-----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, GDhCaZhFA0PJePJbs6caqsk2voNch1NFRsKUAoXBBN6NJ5PGjj9u6vrA90GqTaO8 R6R/sSSm5YNcH6xokMW/4Q== 0000950135-01-503553.txt : 20020410 0000950135-01-503553.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950135-01-503553 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EPRISE CORP CENTRAL INDEX KEY: 0001098937 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 043179480 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29319 FILM NUMBER: 1788377 BUSINESS ADDRESS: STREET 1: 1671 WORCESTER ROAD STREET 2: FOURTH FLOOR CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5088720200 MAIL ADDRESS: STREET 1: 1671 WORCESTER ROAD CITY: FRAMINGHAM STATE: MA ZIP: 01701 10-Q 1 b40861ece10-q.txt EPRISE CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------ FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the Securities ----- Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 OR ----- Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to ____________________ Commission file number: 0-29319 EPRISE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 04-3179480 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
200 CROSSING BOULEVARD FRAMINGHAM, MA 01702 (Address of principal executive offices) (508) 661-5200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports). Yes X No ----- ----- Indicate by check mark whether the Registrant has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: As of November 2, 2001, there were 22,279,207 shares of the Registrant's Common Stock, $0.001 par value per share, outstanding. EPRISE CORPORATION FORM 10-Q FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 TABLE OF CONTENTS
PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2001 and September 30, 2000 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and September 30, 2000 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 23 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24 SIGNATURES 25
2 PART I FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS EPRISE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2001 2000 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 47,906 $ 68,631 Accounts receivable (less allowances for doubtful accounts and returns of $440 and $296 at September 30, 2001 and December 31, 2000, respectively) 2,662 6,361 Due from related parties 77 44 Prepaid expenses and other current assets 1,111 1,518 --------- --------- Total current assets 51,756 76,554 Property and equipment, net 4,277 4,351 Other assets, net 102 166 --------- --------- Total assets $ 56,135 $ 81,071 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of equipment line of credit $ 14 $ 79 Accounts payable 346 763 Accrued compensation and benefits 2,179 2,204 Other accrued expenses 1,747 2,635 Deferred revenue 2,111 2,490 --------- --------- Total current liabilities 6,397 8,171 --------- --------- Stockholders' equity: Preferred stock, $.01 par value; authorized 10,000 shares; no shares issued or outstanding -- -- Common stock, $.001 par value; authorized 90,000 shares; 25,192 shares issued at September 30, 2001 and December 31, 2000 25 25 Additional paid-in capital 127,498 126,093 Accumulated deficit (74,217) (52,823) Notes receivable from officers (913) (344) Treasury stock, at cost, 2,921 and 34 shares at September 30, 2001 and December 31, 2000, respectively (2,626) (84) Accumulated other comprehensive income (loss) (29) 33 --------- --------- Total stockholders' equity 49,738 72,900 --------- --------- Total liabilities and stockholders' equity $ 56,135 $ 81,071 ========= =========
See notes to the condensed consolidated financial statements. 3 EPRISE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: Software licenses ......................................................... $ 1,088 $ 4,090 $ 4,618 $ 9,920 Services .................................................................. 1,841 1,786 6,581 3,232 -------- -------- -------- -------- Total net revenues .................................................... 2,929 5,876 11,199 13,152 Cost of revenues: Software licenses ......................................................... 119 28 539 39 Services (includes compensation costs of $161 and $54 for stock options for the three months ended September 30, 2001 and 2000, respectively and $259 and $129 for the nine months ended September 30, 2001 and 2000, respectively) ............................ 2,255 1,959 7,727 4,591 -------- -------- -------- -------- Total cost of revenues ................................................ 2,374 1,987 8,266 4,630 -------- -------- -------- -------- Gross profit ................................................................... 555 3,889 2,933 8,522 Operating expenses: Research and development (includes compensation costs of $38 and $51 for stock options for the three months ended September 30, 2001 and 2000, respectively and $132 and $161 for the nine months ended September 30, 2001 and 2000, respectively) ...................... 1,656 1,652 5,925 3,934 Selling and marketing (includes compensation costs of $340 and $256 for stock options for the three months ended September 30, 2001 and 2000, respectively and $758 and $809 for the nine months ended September 30, 2001 and 2000, respectively) ...................... 4,236 5,130 15,015 14,586 General and administrative (includes compensation costs of $106 and $108 for stock options for the three months ended September 30, 2001 and 2000, respectively and $320 and $323 for the nine months ended September 30, 2001 and 2000, respectively) ...................... 1,663 1,658 5,004 3,890 Restructuring charges for reduction in force .............................. 467 -- 467 -- -------- -------- -------- -------- Total operating expenses .............................................. 8,022 8,440 26,411 22,410 -------- -------- -------- -------- Operating loss ................................................................. (7,467) (4,551) (23,478) (13,888) Other income (expense): Interest income ........................................................... 529 1,304 2,142 2,927 Interest expense and other ................................................ (3) (15) (17) (36) -------- -------- -------- -------- Other income, net ..................................................... 526 1,289 2,125 2,891 -------- -------- -------- -------- Loss before income taxes ....................................................... (6,941) (3,262) (21,353) (10,997) Income taxes ................................................................... (10) (47) (41) (47) -------- -------- -------- -------- Net loss ....................................................................... (6,951) (3,309) (21,394) (11,044) Accretion of redeemable convertible preferred stock ............................ -- -- -- (94) -------- -------- -------- -------- Net loss to common stockholders ................................................ $ (6,951) $ (3,309) $(21,394) $(11,138) ======== ======== ======== ======== Net loss per share (Note 2) .................................................... $ (0.31) $ (0.13) $ (0.90) $ (0.60) ======== ======== ======== ======== Weighted-average common shares outstanding (Note 2) ............................ 22,744 25,157 23,882 18,664 ======== ======== ======== ======== Pro forma loss per share (Note 2) .............................................. $ (0.31) $ (0.13) $ (0.90) $ (0.47) ======== ======== ======== ======== Pro forma weighted-average common shares outstanding (Note 2) .................................................................. 22,744 25,157 23,882 23,502 ======== ======== ======== ========
See notes to the condensed consolidated financial statements. 4 EPRISE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 2001 2000 ---- ---- Cash flows from operating activities: Net loss $(21,394) $(11,044) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 1,115 396 Provision for doubtful accounts 239 345 Compensation cost for stock options 1,486 1,422 Increase (decrease) in cash from: Accounts receivable 3,460 (3,835) Due from related parties (33) 10 Prepaid expenses and other current assets 407 (1,590) Other assets 64 (41) Accounts payable (417) 1,191 Accrued expenses (975) 2,825 Deferred revenue (379) 1,849 -------- -------- Net cash used for operating activities (16,427) (8,472) -------- -------- Net cash used for investing activities - purchases of property and equipment (1,041) (2,960) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock, net of issuance costs -- 63,120 Payments on notes payable (65) (64) Proceeds from exercise of stock options and warrants 121 811 Issuance of notes receivable (591) -- Repayments of stockholder notes 22 77 Repurchases of common stock (2,744) (59) -------- -------- Net cash provided by (used for) financing activities (3,257) 63,885 -------- -------- Net increase (decrease) in cash (20,725) 52,453 Cash and cash equivalents, beginning of period 68,631 22,456 -------- -------- Cash and cash equivalents, end of period $ 47,906 $ 74,909 ======== ======== Supplemental disclosures of cash flow information - cash paid for interest $ 15 $ 37 ======== ======== Summary of noncash investing and financing activities - issuance of stock for notes receivable $ -- $ 573 ======== ========
See notes to the condensed consolidated financial statements. 5 EPRISE CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. NATURE OF BUSINESS Eprise Corporation and its subsidiaries develop, market and implement Web content management solutions that help businesses shape and direct e-business communications effectively and efficiently. We also provide design and other consultative services designed to help organizations maximize the value they derive from our Web content management solutions. Business is conducted primarily in the United States. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION We prepared the accompanying unaudited condensed consolidated financial statements following the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read together with our audited financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2000. In the opinion of management, the accompanying unaudited consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results, which could be expected for the full year. SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Revenue from products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectibility is probable. When arrangements contain multiple elements and vendor specific objective evidence exists for all undelivered elements, we recognize revenue for the delivered elements using the residual method. For arrangements containing multiple elements wherein vendor specific objective evidence does not exist for all undelivered elements, revenue for the delivered and undelivered elements is deferred until vendor specific objective evidence exists or all elements have been delivered. Maintenance services revenues, whether sold separately or as part of a multiple element arrangement, are deferred and recognized ratably over the term of the maintenance contract, generally twelve months. Consulting revenue is recognized as services are performed. STOCK-BASED COMPENSATION Compensation expense associated with awards of stock or options to employees is measured using the intrinsic-value method. Compensation expense associated with awards to non-employees is measured using the fair-value method. NET LOSS PER SHARE PRO FORMA NET LOSS PER SHARE Pro forma net loss per share has been computed using the weighted-average number of shares of common stock outstanding during each period. In addition, for purposes of pro forma net loss per share, all shares of Series A, B and C preferred stock, which were converted into common stock upon closing of our initial public offering in March of 2000, have been treated as though they were common stock in all periods in which such shares were outstanding. In addition, no effect is given to accretion of the preferred stock for purposes of this computation. 6 EPRISE CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) HISTORICAL NET LOSS PER SHARE Historical net loss per share has been computed using the weighted-average number of shares of common stock outstanding during each period. Diluted amounts per share would include the impact of our outstanding potential common shares, such as options and warrants (computed using the treasury stock method) and convertible preferred stock. However, the effect of these items would be antidilutive in all periods presented and they are excluded from the computation. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS Our revenues are derived from various customers who generally are not required to provide collateral for amounts owed to the Company. We operate in one segment. Our customers are dispersed over a wide geographic area. For the three months ended September 30, 2001 and 2000, one customer accounted for 13% of our revenue in each of the periods. For the nine months ended September 30, 2001, one customer accounted for 10% of our revenue. For the nine months ended September 30, 2000, there were no customers who individually accounted for more than 10% of our revenue. