<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 000-24271
NETGRAVITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0410283
---------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1900 S. NORFOLK STREET
SUITE 150
SAN MATEO, CALIFORNIA 94403-1151
(650) 425-6000
(Address, including ZIP code, and telephone number)
Indicate by check mark whether the registrant (1) 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), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
17,763,000 shares of Common Stock, $0.001 par value per share, were
outstanding as of June 30, 1999.
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NETGRAVITY, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I - Financial Information
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Operations for the
three- and six- months ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
three- and six- months ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure about Market Risk 28
PART II - Other Information
Item 1. Legal Proceedings 29
Item 2. Changes in Securities and use of Proceeds 29
Item 3. Default upon Senior Securities 30
Item 4. Submission of Matters to a Vote of securities Holders 30
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31
Signature 33
</TABLE>
2
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NETGRAVITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments $ 125,043 $ 20,799
Accounts receivable, net 9,231 6,311
Prepaid expenses and other current assets 1,909 778
--------------------------------------
Total current assets 136,183 27,888
Property and equipment, net 5,870 3,473
Other assets 1,655 2,059
--------------------------------------
Total assets $ 143,708 $ 33,420
======================================
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current portion of notes payable 485 618
Accounts payable 594 898
Accrued liabilities 3,814 2,867
Deferred revenue 7,791 5,800
--------------------------------------
Total current liabilites 12,684 10,183
Notes payable, less current portion - 1,109
Stockholders equity:
Convertible preferred stock - -
Common stock 18 14
Additional paid-in capital 161,121 46,817
Deferred compensation (1,266) (1,706)
Accumulated deficit (28,849) (22,997)
--------------------------------------
Total stockholders' equity 131,024 22,128
--------------------------------------
Total liabilities and stockholders' equity 143,708 33,420
======================================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
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NETGRAVITY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 2,058 $ 877 $ 3,615 $ 1,652
Software upgrades 1,006 527 1,879 929
Consulting and support 1,963 916 3,584 1,742
Transactional services 622 12 1,143 12
--------------------------------------------------------------------
Total revenues 5,649 2,332 10,221 4,335
Cost of revenues:
Cost of software licenses 43 20 46 35
Cost of consulting and support 1,221 1,073 2,444 2,231
Cost of transactional services 1,326 19 2,306 19
--------------------------------------------------------------------
Total cost of revenues 2,590 1,112 4,796 2,285
--------------------------------------------------------------------
Gross profit 3,059 1,220 5,425 2,050
--------------------------------------------------------------------
Operating costs and expenses:
Research and development 1,615 1,063 3,577 2,059
Sales and marketing 3,544 2,439 6,898 4,395
General and administrative 1,428 754 2,417 1,462
--------------------------------------------------------------------
Total operating costs and expenses 6,587 4,256 12,892 7,916
--------------------------------------------------------------------
Loss from operations (3,528) (3,036) (7,467) (5,866)
Other income (expense), net 1,425 26 1,615 56
--------------------------------------------------------------------
Net loss $ (2,103) $ (3,010) $ (5,852) $ (5,810)
====================================================================
Per share of common stock:
Basic and diluted net loss per share $ (0.12) $ (0.59) $ (0.38) $ (1.42)
--------------------------------------------------------------------
Weighted average shares used in per share
calculation of basic and diluted net loss
per share calculation 17,487 5,134 15,572 4,079
--------------------------------------------------------------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
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NETGRAVITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Cash Flows from operating activities:
Net loss $ (5,852) $ (5,810)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 934 371
Amortization of intangibles 369 -
Amortization of deferred stock compensation 559 561
Compensation from grant of non-employee stock options
and warrants 254 -
Accounts receivable, net (2,920) (1,584)
Prepaid expenses and other assets (1,131) (163)
Accounts payable (304) 869
Accrued liabilities 947 1,355
Deferred revenue 1,991 1,798
----------------------------------------
Net cash used in operating activities (5,153) (2,603)
----------------------------------------
Cash flows from investing activities:
Capital expenditures (3,329) (965)
Purchase of short-term investments, net (848) -
Other assets 35 (284)
----------------------------------------
Net cash used in investing activities (4,142) (1,249)
----------------------------------------
Cash flows from financing activities:
Proceeds from notes payable - (655)
Repayment of notes payable (1,242) (243)
Proceeds from issuance of preferred stock, net - 3,249
Proceeds from issuance of common stock, net 113,935 23,901
Repurchases of common stock - (9)
----------------------------------------
Net cash provided by financing activities 112,693 26,243
----------------------------------------
Net increase in cash and cash equivalents 103,398 22,391
Cash and cash equivalents at beginning of period 10,236 5,637
----------------------------------------
Cash and cash equivalents at end of period 113,634 28,028
========================================
Supplemental disclosure of cash flow information:
Cash paid for interest 57 71
========================================
Non-cash financing activities:
Deferred compensation cost on employee and non-employee
stock option grants $ 228 $ 1,037
========================================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
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NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements of NetGravity, Inc. and
subsidiaries (the "Company") reflect all adjustments (consisting only of
normal recurring adjustments) that, in the opinion of management, are
necessary for a fair presentation of interim period results. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual
report on Form 10-K and other documents filed with the Securities and
Exchange Commission.
