC. 1 EXHIBIT 23.03 CONSENT The undersigned hereby consents to the use of its name in the Registration Statement on Form S-1, as amended and the Prospectus in connection therewith for OneSource Information Services Inc. (the "Company") to be used by the Company in connection with its initial public offering. IN WITNESS WHEREOF, the undersigned has executed this consent as of the 10th day of April, 1999. Simba Information Inc. By: /s/ Harry L. Baisden -------------------------- Name: Harry L. Baisden Title: Editorial Director EX-27.01 16 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REGISTRATION STATEMENT ON FORM S-1. 0001079880 ONESOURCE INFORMATION SERVICES, INC. 1 U.S. DOLLARS YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1 8,665 0 9,921 300 0 25,374 5,804 4,034 27,646 27,492 0 0 0 3,592 (9,903) 27,646 30,428 30,428 13,655 13,655 21,737 0 595 7,238 250 6,988 0 0 0 6,988 0.85 0.59
EX-27.02 17 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REGISTRATION STATEMENT ON FORM S-1 0001079880 ONESOURCE INFORMATION SERVICES, INC. 1 U.S. DOLLARS 3-MOS MAR-31-1999 JAN-01-1999 MAR-31-1999 1 6,739 0 5,110 288 0 17,928 6,036 4,248 20,723 20,929 0 0 0 3,591 (10,246) 20,723 8,143 8,143 3,457 3,457 5,505 0 93 (412) 0 (412) 0 0 0 (412) (0.08) (0.08)
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