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS DERIVATIVE INSTRUMENTS In June 1998, the Financial Accounting Standards Board released Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 on January 1, 2001 did not have a material impact on our financial position or results of operations. GOODWILL AND ACCOUNTING FOR BUSINESS COMBINATIONS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. We do not believe that the adoption of SFAS 141 will have a significant impact on our financial statements. Also in July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. We do not believe that the adoption of SFAS 142 will have a significant impact on our financial statements. ACCOUNTING FOR IMPAIRMENTS In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective January 1, 2002. SFAS 144 supersedes existing guidance on impairments, and provides guidance on developing estimates used to assess potential asset impairments. It also modifies existing guidance on discontinued operations, to allow identifiable components of an entity to be treated as discounting operations in the event of disposal. 7 3. INCOME TAXES A reconciliation of the statutory federal rate to the effective rate for all periods is as follows: Statutory Federal rate benefit .. (34)% State, net of Federal effect .... (6) Non-deductible stock compensation 2 Valuation allowance provided .... 38 --- Effective rate .................. -- % === 4. RESTRUCTURING CHARGES On July 17, 2001, we completed a reduction in force, affecting approximately 20% of our workforce. The restructuring charges of $467,000 represent severance payments and stock compensation relating to that reduction. As of September 30, 2001, $244,000 in severance payments remains unpaid. 5. PENDING ACQUISITION We signed a definitive merger agreement on September 17, 2001 with divine, inc. and expect the transaction to close in December 2001. The agreement provides for a stock-for-stock exchange in which Eprise Corporation shareholders will receive 2.4233 shares of divine class A common stock for each share of Eprise Corporation common stock that they own. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our financial statements and related notes which appear elsewhere in this report. OVERVIEW Eprise, originally named Inner Circle Technologies and then NovaLink, was founded in 1992 as a provider of online interactive games. Between 1994 and 1997, our principal business shifted to creating and hosting Web sites for corporate clients. During this period, we encountered recurring problems arising out of the inadequacy of software tools that were commercially available to build and maintain Web sites. Realizing that there was an opportunity to streamline and automate these processes, we began to develop a software product called Eprise Participant Server to facilitate the construction and updating of Web sites. We shipped our first commercial product in early 1998. Eprise now markets and sells version 3.5 of Eprise Participant Server. We generate revenues from two principal sources: (1) license fees for our software products and (2) professional services and technical support revenues derived from consulting, implementation, training and maintenance services related to our software products. In the three-month and nine-month periods ended September 30, 2001, one customer accounted for 13% and 10% of our total revenues, respectively. In the three-month period ended September 30, 2000, one customer accounted for 13% of our total revenues. In the nine-month period ended September 30, 2000, no individual customer accounted for 10% or more of our total revenues. License revenue represented 41% of total revenues in the first nine months of 2001. License sales produce significantly higher margins than service sales due to lower costs associated with licenses and their delivery. Software licenses. Customers typically pay an up-front, one-time fee for a perpetual non-exclusive license of our software. Generally, the amount of the fee is based on the number of licensed servers. To date, software license revenues have principally come from direct sales to customers. The sales cycle for our products is typically three to six months. Although we have limited historical financial data, we believe that our quarterly operating results may experience seasonal fluctuations due to clients' fiscal year budgeting cycles and purchasing patterns. Because of our server-based licensing, we experience significant variation in the size of our licensing transactions. We generally recognize license fee revenues upon delivery of the product. If the product is subject to acceptance and/or return and refund, we defer revenues until acceptance has occurred or the refund period has expired. Services. Services revenues consist principally of revenues derived from professional services associated with the implementation and integration of our software products, training of customers' employees and ongoing customer support, which primarily includes customer technical support services and product enhancements. We deliver professional services on either a fixed price basis or a time and materials basis. We generally complete implementation and training services within six months following license contract signing. We recognize revenues from professional services as such services are performed. We recognize maintenance revenues, which are invoiced annually in advance, ratably over the term of the maintenance agreement, which is generally 12 months. Our maintenance revenues currently account for approximately 18% of total revenues. As part of these agreements, we provide product enhancements and technical support services to customers for an annual fee, which typically amounts to 20% of the license fee. While a 60-day warranty is included in the software license, maintenance agreements typically are entered into as of the date of the software license. Maintenance agreements are renewable at the discretion of the customer. As of September 30, 2001, there have been 155 customers who have entered into maintenance agreements 9 with Eprise. Of the 155 contracts, 57 have expired, of which 18 were renewed as of September 30, 2001 and 3 were subsequently renewed. The remaining contracts have not yet come up for renewal. Backlog. Delivery lead times for our products are very short and, consequently, substantially all of our license fee revenues in each quarter result from orders received in that quarter. Accordingly, we generally only maintain a backlog for our professional services and maintenance activities, and we believe that our backlog at any point in time is not a reliable indicator of future revenues and earnings. Cost of revenues. Cost of software licenses revenues includes royalties paid to certain software companies for products sold or distributed with or embedded in Eprise Participant Server. In the nine months ended September 30, 2001, these royalties amounted to 3.3% of total revenues, and may increase in the future as license sales increase. Other costs associated with software licenses, including CDs and packaging, arise primarily from the production of software products, and have not been significant in any period presented, nor are they expected to be significant in the foreseeable future. Cost of services revenues consists primarily of salaries and related personnel costs, costs of third party contractors and other allocated expenses of our consulting, support and training organizations. Research and development. We maintain a product development staff to enhance our existing products and to develop new products. Software costs are expensed as incurred until technological feasibility of the software is determined, after which any additional costs are capitalized. To date, we have expensed all software development costs because development costs incurred subsequent to the establishment of technological feasibility have been minimal. Selling and marketing. We license our products primarily through our direct sales force. Selling and marketing expenses consist primarily of costs associated with personnel, sales commissions, office facilities, travel and promotional events such as trade shows, seminars and technical conferences, advertising and public relations programs. General and administrative. General and administrative expenses include salaries and related personnel expenses and other costs of the finance, human resources, information technology, and administrative functions at Eprise. Pending acquisition. We signed a definitive merger agreement on September 17, 2001 with divine, inc. and expect the transaction to close in December 2001, subject to shareholder approval. The agreement provides for a stock-for-stock exchange in which Eprise Corporation shareholders will receive 2.4233 shares of divine class A common stock for each share of Eprise Corporation common stock that they own. Following the exchange, we will become wholly-owed by divine, inc. 10 RESULTS OF OPERATIONS The following table sets forth our operating results for the periods indicated as a percentage of revenues.
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: Software licenses ........... 37% 70% 41% 75% Services .................... 63 30 59 25 ---- ---- ---- ---- Total revenues ......... 100 100 100 100 ---- ---- ---- ---- Cost of revenues Software licenses ........... 4 1 5 -- Services .................... 77 33 69 35 ---- ---- ---- ---- Total cost of revenues . 81 34 74 35 ---- ---- ---- ---- Gross profit ................... 19 66 26 65 Operating expenses: Research and development .... 56 28 53 30 Selling and marketing ....... 145 87 134 111 General and administrative .. 57 28 45 30 Restructuring charges ....... 16 -- 4 -- ---- ---- ---- ---- Total operating expenses 274 143 236 171 ---- ---- ---- ---- Operating loss ................. (255) (77) (210) (106) Other income (expense), net .... 18 22 19 22 ---- ---- ---- ---- Loss before income taxes ....... (237) (55) (191) (84) Income taxes ................... -- (1) -- -- ---- ---- ---- ---- Net loss ....................... (237)% (56)% (191)% (84)% ==== ==== ==== ====
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000 Software licenses. Revenues from software licenses decreased by 73.4% to approximately $1.1 million for the three months ended September 30, 2001 compared to approximately $4.1 million for the three months ended September 30, 2000. Software license revenues represented 37% and 70% of total revenues for the three months ended September 30, 2001 and 2000, respectively. The decrease in revenues from software licenses was primarily due to a lengthening in the customer decision making process resulting from market conditions and increased competition in the marketplace. Services. Revenues from services increased by 3.1% to approximately $1.84 million for the three months ended September 30, 2001 compared to approximately $1.79 million for the three months ended September 30, 2000. Services revenues represented 63% and 30% of total revenues for the three months ended September 30, 2001 and 2000, respectively. The increase in absolute dollars is attributable to maintenance revenue generated by new software license sales in the latter half of 2000. The increase as a percentage of total revenues is primarily attributable to a decrease in license revenue for the three months ended September 30, 2001. Cost of software licenses. Cost of software licenses revenues was $119,000, representing 11% of license revenues, for the three months ended September 30, 2001. These costs primarily represent royalties paid to certain software companies for products sold with or embedded in Eprise Participant Server. These products were released in the second half of 2000 and the first quarter of 2001. Depending on the mix of software licenses sold, the cost of license revenues as a percentage of total revenues may increase in the future due to our existing royalty agreements. Cost of services. Cost of services increased by 15.1% to approximately $2.3 million for the three months ended September 30, 2001 compared to approximately $2.0 million for the three months ended September 30, 2000. Cost of services represented 122% and 110% of services revenues for the three months ended September 30, 2001 and 2000, respectively. The increase in absolute dollars was due to the expansion of our technical support organization in an effort to better support our maintained customer base. 11 The increase as a percentage of services revenues was primarily due to a decrease in utilization of our services staff as a result of the decrease in license revenue and the associated implementation services in the three months ended September 30, 2001. We expect cost of services revenues as a percentage of total revenues to vary from period to period depending on the mix of services we provide, whether the services are provided by our staff or third party contractors and on the utilization rates of our staff. Since services revenues have substantially lower margins than license revenues, growth of our services business will result in a lower gross profit if our license revenues do not increase significantly in the same period. Research and development. Research and development expenses remained consistent at approximately $1.7 million for the three months ended September 30, 2001 and 2000. Research and development expenses represented 56% and 28% of total revenues for the three months ended September 30, 2001 and 2000, respectively. We believe that continued investment in research and development is critical to achieving our corporate objectives, and that the absolute dollar amounts of research and development expenses may increase in future periods. Selling and marketing. Selling and marketing expenses decreased by 17.4% to approximately $4.2 million for the three months ended September 30, 2001 compared to approximately $5.1 million for the three months ended September 30, 2000. Selling and marketing expenses represented 145% and 87% of total revenues for the three months ended September 30, 2001 and 2000, respectively. The decrease was primarily attributable to the decrease in sales commissions and compensation in conjunction with the lower revenues in the three months ended September 30, 2001. We