The results of operations for the current interim period are not necessarily
indicative of results to be expected for the entire current year or other
future interim periods.
Net Loss Per Share
Basic and diluted net loss per share are computed using the weighted average
number of outstanding shares of common stock.
Diluted net loss per share for the three- and six- months ended June 30, 1998
does not include the effect of approximately 1,852,000 stock options with a
weighted average exercise price of $2.58 per share, or 827,000 shares of
common stock issued and subject to repurchase by the Company at a weighted
average price of $0.22 per share, because their effects are anti-dilutive.
Diluted net loss per share for the three- and six- months ended June 30, 1999
does not include the effect of approximately 3,503,073 stock options
outstanding with a weighted average exercise price of $16.12 per share, and
approximately 164,861 shares of common stock issued and subject to repurchase
by the Company at a weighted average price of $0.28 per share, because their
effects are anti-dilutive.
6
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NOTE 2. EQUITY TRANSACTIONS
In March 1998, the Company issued and sold approximately 1,451,000 shares of
Series C Preferred Stock for aggregate net proceeds to the Company of
approximately $3,249,000.
In June 1998, the Company raised $23.9 million of net proceeds from the sale
of 3 million shares of the Company's common stock in its initial public
offering ("IPO"). All then outstanding shares of Series A, B and C Preferred
Stock were converted into 2.5 million shares, 1.9 million shares and 1.8
million shares of common stock, respectively, upon the closing of the IPO.
In July 1998, the Company raised an additional $2.1 million of net proceeds
from the sale of an additional 250,000 shares of the Company's common stock
upon the exercise of the underwriters' over-allotment option granted in
connection with the IPO.
In April 1999, the Company completed a secondary public offering of 4,692,000
shares of its Common Stock, of which approximately 3,830,000 were sold by the
Company, including 612,000 shares sold upon exercise of the underwriters'
over-allotment option, for net proceeds to the Company of approximately $113
million, after deducting underwriting discounts, commissions and estimated
offering expenses payable by the Company.
In connection with the Company's issuance of certain contingent stock option
rights to purchase the Company's common stock to consultants engaged in
research and development activities on behalf of the Company, the Company
valued the deferred stock compensation charge associated with the rights
issued to the consultants as of June 30, 1999 at approximately $240,000. The
Company determined the value of the contingent stock option rights using the
Black-Scholes model, based on the following assumptions: no dividends;
contractual term of one year; risk-free interest rate of 6.50%; and expected
volatility of 80%. The value assigned to the contingent stock option rights
is being remeasured at each reporting date until all such ownership rights
have been earned by the consultants, and the resulting compensation charge is
being amortized over the related service period of approximately one year.
Amortization of the assigned value of the warrant during the six months ended
June 30, 1999 totaled approximately $121,000.
In connection with the Company's issuance of a warrant to purchase the
Company's common stock to a recruitment firm as partial consideration for
services rendered in connection with the recruitment and hiring of a new CEO,
the Company valued the stock compensation charge associated with the warrant
issuance at its measurement date at approximately $133,000. The Company
determined the value of the warrant using the Black-Scholes model, based on
the following assumptions: no dividends; contractual term of six months;
risk-free interest rate of 6.50%; and expected volatility of 80%. The entire
value assigned to the warrant was expensed in the three months ended June 30,
1999.
Amortization of deferred compensation and compensation expense of
approximately $315,000 and $355,000 was recognized in the three months ended
June 30, 1998 and 1999, respectively. Amortization of deferred compensation
and compensation expense of approximately $561,000 and $813,000 was
recognized in the six months ended June 30, 1998 and 1999, respectively.