anticipate that selling and marketing expenses will fluctuate from period to period as a percentage of total revenues as new sales personnel become productive, and based on the timing of marketing programs and new product releases. General and administrative. General and administrative expenses remained consistent at approximately $1.7 million for the three months ended September 30, 2001 and 2000. General and administrative expenses represented 57% and 28% of total revenues for the three months ended September 30, 2001 and 2000, respectively. We expect general and administrative costs to fluctuate based on the growth of our business. Restructuring charges. Restructuring charges for a reduction in force were $467,000 for the three months ended September 30, 2001. On July 17, 2001, we completed a reduction in force, affecting approximately 20% of our workforce. The charges primarily represent severance payments relating to that reduction. As of September 30, 2001, $244,000 in severance payments remains unpaid. Compensation cost for stock options. For certain option grants made during 2000 and 1999, we have concluded that the exercise price of such options were less than the fair value of the underlying common stock on the date of grant. As a result, compensation cost has been incurred related to these options which aggregated approximately $1.4 million and $6.8 million, for grants in 2000 and 1999, respectively, which is being amortized to expense over the four year vesting period of the option grants. For the three months ended September 30, 2001 and 2000, compensation expense recorded related to these grants aggregated $645,000 and $469,000, respectively. Other income (expense). Other income and expense consisted primarily of interest income on invested cash balances and interest expense on borrowings. The decrease in other income between the two periods was the result of lower cash balances as we used the cash generated from our public offering in March 2000 for funding operations. Income taxes. During the three months ended September 30, 2001 and 2000, we reported losses for both financial and income tax purposes. No provision or benefit for income taxes was recorded in either period. The income tax expense of $10,000 and $47,000 for the three months ended September 31, 2001 and 2000, respectively, primarily represents taxes paid on income earned on assets held by Eprise Securities Corporation, a wholly-owned subsidiary of Eprise Corporation. NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000 Software licenses. Revenues from software licenses decreased by 53.4% to approximately $4.6 million for the nine months 12 ended September 30, 2001 compared to approximately $9.9 million for the nine months ended September 30, 2000. Software license revenues represented 41% and 75% of total revenues for the nine months ended September 30, 2001 and 2000, respectively. The decrease in revenues from software licenses was primarily due to a lengthening in the customer decision making process resulting from market conditions and increased competition in the marketplace. Services. Revenues from services increased by 103.6% to approximately $6.6 million for the nine months ended September 30, 2001 compared to approximately $3.2 million for the nine months ended September 30, 2000. Services revenues represented 59% and 25% of total revenues for the nine months ended September 30, 2001 and 2000, respectively. Approximately 53% of the increase in absolute dollars is attributable to consulting and 45% to maintenance revenue generated by new software license sales. The increase as a percentage of total revenues is attributable to implementation services for licenses sold in 2000 and completed in 2001 and follow-on services provided to our existing customers. Cost of software licenses. Cost of software licenses revenues were $539,000, representing 12% of license revenues, for the nine months ended September 30, 2001. These costs primarily represent royalties paid to certain software companies for products sold with or embedded in Eprise Participant Server. These products were released in the second half of 2000. Cost of services. Cost of services increased by 68.3% to approximately $7.7 million for the nine months ended September 30, 2001 compared to approximately $4.6 million for the nine months ended September 30, 2000. Cost of services represented 117% and 142% of services revenues for the nine months ended September 30, 2001 and 2000, respectively. The increase in absolute dollars was due to the expansion of our professional services organization, including technical consulting, technical support and training. The decrease as a percentage of services revenues was primarily due to increased utilization of our services staff and the increase in maintenance revenue as a percentage of services revenue in the nine months ended September 30, 2001. Research and development. Research and development expenses increased by 50.6% to approximately $5.9 million for the nine months ended September 30, 2001 compared to approximately $3.9 million for the nine months ended September 30, 2000. Research and development expenses represented 53% and 30% of total revenues for the nine months ended September 30, 2001 and 2000, respectively. The increase in absolute dollars was primarily attributable to an increase in personnel and employee-related expenses incurred as well as utilizing contracted resources more extensively as part of our development effort for version 3.5 of Eprise Participant Server and future product releases. Selling and marketing. Selling and marketing expenses increased by 2.9% to approximately $15.0 million for the nine months ended September 30, 2001 compared to approximately $14.6 million for the nine months ended September 30, 2000. Selling and marketing expenses represented 134% and 111% of total revenues for the nine months ended September 30, 2001 and 2000. The increase in absolute dollars was attributable to the expansion of our business development staff as we extended our market reach through the establishment of relationships with systems integrators. This increase was offset by a decrease in marketing programs following the launching of an extensive advertising and branding campaign in the second quarter of 2000. General and administrative. General and administrative expenses increased by 28.6% to approximately $5.0 million for the nine months ended September 30, 2001 compared to approximately $3.9 million for the nine months ended September 30, 2000. General and administrative expenses represented 45% and 30% of total revenues for the nine months ended September 30, 2001 and 2000, respectively. The increase in absolute dollars primarily reflects personnel increases. Compensation cost for stock options. For the nine months ended September 30, 2001 and 2000, compensation expense recorded related to stock option grants aggregated approximately $1.5 million and $1.4 million, respectively. Other income (expense). Other income and expense consisted primarily of interest income on invested cash balances and interest expense on borrowings. 13 Income taxes. During the nine months ended September 30, 2001 and 2000, we reported losses for both financial and income tax purposes. No provision or benefit for income taxes was recorded in either period. The income tax expense of $41,000 and $47,000 for the nine months ended September 30, 2001 and 2000, respectively, primarily represents taxes paid on income earned on assets held by Eprise Securities Corporation, a wholly-owned subsidiary of Eprise Corporation. Stock option exchange program. On May 10, 2001, we commenced a voluntary stock option exchange program for our employees. Under the program, our employees were given the opportunity to elect to cancel outstanding stock options held by them in exchange for an equal number of new options to be granted at a future date. These elections had to be made by June 8, 2001 and had to include all options granted during the prior six months. A total of 624,675 options to purchase our common stock were tendered in return for promises to grant new options on the grant date of December 12, 2001. The exercise price of the new options will be equal to the fair market value of our common stock on the date of grant. LIQUIDITY AND CAPITAL RESOURCES From our inception through 1997, we primarily financed our operations and met our capital expenditure requirements through funds generated from operations, funds borrowed from several stockholders and a director, and funds borrowed from Silicon Valley Bank. Since December 1997, we have raised approximately $107.0 million in venture capital, private placement and initial public offering financing in order to expand the product development and sales and marketing efforts of the business and the infrastructure to support our future growth. At September 30, 2001, our primary source of liquidity consisted of cash totaling approximately $47.9 million as well as accounts receivable of approximately $2.7 million. On March 29, 2000, we raised cash proceeds of approximately $63.2 million, after expenses, from the sale of 4,600,000 shares of our common stock in our initial public offering. At September 30, 2001, there was a term note outstanding relating to a previous equipment line of credit with Silicon Valley Bank totaling $14,319. Cash used in operating activities was approximately $16.4 million and $8.5 million in the nine months ended September 30, 2001 and 2000, respectively. Net cash used in operating activities is primarily attributable to the net losses incurred in both periods. Cash used in investing activities was approximately $1.0 million and $3.0 million in the nine months ended September 30, 2001 and 2000, respectively. The cash used in investing activities was primarily used for purchases of computer systems and software for internal development used to support our growth, as well as furniture and equipment to accommodate our increase in personnel. Cash used for financing activities was approximately $3.3 million in the nine months ended September 30, 2001. Cash provided by financing activities was approximately $63.9 million in the nine months ended September 30, 2000 primarily representing the proceeds from our initial public offering. The cash used for financing activities was primarily used for the repurchase of our common stock under a stock repurchase program. We currently anticipate that our current cash and equivalents will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, we may need to raise additional funds in future periods through public or private financings, or other arrangements. Any additional financings, if needed, might not be available on reasonable terms or at all. Failure to raise capital when needed could harm our business, financial condition and results of operations. If additional funds are raised through the issuance of equity securities, additional dilution could result. In addition, any equity securities issued might have rights, preferences or privileges senior to our common stock. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal years beginning after June 15, 2000. We have adopted this accounting standard effective January 1, 2001, as required. The adoption of SFAS No. 133 did not have a significant impact on our financial statements. 14 In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. We do not believe that the adoption of SFAS 141 will have a significant impact on our financial statements. Also in July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. We do not believe that the adoption of SFAS 142 will have a significant impact on our financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective January 1, 2002. SFAS 144 supersede existing guidance on impairments, and provides guidance on developing estimates used to assess potential asset impairments. It also modifies existing guidance on discontinued operations, to allow identifiable components of an entity to be treated as discounting operations in the event of disposal. 15 RISK FACTORS You should carefully consider the risks described below together with the other information about Eprise in this report. If one or more of the following risks actually occurs, our business, results of operations and financial condition could be materially adversely affected. Some of the statements under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report constitute forward-looking statements. These statements are identified by terminology such as "may," "will," "could," "should," "expects," "plans," "intends," "seeks," "anticipates," "believes," "estimates," "potential," or "continue" or the negative of such terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on these forward-looking statements. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various important factors, including the risks outlined below. These factors may cause our actual results to differ materially from any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this report to conform such statement to actual results. RISKS RELATED TO OUR FINANCIAL RESULTS AND CONDITION WE HAVE A HISTORY OF LOSSES, AND MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN PROFITABILITY. We incurred net losses of $21.4 million for the nine months ended September 30, 2001 and $16.7 million for the year ended December 31, 2000. As of September 30, 2001, we had an accumulated deficit of $74.2 million. We have not yet achieved profitability and we expect to incur net losses for the foreseeable future. To date, we have funded our operations from the sale of equity securities and have not generated cash from operations. We expect to continue to incur significant research and development, selling and marketing, and general and administrative expenses and, as a result, we will need to generate significant revenues to achieve and maintain profitability. We cannot be certain that we will achieve sufficient revenues for profitability. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future. See "Summary Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and notes to those statements found elsewhere in this Form 10-Q. OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT. Eprise was founded in 1992 as a provider of online interactive games. We made the transition to our current business in 1997 and, as a result, have a limited operating history. We are still in the early stages of our development, which makes the evaluation of our business operations and our prospects difficult. We shipped our first commercial Web content management software product in February 1998. Since that time, we have derived substantially all of our revenues from licensing our Eprise Participant Server product and related services. As a result of our limited operating history, we cannot forecast operating expenses based on our historical results. Our ability to forecast accurately our quarterly revenue is limited because our software products have a long sales cycle, making it difficult to predict the quarter in which sales revenue will be recognized. We would expect our business, operating results and financial condition to be materially adversely affected if our revenues do not meet our projections, and that net losses in a given quarter could be even greater than expected. UNCERTAINTY IN THE OVERALL ECONOMY AND IN THE INTERNET BUSINESS SECTOR IN PARTICULAR COULD HAVE A NEGATIVE IMPACT ON OUR FUTURE REVENUES. The economy, and the Internet business sector in particular, have been unstable and declining over the past year, and particularly in the past several quarters. We cannot predict whether this instability will continue, and if it does continue, how long it will last. Potential purchasers of our products are more carefully considering their technology expenditures and/or reducing their information technology budgets. As a result of this less favorable economic 16 climate, potential purchasers may decide not to purchase our products or may delay their purchases indefinitely. Such decisions would have a negative impact on future revenues and our ability to grow our business. OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND YOU SHOULD NOT RELY ON THEM TO PREDICT OUR FUTURE PERFORMANCE. Our revenues and operating results may vary significantly from quarter to quarter. A number of factors are likely to cause these variations, including: - demand for our products and services; - the timing of sales of our products and services; - the timing of customer orders and product implementation; - unexpected delays in introducing new products and services; - increased expenses, whether related to selling and marketing, research and development or general and administrative; - changes in the rapidly evolving market for Web content management solutions; - the mix of product license and service revenue; and - the timing and size of sales derived through our strategic partners. Accordingly, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Investors should not rely on the results of one quarter as an indication of our future performance. We may increase our operating expenditures to expand our sales and marketing operations, develop new distribution channels, fund greater levels of research and development, broaden professional services and support and improve operational and financial systems. If our revenues do not increase along with these expenses, our business, operating results or financial condition could be materially adversely affected and net losses in a given quarter could be greater than expected. Although we have limited historical financial data, we believe that our quarterly operating results may experience seasonal fluctuations due to clients' fiscal year budgeting cycles and purchasing patterns. RISKS RELATED TO OUR BUSINESS ONLY A LIMITED NUMBER OF CUSTOMERS HAVE LICENSED OUR PRODUCT, AND OUR WEB CONTENT MANAGEMENT SOLUTION MAY NEVER ACHIEVE BROAD MARKET ACCEPTANCE. We first introduced Eprise Participant Server in February 1998 and delivered subsequent major releases in April 1999, November 2000, and June 2001. To date, only a limited number of customers have licensed Eprise Participant Server, and an even smaller number are operating Web sites using the most recent version. Therefore, we have not demonstrated broad market acceptance of Eprise Participant Server. If our product does not gain broad market acceptance, or if it fails to meet customer expectations, our business would be harmed. OUR QUARTERLY RESULTS OFTEN DEPEND ON A SMALL NUMBER OF RELATIVELY LARGE SALES. We typically derive a significant portion of our software license revenues in each quarter from a small number of relatively large orders. Although we do not believe that the loss of any particular customer would have a material adverse effect on our business or financial condition, our operating results could be materially adversely affected if we were unable to complete one or more substantial license sales in any future period. In the first, second, third and fourth quarters of 2000, our five largest customers accounted for approximately 50%, 26%, 33% and 34%, respectively, of total revenues in those quarters. In the first, second and third quarters of 2001, our five largest customers accounted for approximately 33%, 42% and 35% of total revenues, respectively. 17 IF WE DO NOT SUCCESSFULLY EXPAND OUR DIRECT SALES AND SERVICES ORGANIZATIONS, WE MAY NOT BE ABLE TO INCREASE OUR SALES OR SUPPORT OUR CUSTOMERS. In the fiscal year ended December 31, 2000 and the first nine months of 2001, we licensed substantially all of our products through our direct sales organization. As of November 2, 2001, we had 18 direct sales representatives. Our future success depends on substantially increasing the size and scope of our direct sales force, both domestically and internationally. There is intense competition for personnel, and we cannot guarantee that we will be able to attract, assimilate or retain additional qualified sales personnel on a timely basis. Moreover, we believe that as our sales increase, and given the large-scale deployment required by our customers, we will need to hire and retain a number of highly trained customer service and support personnel. As of November 2, 2001, our customer service and support organization included 52 individuals. We cannot guarantee that we will be able to increase the size of our customer service and support organization on a timely basis to provide the high quality of support required by our customers. Failure to add additional sales and customer service representatives would have a material adverse effect on our business, operating results and financial condition. IF WE DO NOT SUCCESSFULLY MAINTAIN AND EXPAND OUR RELATIONSHIPS WITH INDUSTRY PARTNERS, OUR SALES COULD DECLINE OR GROW MORE SLOWLY THAN EXPECTED. To offer products and services to a larger customer base, our direct sales force must establish and expand relationships with alliance partners, including systems integrators, consulting firms, Web developers and application service providers who build customer solutions based on Eprise Participant Server. We are currently investing, and we intend to continue to invest, significant resources to develop these relationships. If our efforts are unsuccessful, our sales growth would be adversely affected. We cannot guarantee that we will be able to market our products effectively through our established partners. Further, these third parties are under no obligation to recommend or support our products. These companies could recommend or give higher priority to the products of other companies or to their own products. A significant shift by these companies toward favoring competing products could negatively affect our license and service revenues. We cannot guarantee that we will be able to attract additional distribution partners for desired distribution arrangements. The loss of distribution partners or failure to establish new relationships could materially adversely affect our business, operating results and financial condition. WE NEED TO INCREASE MARKET AWARENESS OF OUR PRODUCT TO REMAIN COMPETITIVE AND CONTINUE TO INCREASE OUR REVENUES. Our customer base is relatively small compared to some of our competitors, and we are facing increasing competition in our business sector. We are engaged in marketing and business development activities to increase our visibility as a provider of content management solutions. However, if we are unable to achieve greater market awareness of our product, it will become more difficult for us to compete successfully for new customers, and therefore more difficult to gain market acceptance and increase our license revenues. WE NEED TO MANAGE OUR GROWTH EFFECTIVELY TO REMAIN COMPETITIVE AND CONTINUE TO EXPAND OUR OPERATIONS. We have expanded our operations rapidly since inception. We expect to expand in the future to pursue potential opportunities. Rapid growth could place a significant demand on management, administrative and operations resources. Our ability to compete effectively and to manage our anticipated future growth requires us to continue to improve our financial and management controls, reporting systems and procedures on a timely basis. We must add personnel to maintain our ability to grow in the future. We cannot guarantee that we will be able to do so successfully. Failure to manage our growth effectively could have a material adverse effect upon our business, operating results and financial condition. WE MUST HIRE AND RETAIN SKILLED PERSONNEL IN A TIGHT LABOR MARKET. Qualified personnel are in great demand throughout the computer software, hardware and networking industries. The demand for qualified personnel is particularly acute in the New England area because of the large number of software and other high technology companies and the low unemployment rate in the region. Our success depends in 18 large part upon our ability to attract, train, motivate and retain highly-skilled employees, particularly sales and marketing personnel, software engineers, and technical support personnel. We have had difficulty hiring these highly-skilled employees in the past. If we are unable to attract and retain the highly-skilled technical personnel that are integral to our sales, marketing, product development and customer support teams, the rate at which we can generate sales and develop new products or product enhancements may be limited. This inability could have a material adverse effect on our business, operating results and financial condition. COMPETITION COULD REDUCE OUR REVENUES AND MARKET SHARE, AND PREVENT US FROM EXPANDING IN THE FUTURE. The market for Web content management software and services is rapidly evolving and highly competitive and there are a number of products that compete directly with our software solutions. Our clients' requirements and the technology available to satisfy those requirements continually change. Some of our current and potential competitors have significantly greater financial, marketing, technical and other competitive resources than we do. This may enable them to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products. In addition, other companies could develop new products or incorporate additional functionality into their existing products that could directly compete with our products. Barriers to entering the software market are relatively low. Furthermore, cooperative relationships among our competitors could increase their ability to address the Web site content management needs of our prospective customers, and they could rapidly acquire significant market share. We cannot guarantee that we will compete successfully against existing or new competitors. Further, competitive pressures may require us to lower the prices of our software and services. Failure to compete successfully would have a material adverse effect on our business, operating results and financial condition. IF WE ARE UNABLE TO ENHANCE AND EXPAND OUR PRODUCT LINE TO MEET THE RAPID CHANGES IN THE MARKET FOR WEB CONTENT MANAGEMENT TECHNOLOGY, OUR BUSINESS WILL BE UNABLE TO GROW. To succeed, we will need to enhance our current Eprise Participant Server product and develop new products on a timely basis to keep pace with developments related to Internet technology and to satisfy the increasingly sophisticated requirements of our customers. The market for our products is marked by rapid technological change, frequent new product introductions and Internet-related technology enhancements, uncertain product life cycles, changes in client demands and evolving industry standards. We cannot be certain that we will successfully develop and market new products or new product enhancements compliant with present or emerging Internet technology standards. New products based on new technologies or new industry standards can rapidly render existing products obsolete and unmarketable. Internet commerce technology is complex and new products and product enhancements can require long development and testing periods. Any delays in developing, testing and releasing enhanced or new products could harm our business. New products or upgrades may not be released according to schedule or may contain defects when released. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our products or customer claims against us, any of which could harm our business. If we do not develop, license or acquire new software products, or deliver enhancements to existing products on a timely and cost-effective basis, our business will be harmed. WE HAVE RELIED ON AND EXPECT TO CONTINUE TO RELY ON SALES OF OUR EPRISE PARTICIPANT SERVER LINE FOR OUR REVENUES. Since 1998, we have derived substantially all of our revenues from licenses of, and services related to, Eprise Participant Server. We expect that revenues from this product will continue to account for a significant portion of our revenues for the foreseeable future. A decline in the price of Eprise Participant Server or our inability to increase license sales of Eprise Participant Server would seriously harm our business and operating results. In addition, our future financial performance will depend upon the successful development, introduction and customer acceptance of enhanced versions of Eprise Participant Server and future products. Failure to deliver the enhancements or products that customers want could have a material adverse effect on our business, operating results and financial condition. 19 OUR LENGTHY SALES CYCLES REQUIRE EXPENDITURE OF RESOURCES THAT WILL NOT NECESSARILY RESULT IN A SALE. We typically experience long sales cycles. These sales cycles generally vary by customer from three to six months. Because the licensing of our products generally involves a significant capital expenditure by the customer, our sales process is subject to lengthy approval processes and delays. We often devote significant time and resources to a prospective customer, including costs associated with multiple site visits, product demonstrations and feasibility studies, without any assurance that the prospective customer will decide to license our products. IF OUR PRODUCTS FAIL TO REMAIN COMPATIBLE WITH MAJOR COMMERCIAL OPERATING PLATFORMS, OUR SALES WOULD DECREASE. Our products currently operate on the Microsoft Windows NT and Sun Solaris operating systems. In addition, our products are required to interoperate with Web servers, browsers and database servers. We must, therefore, continually modify and enhance our products to keep pace with changes in these operating systems and servers. If our products are not compatible with new operating systems, Web servers, browsers or database servers that achieve sufficient market penetration, our business will be harmed. In addition, uncertainties related to the timing and nature of new product announcements, or introductions or modifications by vendors of operating systems or browsers, could also harm our business. POTENTIAL DEFECTS IN OUR PRODUCTS COULD CAUSE SALES TO DECREASE AND COULD SUBJECT US TO FUTURE WARRANTY CLAIMS. Our products are complex and might contain undetected software errors or failures when new versions are released. We cannot guarantee that, despite testing by us and by current and prospective customers, we will not find errors in existing products, new products or product enhancements after commercial release. These errors may result in loss or delay of market acceptance, which could have a material adverse effect upon our business, operating results and financial condition. IF WE LOSE ANY KEY PERSONNEL, OR FAIL TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL, WE MAY BE UNABLE TO CONTINUE EXPANDING OUR BUSINESS AND PRODUCT LINE. The loss of the services of one or more of our key personnel could have a material adverse effect on our business, operating results and financial condition. We do not maintain key person life insurance on any executive officers other than our Chief Executive Officer. We cannot guarantee that we will be able to retain our key personnel. Our future success also depends on our continuing ability to attract, assimilate and retain highly qualified sales, technical and managerial personnel. Competition for these individuals is intense, and there can be no assurance that we can attract, assimilate or retain necessary personnel in the future. WE HAVE A LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, AND OTHERS COULD INFRINGE ON OR MISAPPROPRIATE OUR PROPRIETARY RIGHTS AND INFORMATION. Our software is proprietary and is protected by trade secret, copyright and trademark laws, license agreements, confidentiality agreements with employees and nondisclosure and other contractual requirements imposed on our customers, consulting partners and others. We cannot guarantee that these protections will adequately protect our proprietary rights or that our competitors will not independently develop products that are substantially equivalent or superior to our products. In addition, the laws of countries in which our products may be licensed in the future may not protect our products and intellectual property rights to the same extent as the laws of the United States. Although we believe that our products, trademarks and other proprietary rights do not infringe upon the proprietary rights of third parties, we cannot guarantee that third parties will not assert infringement claims against us. The cost of pursuing, enforcing or defending infringement claims can be substantial and can also require significant management attention. 20 RISKS RELATED TO THE INTERNET INDUSTRY IF THE USE OF THE INTERNET DOES NOT EXPAND, THE DEMAND FOR OUR PRODUCTS MAY STAGNATE OR DECLINE. Our future success depends heavily on the Internet being accepted and widely used. If Internet use does not continue to grow or grows more slowly than expected, our business, operating results and financial condition would be materially adversely affected. Consumers and businesses may reject the Internet as a viable communications medium for a number of reasons, including potentially inadequate network infrastructure, security concerns, slow development of enabling technologies or insufficient commercial support. The Internet infrastructure may not be able to support the demands placed on it by increased Internet usage and bandwidth requirements. In addition, delays in the development or adoption of new standards and protocols required to handle an increased level of Internet activity or increased government regulation could cause the Internet to lose its viability as a commercial medium. Even if the required infrastructure, standards, protocols or complementary products, services or facilities are developed, we may incur substantial expenses adapting our solutions to changing or emerging technologies. WE CANNOT BE SURE THAT A SUSTAINABLE MARKET FOR OUR PRODUCTS WILL DEVELOP. The market for Web content management software and services is new and rapidly evolving, and the size and potential growth of this new market and the direction of its development are uncertain. We have licensed our products to a small number of customers. We expect that we will continue to need intensive marketing and sales efforts to educate prospective clients about the uses and benefits of our products and services. Enterprises that have invested substantial resources in other methods of conducting business over the Internet may be reluctant to adopt a new approach that may replace, limit or compete with their existing systems. Any of these factors could inhibit the growth and market acceptance of our products and services. Accordingly, we cannot be certain that a viable market for our products will emerge, or if it does emerge, that it will be sustainable. IF THE INTERNET OR E-COMMERCE BECOMES SUBJECT TO GOVERNMENTAL REGULATION OR OTHER FUTURE LAWS, USE OF AND DEMAND FOR OUR PRODUCTS COULD DECLINE. We are not currently required to comply with direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally and any laws or regulations directly applicable to the Internet. However, due to the increasing popularity of the Internet, it is possible that laws may be adopted regarding the Internet, any of which could materially harm our business. For example, because our products can be used for the solicitation of personal data from individual consumers, our business could be limited by laws regulating the solicitation, collection or processing of this data. The Telecommunications Act of 1996 prohibits the transmission of some types of information and content over the Internet. Legislation imposing potential liability for information collected or disseminated through our products could adversely affect our business. In addition, the increased attention focused upon liability issues as a result of the Telecommunications Act could limit the growth of Internet commerce, which could decrease demand for our products. Export regulations, either in their current form or as may be subsequently enacted, may limit our ability to distribute our software outside the United States. The unlawful export of our software could also harm our business. Although we take precautions against unlawful export of our software, the global nature of the Internet makes if difficult to effectively control the distribution of software. Furthermore, the growth and development of the Internet may lead to more stringent consumer protection laws that may impose additional burdens on companies conducting business online. The adoption of any additional laws may decrease Internet use or impede the growth of Internet use, which may lead to a decrease in the demand for our products and services or an increase in the cost of doing business. Further, the imposition of new sales or other taxes could limit the growth of Internet commerce generally and, as a result, the demand for our products. Although recent federal legislation limits the imposition of state and local taxes on Internet-related sales, there is a possibility that Congress may not renew this legislation, in which case state and local governments would be free to impose taxes on goods and services purchased on the Internet. 21 RISKS RELATED TO THE SECURITIES MARKETS THE MARKET FOR OUR COMMON STOCK HAS BEEN VOLATILE. The market for securities of most high technology companies, including Eprise, has been highly volatile. It is likely that the market price of our common stock will fluctuate widely in the future. Factors affecting the trading price of our common stock are likely to include: - responses to quarter-to-quarter variations in our results of operations; - the announcement of new products or product enhancements by us or our competitors; - technological innovation by us or our competitors; - general market conditions or market conditions specific to particular industries; and - changes in earnings estimates by analysts. WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT COULD AFFECT THE MARKETABILITY OF OUR COMMON STOCK. Our amended and restated certificate of incorporation and by-laws contain provisions that could make it more difficult for a third party to acquire us or effect a change of control in our management, even if doing so would be beneficial to our stockholders. We have also adopted a shareholder rights plan designed to encourage potentially hostile acquirors to negotiate with the board before attempting a takeover of the company. In addition, the provisions of Delaware law and our stock incentive plans relating to an acquisition or change in control of Eprise may also have the effect of discouraging, delaying or preventing a sale. OUR STOCK IS CURRENTLY TRADING BELOW THE MINIMUM THRESHOLD REQUIRED BY THE NASDAQ STOCK MARKET, AND IF THE BID PRICE FOR OUR STOCK DOES NOT RISE ABOVE $1.00 PER SHARE WE MAY BE DE-LISTED. Our common stock trades on The Nasdaq Stock Market, which has several requirements for continued listing of common stock, including a minimum bid price of $1.00 per share. The closing bid price per share of our common stock has been less than $1.00 for more than 30 consecutive trading days. On September 27, 2001, Nasdaq implemented a moratorium, until January 2, 2002, on certain requirements for continued listing on The Nasdaq Stock Market. Although we intend to use our best efforts to avoid de-listing, including, if necessary, filing an appeal and requesting a hearing with Nasdaq, we may not be able to maintain our National Market listing. If we are de-listed, our stock would be traded on the over-the-counter bulletin board (reported in the "pink sheets"), which could decrease trading volume and investors' liquidity. In addition, de-listing could have a significant negative impact on our business plan and operations by creating a negative market perception of the Company that could adversely affect our ability to compete and obtain new business. RISKS RELATING TO THE PROPOSED MERGER WITH DIVINE, INC. IF THE MERGER IS NOT COMPLETED, EPRISE MAY BE AT A SIGNIFICANT COMPETITIVE DISADVANTAGE IN THE MARKETPLACE. We anticipate that our merger with a wholly-owned subsidiary of divine, pursuant to which we will become a wholly-owned subsidiary of divine, will be completed in December 2001. However, the merger is subject to a number of closing conditions, including approval of the transaction by our stockholders. If the merger is not completed, our business prospects could be substantially harmed. The website content management industry is undergoing rapid consolidation. divine has already acquired one of Eprise's competitors, Open Market. There can be no assurance that we would be able to compete effectively against divine or other larger competitors in our industry if we remain an independent company. 