NOTE 3. SEGMENT INFORMATION
The Company has adopted the provisions of SFAS No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for the reporting by public business enterprises of information
about operating segments, products and services, geographic areas and major
customers. The method for determining what information to report is based on
the way that management organizes the operating segments within the Company
for making operating decisions and assessing financial performance.
The Company's Chief Executive Officer ("CEO") is considered to be the "chief
operating decision maker" within the meaning of SFAS No. 131. The CEO reviews
financial information presented on a consolidated basis accompanied by
disaggregated information about revenues by geographic region for purposes of
making operating decisions and assessing financial performance. The
consolidated financial information reviewed by the CEO is identical to the
information presented in the accompanying consolidated statement of
operations. Therefore, the Company has determined that it operates in a
single operating segment: interactive marketing software and services.
7
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Revenue and asset information regarding operations in the different geographic
regions is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
North America Europe Asia Consolidated
<S> <C> <C> <C> <C>
Revenues:
Three months ended June 30, 1998 1,658 334 340 2,332
Three months ended June 30, 1999 3,984 805 860 5,649
Six months ended June 30, 1998 3,073 584 678 4,335
Six months ended June 30, 1999 6,948 1,824 1,449 10,221
Identifiable Assets:
June 30, 1999 138,496 1,198 2,173 143,708
</TABLE>
No single customer accounted for greater than 10% of revenues in any period
reported.
NOTE 4. MERGER WITH DOUBLECLICK INC.
In July 1999, the Company entered into an agreement with DoubleClick, Inc., a
Delaware corporation ("DoubleClick"), under which the Company agreed to merge
with DoubleClick. This merger transaction, in which the stockholders of the
Company will receive 0.28 shares of DoubleClick common stock for each share
of common stock held by them, is expected to be accounted for using the
pooling-of-interests method and should close during the quarter ending
December 31, 1999, subject to various conditions, including customary
regulatory approvals and approval by the Company's stockholders.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the condensed
consolidated historical financial information and the notes thereto included
in Item 1 of this Quarterly Report on Form 10-Q (this "Form 10-Q" or this
"Report") and Management's Discussion and Analysis of Financial Condition and
Results of Operations and related financial information contained in
NetGravity's Form 10-K for the fiscal year ended December 31, 1998 (the "1998
Form 10-K"). In this Report, "NetGravity," the "Company," "we," "us" and
"our" refer to NetGravity, Inc. and its wholly-owned subsidiaries, NetGravity
Europe Limited, NetGravity Asia Pacific K.K. and NetGravity (Hong Kong)
Limited.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO
THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND
PROJECTIONS ABOUT THE COMPANY'S INDUSTRY, MANAGEMENT'S BELIEFS AND ASSUMPTIONS
MADE BY MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS,"
"BELIEVES," "SEEKS," "ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN
RISKS, UNCERTAINTIES AND
8
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ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS AND
OUTCOMES MAY DIFFER MATERIALLY FROM WHAT IS EXPRESSED OR FORECASTED IN ANY
SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE THOSE
SET FORTH HEREIN BELOW UNDER "FACTORS AFFECTING OUR BUSINESS, OPERATING
RESULTS AND FINANCIAL CONDITION" AS WELL AS THOSE NOTED IN THE COMPANY'S 1998
Form 10-K, PARTICULARLY IN ITEM 1 OF PART I THEREOF UNDER THE SECTION
ENTITLED "FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS AND FINANCIAL
CONDITION." THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
OVERVIEW
NetGravity is a leading provider of online interactive marketing solutions.
The Company develops, markets and supports a broad range of high-end,
mission-critical software and transaction-based services designed for
e-commerce merchants (vendors of products and services), advertising agencies
and content publishers.
To date, the Company has generated its revenues primarily from the license
and related upgrade of, consulting for and support of its AdServer family of
software products. The Company believes that its current AdServer family of
software products and software products in development, together with the
related consulting and support services, will continue to account for a
substantial majority of its revenues for the foreseeable future.
In August 1998, the Company formally launched its transactional services
business with the introduction of AdCenter for Publishers ("AdCenter"), an
outsourced version of AdServer. In October 1998, the Company announced the
Global Profile Service ("GPS"), which is a database of anonymous consumer
profiles that the Company makes available to its customers for use in
enhanced targeting. To date, revenues from GPS have not been material.
Revenues from AdCenter and GPS are included within the line-item
"transactional services."