22 OUR CUSTOMERS MAY REACT UNFAVORABLY TO THE MERGER, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS. The merger may disrupt our customer relationships. Uncertainty regarding the merger and our ability to effectively integrate our operations without a significant reduction in the quality of product and service offerings may also cause some of our customers to explore alternatives. Further, customers may defer purchasing decisions as they evaluate the likehood of our successful integration. Any significant delay or loss of business from significant customers could have a material adverse effect on our results of operations. THE VALUE OF SHARES OF DIVINE COMMON STOCK THAT OUR STOCKHOLDERS WILL RECEIVE IN THE MERGER WILL FLUCTUATE BASED ON THE PRICE OF DIVINE COMMON STOCK. Under the merger agreement between Eprise, divine and DI2 Acquisition Company, the number of shares of divine common stock that our stockholders will receive in the merger for their Eprise shares is fixed. This means that the exchange ratio of 2.4233 will not be adjusted for changes in the market price of either divine or Eprise common stock and neither company can terminate the merger agreement solely because of changes in the market price of either company's common stock. Therefore, the value of the divine shares that our stockholders receive in the merger will depend on the market price of divine common stock at the time of completion of the merger. The prices of divine and Eprise common stock historically have been volatile, and we cannot predict what the market prices of the divine common stock of Eprise common stock will be at the time of the merger. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK As of September 30, 2001, we had approximately $47.9 million in cash equivalents and short-term investments that was subject to interest rate risk. The average interest rate as of September 30, 2001 was approximately 3.5%. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and short-term investments in a limited number of securities, including both government and corporate obligations and money market funds. We did not hold derivative financial instruments as of September 30, 2001, and have never held such instruments in the past. We had outstanding debt at September 30, 2001 of $14,319. FOREIGN CURRENCY RISK Currently, the majority of our sales and expenses are denominated in U.S. dollars. As a result, we have experienced no significant foreign exchange gains or losses to date. While we do expect to effect some transactions in foreign currencies in 2001, we do not anticipate that foreign exchange gains or losses will be significant. We have not engaged in foreign currency hedging activities to date. 23 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (b) Use of Proceeds from Sales of Registered Securities On March 29, 2000 the Company closed the initial public offering of its common stock. The shares of common stock sold in the offering were registered under the Securities Act on a Registration Statement on Form S-1 (the "Registration Statement") (Registration No. 333-94777) that was declared effective by the Securities and Exchange Commission on March 23, 2000. After deducting the underwriting discounts and commission and the offering expenses described above, the Company received net proceeds from the offering of approximately $63.2 million. None of the net proceeds of the offering were paid by the Company, directly or indirectly, to any director or officer of the Company or any of their associates, or to any persons owning ten percent or more of any class of the Company's equity securities, or any affiliates of the Company. The proceeds are primarily being used for working capital and general corporate purposes, including increased sales and marketing expenditures, increased research and development expenditures and capital expenditures. Pending these uses, the net proceeds are being invested in short-term, investment-grade, interest-bearing instruments. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit No. Description - ----------- ----------- 4.1 Amendment to Stockholder Rights Agreement 10.1 Agreement, release and waiver between the Company and Jonathan Radoff 10.2 Separation agreement and release between the Company and Robert Strong 10.3 Severance agreement including amendment between the Company and Milton Alpern 10.4 Offer letter addendum between the Company and Joseph Noonan 10.5 Offer letter addendum between the Company and Kathy Kessel (b) Eprise filed a Current Report on Form 8-K with the SEC on September 20, 2001 to disclose the Company's entering into a definitive Agreement and Plan of Merger with divine, inc. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EPRISE CORPORATION Dated: November 14, 2001 /s/ Joseph A. Forgione -------------------------------------------- Joseph A. Forgione President and Chief Executive Officer (Principal Executive Officer) Dated: November 14, 2001 /s/ Milton A. Alpern -------------------------------------------- Milton A. Alpern Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
25
EX-4.1 3 b40861ecex4-1.txt AMENDMENT TO STOCKHOLDER RIGHTS AGREEMENT Exhibit 4.1 AMENDMENT NO. 1 TO STOCKHOLDER RIGHTS AGREEMENT This Amendment No. 1 (this "Amendment") to the Stockholder Rights Agreement dated as of December 18, 2000 (the "Rights Agreement") by and between Eprise Corporation, a Delaware corporation (the "Company"), and Fleet Bank c/o EquiServe L.P., as Rights Agent (the "Rights Agent"), is entered into by the Company and the Rights Agent as of the date set forth below. Capitalized terms not otherwise defined in this Amendment shall have the meanings ascribed to them in the Rights Agreement. WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company and the Rights Agent may from time to time supplement or amend the Rights Agreement in accordance with the provisions of Section 27 thereof if the Company so directs; and WHEREAS, the Company has entered into an Agreement and Plan of Merger (the "Merger Agreement") dated September 17, 2001, among divine, inc., a Delaware corporation ("divine"), DI2 Acquisition Company, a Delaware corporation and a direct wholly-owned subsidiary of divine, and the Company; and WHEREAS, the Board of Directors of the Company has determined that the Merger Agreement and the terms and conditions set forth therein and the transactions contemplated thereby, including, without limitation, the Merger (as defined in the Merger Agreement), are fair to and in the best interests of the Company and its stockholders; and WHEREAS, the Board of Directors of the Company has approved, in connection with the Merger Agreement, each of divine and DI2 Acquisition Company to become a Beneficial Owner of 15% or more of the Company's Common Shares, and has further determined that the Merger and related transactions constitute a Permitted Offer under the Rights Agreement, and that no Shares Acquisition Date or Distribution Date shall occur by reason of the Merger or the related transactions contemplated by the Merger Agreement; and WHEREAS, the Board of Directors of the Company has determined that it is necessary and desirable to amend the Rights Agreement such that all Rights thereunder shall expire immediately prior to the Effective Time as defined in the Merger Agreement. NOW, THEREFORE, the Company hereby amends the Rights Agreement as follows: 1. Section 7(a) of the Rights Agreement is hereby amended by deleting it and replacing it with the following: "(a) The registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the office of the Rights Agent designated for such purpose, together with payment of the Purchase Price for each one one-hundredth of a Preferred Share (or such other number of shares or other securities) as to which the Rights are exercised, provided that such exercise must be made at or prior to the earliest of: (i) the earlier of (A) the Effective Time under that certain Agreement and Plan of Merger among the Company, divine, Inc. and DI2 Acquisition Company, dated September 17, 2001, and (B) the Close of Business on December 18, 2010 or such later date as may be established by the Board of Directors prior to such date (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the time at which such Rights are exchanged as provided in Section 24 hereof." 2. Section 15 of the Rights Agreement is hereby amended and supplemented by adding the following sentence to the end thereof: "Nothing in this Agreement shall be construed to give any holder of Rights or any other Person any legal or equitable right, remedy or claim under this Agreement in connection with a Permitted Offer." 3. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. 4. This Amendment may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed an original and all such counterparts shall together constitute but one and the same instrument. 5. This Amendment shall be deemed effective as of the date set forth below. In all respects not inconsistent with the terms and provisions of this Amendment, the Rights Agreement is hereby ratified, adopted, approved and confirmed. In executing and delivering this Amendment, the Rights Agent shall be entitled to all the privileges and immunities afforded to the Rights Agent under the terms and conditions of the Rights Agreement. 6. If any term, provision, covenant or restriction of this Amendment is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Amendment, and of the Rights Agreement, shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 7. Except as otherwise expressly provided herein, or unless the context otherwise requires, all terms used herein have the meanings assigned to them in the Rights Agreement. [remainder of this page intentionally left blank] 2 IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to the Rights Agreement to be executed in counterparts as of the 31st day of October, 2001. EPRISE CORPORATION By: /s/ J.A. Forgione -------------------------------------- Joseph A. Forgione President Attest: /s/ Heather Lamoureux - ----------------------- FLEET BANK N.A. c/o EQUISERVE, L.P. By: /s/ Michael Connor -------------------------------------- Name: Michael Connor Title: Director IPO/Client Administration Team Attest: /s/ Greg Veliotis - ---------------------- 3 EX-10.1 4 b40861ecex10-1.txt AGREEMENT RELEASE AND WAIVER Exhibit 10.1 AGREEMENT, RELEASE AND WAIVER This Agreement is made as of this 2nd day of August, 2001, by and between Jonathan B. Radoff ("Radoff") and Eprise Corporation (alternatively "Eprise" or the "Company"). In consideration of the mutual promises hereinafter set forth, the parties agree as follows: 1. Termination. The parties agree that Radoff's employment as Chief Technology Officer with Eprise ceased effective as of July 17, 2001 (the "Effective Date"). During the "Employment Continuation Period," as defined hereafter, Radoff will continue to be paid by the Company, as provided in Paragraph 2 below, for work related to product development and engineering, reporting directly to the Chief Executive Officer. Radoff's duties will be determined from time to time by the Chief Executive Officer, but shall not require more than 40 hours per week. Radoff shall not report to or contact any other officer, director or employee of Eprise with respect to his services. The "Employment Continuation Period" means the period beginning on the Effective Date and ending on September 1, 2001. Radoff's employment with Eprise shall terminate at the end of the Employment Continuation Period. 2. Compensation. Subject to Paragraph 7(e), the Company agrees to pay Radoff the following amounts, subject to the following terms and conditions: (a) The Company will pay Radoff for his services during the Employment Continuation Period in accordance with Radoff's base salary on the Effective Date, such payments to be made from time to time in accordance with the Company's regular pay schedule. The Company will deduct from each such payment any applicable withholding taxes and other customary payroll deductions. Each payment will be mailed to Radoff at his home address provided in Paragraph 14 below. (b) Upon the conclusion of the Employment Continuation Period, and provided that Radoff signs and returns to the Company an updated general release as provided in Paragraph 9(b), the Company shall continue to pay Radoff his current base salary for one additional year. The Company will make such payment in accordance with its regular pay schedule, and will deduct from such payment any applicable withholding taxes and other customary payroll deductions. (c) If Radoff resigns, effective on or before September 1, 2001, as a member of the board of directors of Eprise, Eprise shall pay Radoff, instead of the compensation described in Paragraph 2(b): a lump sum equivalent to three months of his current base salary, to be paid on or before September 10, 2001; and a lump sum equivalent to nine months of his current base salary, to be paid on or before January 1, 2002. The Company will deduct any applicable taxes from any payments made pursuant to this Paragraph 2(c). (d) The Company will reimburse Radoff for attorneys' fees he incurs in the negotiation of this Agreement, up to a maximum of $1,500. 3. Bonus. Radoff acknowledges his receipt of all bonuses due him for services rendered through the Effective Date, including a bonus of $7,120.00, which was paid to him on July 24, 2001. Radoff will not be entitled to any further bonuses for services rendered or to be rendered prior to the Effective Date or during the Employment Continuation Period. 4. Health Care Insurance. During the Employment Continuation Period, Radoff will continue to be a participant in the Company's health care insurance program. During this period, Radoff will have the same level of coverage that he is receiving under the Company's health care insurance program as of the date of this Agreement, and the Company will pay all premiums for this insurance, unless there is a change in the Company's health care insurer or a health care insurer's eligibility rules or other change in the Company's health care insurance program applicable generally to Company employees, in which case such changes will also apply to Radoff. On termination of his service at the end of the Employment Continuation Period, Radoff will be entitled to extend his Company health insurance benefits under and subject to the terms of COBRA, provided that if he elects to accept this COBRA benefit, the Company will pay his health insurance premiums for one year, after which Radoff will be responsible for the payment of all premiums for his health insurance for the remainder of the COBRA period. 5. Other Benefits. (a) Stock Options. During the Employment Continuation Period, Radoff will be entitled to continue to vest in and exercise options to purchase Company stock granted to him prior to the Effective Date, in accordance with the provisions of the stock option plans and agreements applicable to him and the terms of said options. (b) General. All other benefits Radoff has earned through the Effective Date will be accrued and paid in accordance with the terms of the applicable benefit plans, including accrued but unused vacation and paid time off (which shall be paid on the Effective Date). Except as provided in Paragraph 4 and 5(a), Radoff will not earn, accrue or be entitled to any further benefits after the Effective Date. Radoff expressly agrees that, except as expressly provided under the terms of this Agreement, the Company owes him no further salary, bonus pay, severance pay, vacation pay, sick pay, automobile or transportation pay or reimbursements, expense reimbursements, or any other form of remuneration or benefit whatsoever. 6. Return of Company Property. Radoff represents that he has returned to the Company all Company property that was in his possession or control, including, without limitation, any equipment (including, without limitation, computers, printers, pagers and cell phones) provided by the Company, Company credit cards, any building passes, and any Company documents and other materials. Radoff represents that he has paid 2 in full any amounts he owed to the Company, and acknowledges that the Company has reimbursed him for all bona fide business expenses paid by him. 7. Obligations to the Company. (a) Prior Agreement. Radoff acknowledges and agrees that he shall remain bound by the terms of the Non-Disclosure/Non-Competition Agreement between Radoff and the Company dated December 17, 1997, a copy of which is attached hereto as Exhibit A (the "Prior Agreement"), regarding his obligations of confidentiality, non-solicitation and similar obligations to the Company (the "Other Obligations"). (b) Non-Competition; Non-Solicitation. In consideration of the compensation and other benefits and accommodations being provided to Radoff hereunder, and without limiting the scope of the Other Obligations, Radoff agrees as follows: (i) Radoff understands that the term "Competing Product" means any product, process, or service of any person or organization other than Eprise, in existence or under development of which Radoff is aware, (A) which is identical to, substantially the same as, or an adequate substitute for any product, process, or service of Eprise in existence or under development of which Radoff is aware, and (B) which is (or could reasonably be anticipated to be) marketed or distributed in such manner and in such a geographic area as to actually compete with such product, process or service of Eprise; and the term "Competing Organization" means any person or organization, including Radoff, engaged in, or about to become engaged in, research on or the acquisition, development, production, distribution, marketing, or providing of a Competing Product. (ii) During the Employment Continuation Period and for a period of one year thereafter, Radoff will not directly or indirectly solicit or accept business relating in any manner to Competing Products or to products, processes or services of Eprise from any of the customers or accounts of Eprise with which Radoff had any contact as a result of his employment, nor will Radoff divert any such business from Eprise. (iii) During the Employment Continuation Period and for a period of one year thereafter, Radoff will not render services, directly or indirectly, as an employee, consultant or otherwise, to any Competing Organization in connection with research on or the acquisition, development, production, distribution, marketing, or providing of any Competing Product. (iv) During the Employment Continuation Period and for a period of one year thereafter, Radoff will not recruit or otherwise solicit or induce employees or consultants of Eprise or its present or future affiliates to terminate their employment with, or otherwise cease their relationship with Eprise or any such affiliates. (v) During the Employment Continuation Period and for a period of one year thereafter, Radoff will not directly or indirectly induce or attempt to induce a customer, 3 prospective customer, supplier, agent, vendor, contractor, subcontractor, developer, employee or consultant to terminate or not enter into any contract with Eprise or its present or future affiliates. (c) Confidentiality. Radoff understands and agrees that the terms and conditions of this Agreement are to be maintained in the strictest of confidence and shall not be disclosed by him to any third party other than his wife and attorney (subject to such persons' agreement to hold such information in confidence), except as permitted under Paragraph 8(e) or as otherwise required by law or regulation. Eprise agrees to instruct its management personnel who have been directly involved in the negotiation of this Agreement that the terms and conditions hereof are to be maintained in the strictest of confidence and are not to be disclosed to any third party other than Eprise's counsel and independent accountant, except as permitted under Paragraph 7(d) or as otherwise required by law or regulation. (d) Non-Disparagement. Radoff covenants and agrees that, from and after the date of this Agreement, he will not make or assist others to make statements that are critical of Eprise, injure Eprise's reputation or are otherwise adverse to or inconsistent with Eprise's best interests, whether in private or in public. Eprise agrees to instruct its management personnel to restrict all external discussion of employment and termination of Radoff to the following facts: confirmation of Radoff's employment by Eprise, the dates he began and terminated work at Eprise, his salary, and his job title. (e) Breach. Radoff acknowledges that the provisions set forth in Paragraphs 7(a) through 7(d) above are significant, material factors in Eprise's decision to enter into this Agreement. In the event of a material breach of any of those provisions or of any of the Other Obligations, Radoff shall forfeit his right to receive any unpaid payments described in Paragraph 2 of this Agreement and Eprise's obligation to make such payments shall thereafter cease. In addition, Radoff shall be liable to the Company for any and all damages suffered by Eprise as a result of such breach or any other material breach of this Agreement (which damages shall include the Company's reasonable attorneys' fees incurred in any action to enforce this Agreement). Eprise shall be liable to Radoff for any and all damages suffered by Radoff as a result of a material breach of this Agreement (which damages shall include Radoff's reasonable attorneys' fees incurred in any action to enforce this Agreement). Radoff agrees that a breach of Paragraphs 7(a) through 7(d) or of the Other Obligations may cause damage for which there is no adequate remedy at law and that therefore Eprise will have the right to injunctive or other equitable relief in addition to any other relief that may be available. 8. Tax Indemnity. Radoff agrees that he will be exclusively liable for the payment of all federal, state and local taxes, if any, which may be due as a result of the consideration paid as set forth in this Agreement, except for any withholding that the Company is required by law to pay; and Radoff hereby represents that he shall make payments of such taxes at the times and in the amounts required by law. In addition, Radoff hereby agrees to fully indemnify the Company from the payment of taxes that are required of it by any government agency at any time as the result of payment of the consideration set forth in this Agreement, except for withholding that the Company was obligated to but did not pay. Such indemnification shall be paid 4 within 30 calendar days after the later of the date the Company pays the tax, or Radoff receives notice from the Company of such payment. 9. General Release. (a) Release by Radoff. In consideration of the obligations set forth above, Radoff on his behalf and on behalf of his heirs, executors, administrators and assigns, hereby fully releases, discharges and covenants not to sue or file administrative charges against the Company and any of its past, present, or future affiliates, parents, subsidiaries, successors and assigns, as well as its and their past, present and future directors, officers, trustees, agents, representatives, attorneys and employees (hereinafter individually and collectively referred to as "Releasees") from and with respect to any and all claims, demands, administrative charges, liabilities, actions, causes of action and suits whatsoever of every name and nature, in law or at equity, including but not limited to any claims under federal, state and local laws which prohibit discrimination (including without limitation, claims of discrimination based on race, religion, national origin, sex, disability or handicap and sexual orientation) and any claims with respect to breach of contract (express and/or implied); wrongful termination, intentional or negligent infliction of emotional distress, interference with contractual or advantageous business relations, loss of consortium, invasion of privacy, defamation, and any other tort; payment of wages; debts; costs and expenses; attorneys' fees and other damages; whether known or unknown, suspected or unsuspected, and whether or not concealed or hidden, which he now has, may at any time have, or may have had against said Releasees, or any of them, based on facts or conditions occurring or arising prior to and through the date of this Agreement including, without limitation, claims arising out of or in any way related to Radoff's employment relationship with the Company and/or the change in or eventual termination of such employment relationship as described herein, but not including any claims of breach of the express terms of this Agreement by the Company. (b) Release by the Company. In consideration of the obligations set forth above, the Company and any of its affiliates, subsidiaries, successors and assigns (hereinafter, collectively referred to as "Releasors") hereby fully release, discharge and covenant not to sue or file administrative charges against Radoff from and with respect to any and all claims, demands, charges, liabilities, actions, causes of action and suits whatsoever of every name and nature, in law or at equity, based solely on those facts and/or conditions of which the Releasors have knowledge or reasonably should have knowledge as of the date of the execution of this Agreement, but excluding any claims of breach of the express terms of this Agreement. Nothing in this paragraph shall extinguish, release or discharge any claims by the Company of breach of the Prior Agreement, except to the extent that the Company knows or reasonably should know all of the facts and conditions giving rise to such claims as of the date of this Agreement. (c) Radoff to Provide Updated Release. As a condition of receiving the compensation described in Paragraph 2(b), Radoff agrees that, on September 1, 2001, or within ten (10) days thereafter, he will sign and return to the Company an updated general release that is substantially identical to the general 5 release contained in Paragraph 9(a), except that the updated general release shall extend to claims arising through the date that Radoff signs it. 10. No Admissions. This Agreement is not intended to and does not constitute an admission of liability by either party, and shall not be used as evidence of liability or wrongdoing on the part of any party hereto. 11. Complete Agreement; Amendments. This Agreement and the Prior Agreement are intended by the parties as a final written expression of their agreement regarding Radoff's employment or termination of employment with Eprise, supersede any prior written expression of their intent regarding the terms of this Agreement, and set forth their entire agreement. This Agreement may not be amended or modified except by a writing signed by both of the parties hereto. 12. Notice. All notices and correspondence concerning this Agreement, including the payments described in Paragraph 2 above, shall be sent to Radoff at the following address: Jonathan B. Radoff 95 Middle Road Southborough, Massachusetts 01772 All notices and correspondence concerning this Agreement shall be sent to Eprise at the following address: Joseph A. Forgione, President Eprise Corporation 200 Crossing Boulevard Framingham, MA 01702 With a copy to: Ellen J. Rubin, Esq. Hill & Barlow, a Professional Corporation One International Place Boston, MA 02110 All notices provided hereunder shall be deemed to be received: the same day, if sent by hand or fax before 5:00 p.m.; the next day, if sent by overnight courier service; and two (2) business days after being deposited in the U.S. mail, postage prepaid. 13. Paragraph Headings. The paragraph headings throughout this Agreement are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction, or meaning of the provisions of this Agreement. 14. Provisions Binding, Etc. This Agreement shall be binding upon and shall inure to the benefit of all the parties hereto and their respective heirs, successors and assigns, including without limitation any 6 successor company to Eprise following any sale of Eprise's assets or stock or merger or other similar business combination. 15. Cooperation. The parties agree to deliver promptly and to execute promptly any documents reasonably necessary to the consummation of the transactions contemplated herein, and to do such further acts and things as may be necessary to carry out the intent and purposes of this Agreement. 16. Governing Law. This Agreement shall be governed by and construed as a contract in accordance with the laws of the Commonwealth of Massachusetts. In any dispute arising out of or relating to this Agreement, Radoff agrees to submit to the jurisdiction of any state or federal court in Massachusetts. 17. Invalidity of Particular Provisions. If any term or provision of this Agreement, or the application thereof to any person or circumstance, shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. Executed as an Agreement under seal, as of the date first set forth above. Witnessed by: Jonathan B. Radoff /s/ Heather A. Lamoureux /s/ J. Radoff - --------------------------------- ---------------------------------- Print Name: Heather A. Lamoureux Jonathan B. Radoff WITNESSED BY: EPRISE CORPORATION /s/ Heather A. Lamoureux By: /s/ J.A. Forgione - --------------------------------- ----------------------------- Print Name: Heather A. Lamoureux Joseph A. Forgione, President