In July 1999, we entered into an agreement with DoubleClick Inc., a Delaware
corporation ("DoubleClick"), under which the Company agreed to be acquired by
DoubleClick. This merger, in which stockholders of the Company will receive
0.28 shares of DoubleClick common stock for each share of common stock of the
Company held by them, is expected to be accounted for using the
pooling-of-interests method and is expected to close during the quarter
ending December 31, 1999, subject to various conditions, including customary
regulatory approvals and approval by the Company's stockholders. See " -
FACTORS AFFECTING OUR OPERATING RESULTS AND FINANCIAL CONDITION - RISKS
RELATED TO THE MERGER" and "Part II - OTHER INFORMATION, ITEM 5, OTHER
INFORMATION" for several factors that could affect the Company both currently
and in the future, whether or not the merger is completed.
9
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RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's condensed
consolidated statements of operations as a percentage of total revenues for
the periods indicated:
NETGRAVITY, INC.
% of Revenue Table
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Software licenses 36.4% 37.6% 35.4% 38.1%
Software upgrades 17.8% 22.6% 18.4% 21.4%
Consulting and support 34.7% 39.3% 35.1% 40.2%
Transactional services 11.1% 0.5% 11.1% 0.3%
-----------------------------------------------------------------
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues: (1)
Cost of software licenses (2) 0.7% 0.9% 0.4% 0.8%
Cost of consulting and support (3) 21.6% 46.0% 23.9% 51.5%
Cost of transactional services (4) 23.5% 0.8% 22.6% 0.4%
-----------------------------------------------------------------
Total cost of revenues 45.8% 47.7% 46.9% 52.7%
-----------------------------------------------------------------
Gross profit 54.2% 52.3% 53.1% 47.3%
-----------------------------------------------------------------
Operating costs and expenses:
Research and development 28.6% 45.6% 35.0% 47.5%
Sales and marketing 62.7% 104.6% 67.5% 101.4%
General and administrative 25.3% 32.3% 23.6% 33.7%
-----------------------------------------------------------------
Total operating costs and expenses 116.6% 182.5% 126.1% 182.6%
-----------------------------------------------------------------
Loss from operations -62.4% -130.2% -73.0% -135.3%
Other income, net 25.2% 1.1% 15.8% 1.3%
-----------------------------------------------------------------
Net loss (37.2%) (129.1%) (57.2%) (134.0%)
=================================================================
</TABLE>
- -------------------------------
(1) There are no material costs of revenue associated with software
upgrades.
(2) As a percentage of software licenses revenues, cost of software
licenses was 2.3%, 2.1%, 2.1% and 1.3% in the three months ended June
30, 1998 and 1999 and the six months ended June 30, 1998 and 1999,
respectively.
(3) As a percentage of consulting and support revenues, cost of
consulting and support was 117%, 62%, 128% and 68% in the three
months ended June 30, 1998 and 1999, respectively, and the six months
ended June 30, 1998 and 1999, respectively.
(4) As a percentage of transactional services revenues, cost of
transactional services was 158%, 213%, 158% and 202% for the three
months ended June 30, 1998 and 1999 and the six months ended June 30,
1998 and 1999, respectively.
REVENUES
The Company's total revenues increased from $2.3 million for the quarter
ended June 30, 1998 to $5.6 million for the quarter ended June 30, 1999. The
Company's total revenues increased from $4.3 million for the six months ended
June 30, 1998 to $10.2 million for the six months ended June 30, 1999. These
increases were primarily attributable to increased software licensing and
consulting and support revenues.
International revenues, primarily comprised of export revenues, as a
percentage of total revenues were 28.9% and 29.5% for the quarters ended June
30, 1998 and June 30, 1999, respectively, and 29.1% and 32.0% for the six
months ended June 30, 1998 and June 30, 1999, respectively. Recent growth in
international revenues was attributable to expanded consulting and support
and sales and marketing efforts overseas and the opening of an Asia-Pacific
regional office in April 1998.
No customer accounted for more than 10% of total revenues during the quarters
or six-month periods ended June 30, 1998 and 1999. The Company's total
revenues for the quarter ending September 30, 1999 and year ending December
31, 1999 may be adversely affected by the announcement and pendency of the
merger with DoubleClick due to delayed customer orders or other factors. See
" - FACTORS AFFECTING OUR OPERATING RESULTS AND FINANCIAL CONDITION - RISKS
RELATED TO THE MERGER."