7 Exhibit A Non-Disclosure/Non-Competition Agreement
EX-10.2 5 b40861ecex10-2.txt SEPARATION AGREEMENT - ROBERT STRONG Exhibit 10.2 SEPARATION AGREEMENT AND RELEASE This Separation Agreement and Release is made and entered into by and between Robert Strong and Eprise Corporation ("Eprise"). Strong and Eprise agree as follows: 1. Strong's employment with Eprise ended on July 17, 2001. 2. Eprise has paid Strong all of the regular compensation and benefits to which he was entitled as a result of his employment with Eprise, including, but not limited to, his regular salary through July 17, 2001 and vacation pay for his unused vacation accrued as of that date. 3. If Strong signs this Separation Agreement and Release, and after the seven-day waiting period described below, Eprise will: (a) pay to Strong the additional gross amount of $75,000, less taxes and standard withholdings and deductions, to be paid in equal bi-weekly installments over the next six months; (b) continue to pay the premiums for Strong's medical and dental insurance during such six-month period (to the same extent currently paid); and (c) accelerate Strong's vesting in options to purchase Eprise stock as if he were to remain an Eprise employee for six months after the date of the termination of his employment, provided, however, that no further options shall be granted to Strong, and that Strong shall not be entitled to any accelerated vesting in the event of a change in control of Eprise or for any other reason. 4. In consideration of receiving the payment and accelerated vesting described in the previous paragraph: a. Strong hereby releases and forever discharges and holds harmless Eprise and its current and former successors, employees, officers, directors, shareholders, parents, subsidiaries, affiliates and agents from all claims, wages, bonuses, commissions, expenses, benefits, or suits of any nature whatsoever from the beginning of time to the date of this Separation Agreement and Release. The claims Strong is releasing include but are not limited to any claims under the Age Discrimination in Employment Act or any other federal, state, or local law prohibiting employment discrimination or regulating the employment relationship, and any claims related in any way to his employment or the termination of his employment with Eprise. b. Strong will not disparage Eprise or any of its current or former employees, officers, directors, shareholders, parents, subsidiaries, affiliates, or agents. c. Strong agrees to provide consulting services to Eprise through September 17, 2001, as and when requested by the President and Chief Executive Officer, but in any event not to exceed 20 hours per week. 5. This Separation Agreement and Release is not intended to and does not constitute an admission of liability or wrongdoing by either party. Except as set forth in the following sentence, this Separation Agreement and Release is the final written expression of the agreement between Strong and Eprise regarding all matters arising out of or related in any way to his employment or the termination of his employment with Eprise. It supersedes any prior oral or written expression of intent and sets forth the parties' entire agreement regarding this subject matter; provided, however, that Strong acknowledges and agrees that all of his post-employment obligations under the Non-Disclosure/Non-Competition Agreement between Strong and Eprise dated January 7, 1999 shall remain in full force and effect. This Separation Agreement and Release may be amended or modified only by a writing signed by both parties. It shall be governed by Massachusetts law. 6. Strong warrants and represents that he has returned all Eprise property to Eprise. 7. As required by the Older Workers Benefit Protection Act of 1990, Strong acknowledges: a. That he has been advised and given the opportunity to consult with his own counsel prior to signing this Separation Agreement and Release. b. That he has been given up to 21 days from the receipt of this Separation Agreement and Release to consider whether to sign it. c. That the claims he is releasing in this Separation Agreement and Release include without limitation any and all claims under the Federal Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefit Protection Act of 1990. d. That he has been advised that even after he signs this Separation Agreement and Release, he may revoke it within seven days of the date of his signing, by delivering a signed revocation notice to Eprise. e. That this Agreement shall not become effective and in force until eight days after he signs it. f. That he will not be entitled to receive the consideration described in paragraph 3 of this Separation Agreement and Release until after the seven-day revocation period has expired, and that, should he in fact revoke his acceptance, he will not receive the consideration described in paragraph 3 at all. [signature page immediately follows] WHEREFORE, Strong and Eprise attest that they have read the above Separation Agreement and Release and fully understand and knowingly and voluntarily accept all of its provisions. Date: August 3, 2001 Date: August 3, 2001 EPRISE CORPORATION - ------------------------------- --------------------------- By: Robert Strong
2 ACKNOWLEDGMENT I was given 21 days within which to decide whether to sign the attached Separation Agreement and Release. I voluntarily decided to sign the Separation Agreement and Release before the end of 21 days so that I could receive the consideration described in paragraph 3 of the Separation Agreement and Release more quickly. I have been given the opportunity to seek legal counsel and I (have ___ have not ___) consulted with counsel. - -------------------- ------------------------------ Date: Robert Strong
EX-10.3 6 b40861ecex10-3.txt SEVERANCE AGREEMENT - MILTON ALPERN Exhibit 10.3 April 24, 2001 Milton A. Alpern Two Post Oak Lane Natick, Massachusetts 01760 Dear Milt, In consideration of your continued employment with Eprise, and for other good and valuable consideration, receipt of which is hereby acknowledged, the undersigned, on behalf of Eprise Corporation, hereby agrees as follows: Upon termination of your employment by Eprise other than for "Cause" (as defined below), Eprise will pay you your base salary and will continue your then-current employee welfare benefits for the six (6) month period following the date of termination. In addition to your rights to continuation of base salary and employee welfare benefits, you will be entitled to any COBRA or other statutory benefits and any conversion rights or privileges that you may have under insurance policies secured on your behalf by Eprise. Before terminating you for Cause, Eprise will provide you with notice and an opportunity to be heard. A termination will be for "Cause" if, in the reasonable judgment of the Company's board of directors, you have: (a) failed to perform (other than by reason of disability) or been materially negligent in the performance of your duties and responsibilities to Eprise or any of its affiliates, as they are determined from time to time by the board of directors or any officer(s) to whom you report and/or set forth in written company policies; (b) violated your obligations to Eprise under the terms of the Non-Disclosure/Non-Competition Agreement you executed on or about your date of hire; or (c) otherwise engaged in conduct that is materially harmful to the business, interests or reputation of Eprise or any of its affiliates. If you are in agreement with the foregoing, please sign where indicated below. Very truly yours, /s/ J.A. Forgione Joseph A. Forgione President and Chief Executive Officer Acknowledged and agreed: /s/ Milton A. Alpern Milton A. Alpern EPRISE CORPORATION 200 Crossing Boulevard Framingham, Massachusetts 01702 August 24, 2001 Milton A. Alpern Two Post Oak Lane Natick, Massachusetts 01760 Dear Milt, In consideration of your continued employment with Eprise Corporation (the "Company") and other good and valuable consideration, receipt of which is hereby acknowledged, this letter amends that certain letter agreement between the Company and you dated April 24, 2001 (the "Original Agreement"), as follows. In addition to the severance payments described in the Original Agreement, you will also be entitled to the severance payments described therein if you resign from the Company (or any successor to the Company's business) for "Good Reason." As used herein, "Good Reason" shall mean a material adverse change in your position with the Company or any successor, including (without limitation) a reduction in compensation, a demotion or assignment of job duties not commensurate with your current responsibilities, and/or a change in job location of more than 50 miles. Except as specifically amended hereby, all terms and conditions of the Original Agreement shall remain in full force and effect from and after the date hereof. If you are in agreement with the foregoing, please sign where indicated below. Very truly yours, /s/ J.A. Forgione Joseph A. Forgione President and Chief Executive Officer Acknowledged and agreed: /s/ Milton A. Alpern Milton A. Alpern EX-10.4 7 b40861ecex10-4.txt OFFER LETTER ADDENDUM Exhibit 10.4 ADDENDUM TO OFFER LETTER JOSEPH NOONAN Upon termination of your employment by Eprise other than for "Cause" (as defined below), Eprise will pay you your base salary and will continue your employee welfare benefits [as described in this letter] for the six (6) month period following the date of termination. In addition to your rights to continuation of base salary and employee welfare benefits, you will be entitled to any COBRA or other statutory benefits and any conversion rights or privileges that you may have under insurance policies secured on your behalf by Eprise. A termination will be for "Cause" if, in the reasonable judgment of the Company's board of directors, you have: (a) failed to perform (other than by reason of disability) or been materially negligent in the performance of your duties and responsibilities to the Company or any of its affiliates, as they are determined from time to time by the board of directors and/or set forth in written Company policies; (b) violated your obligations to the Company under the terms of the [Confidentiality/Assignment of Inventions Agreement] of even date herewith; or (c) otherwise engaged in conduct that is materially harmful to the business, interests or reputation of the Company or any of its affiliates. Before terminating you for Cause, the Company will provide you with notice and an opportunity to be heard. - -------------------------------- Joseph A. Forgione President & CEO Eprise Corporation EX-10.5 8 b40861ecex10-5.txt OFFER LETTER ADDENDUM Exhibit 10.5 ADDENDUM TO OFFER LETTER KATHY KESSEL Upon termination of your employment by Eprise other than for "Cause" (as defined below), Eprise will pay you your base salary and will continue your employee welfare benefits [as described in this letter] for the six (6) month period following the date of termination. In addition to your rights to continuation of base salary and employee welfare benefits, you will be entitled to any COBRA or other statutory benefits and any conversion rights or privileges that you may have under insurance policies secured on your behalf by Eprise. A termination will be for "Cause" if, in the reasonable judgment of the Company's board of directors, you have: (a) failed to perform (other than by reason of disability) or been materially negligent in the performance of your duties and responsibilities to the Company or any of its affiliates, as they are determined from time to time by the board of directors and/or set forth in written Company policies; (b) violated your obligations to the Company under the terms of the [Confidentiality/Assignment of Inventions Agreement] of even date herewith; or (c) otherwise engaged in conduct that is materially harmful to the business, interests or reputation of the Company or any of its affiliates. Before terminating you for Cause, the Company will provide you with notice and an opportunity to be heard. - ------------------------------- Joseph A. Forgione President & CEO Eprise Corporation
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