SOFTWARE LICENSES. Software licenses revenues increased from $877,000 for the
quarter ended June 30, 1998 to $2.1 million for the quarter ended June 30,
1999. Software licenses revenues increased from $1.7 million for the six
months ended June 30, 1998 to $3.6 million for the six months ended June 30,
1999. These increases were attributable to an increase in the number of
AdServer licenses sold, due in part to an expansion of the Company's direct
sales organization. Because software upgrades revenues and consulting and
support revenues are, to a large extent, a function of software licenses
revenues, the Company's future operating results will be substantially
dependent on growth of software licenses revenues, and the failure to
increase software licenses revenues would likely have a material adverse
effect on the Company's business, results of operations and financial
condition.
SOFTWARE UPGRADES. Software upgrades revenues increased from $527,000 for the
quarter ended June 30, 1998 to $1.0 million for the quarter ended June 30,
1999. Software upgrades revenues increased from $929,000 for the six months
ended June 30, 1998 to $1.9 million for the six months ended June 30, 1999.
The increase was a result of software upgrades being provided to a larger
installed customer base. The number of NetGravity's customers increased from
approximately 250 at June 30, 1998 to approximately 380 at June 30, 1999.
CONSULTING AND SUPPORT. Consulting and support revenues increased from
$916,000 for the quarter ended June 30, 1998 to $2.0 million for the quarter
ended June 30, 1999. Consulting and support revenues increased from $1.7
million for the six months ended June 30, 1998 to $3.6 million for the six
months ended June 30, 1999. These increases were primarily a result of the
10
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increased demand for consulting services, expansion in Europe and Asia, the
larger installed customer base and customers electing to renew their support
programs.
TRANSACTIONAL SERVICES. The Company's transactional services were introduced
with the formal release of AdCenter for Publishers during the third quarter
of 1998 and GPS during the fourth quarter of 1998. Transactional services
revenues increased from $12,000 for the quarter ended June 30, 1998 to
$622,000 for the quarter ended June 30, 1999. Transactional services revenues
increased from $12,000 for the six months ended June 30, 1998 to $1.1 million
for the six months ended June 30, 1999. These increases were primarily the
result of increased volumes of advertisements served for customers of the
Company's service bureau offering, AdCenter.
COST OF REVENUES
Gross margins increased from 52.3% for the quarter ended June 30, 1998 to
54.2% for the quarter ended June 30, 1999 and from 47.3% for the six months
ended June 30, 1998 to 53.1% for the six months ended June 30, 1999. In each
case, the increase was primarily attributable to higher consulting and
support margins due to increased economies of scale in the consulting and
support organizations during the three- and six- months ended June 30, 1999.
In both periods, the increase in consulting and support margins was partially
offset by negative transactional services margins which were attributable to
the Company's continued investments in additional capital, infrastructure and
operational personnel.
COST OF SOFTWARE LICENSES. Cost of software licenses consists of royalties
paid to third parties for licensed technology. Cost of software licenses was
$20,000 and $43,000 for the quarters ended June 30, 1998 and 1999,
respectively, and $35,000 and $46,000 for the six months ended June 30, 1998
and 1999, respectively. As a percentage of software licenses revenues, cost
of software licenses was 2.3% and 2.1% for the quarters ended June 30, 1998
and 1999, respectively, and 2.1% and 1.3% for the six months ended June 30,
1998 and 1999, respectively. Because AdServer 4.0 and other future versions
of the Company's software products are expected to contain components
licensed from third-parties under agreements involving royalty payments, the
Company expects that the cost of software licenses will increase
substantially both in absolute dollars and as a percentage of software
licenses revenues as the Company begins to sell such new products.
COST OF CONSULTING AND SUPPORT. Cost of consulting and support consists
primarily of personnel-related costs (including overhead) incurred in
providing consulting, support and training to customers. The cost of
consulting and support was $1.1 million and $1.2 million for the quarters
ended June 30, 1998 and 1999, respectively, and $2.2 million and $2.4 million
for the six months ended June 30, 1998 and 1999, respectively. While absolute
dollars spent on consulting and support increased from the quarter ended June
30, 1998 to the quarter ended June 30, 1999, cost of consulting and support
as a percentage of consulting and support revenues decreased from 117.1% for
the quarter ended June 30, 1998 to 62.2% for the quarter ended June 30, 1999.
Similarly, while absolute dollars spent on consulting and support increased
from the six months ended June 30,
11
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1998 to the six months ended June 30, 1999, cost of consulting and support
decreased as a percentage of consulting and support revenues from 128.1% for
the six months ended June 30, 1998 to 68.2% for the six months ended June 30,
1999. The decrease in cost of consulting and support as a percentage of
consulting and support revenues was attributable to increased revenues and
improved economies of scale associated with a larger customer base.
COST OF TRANSACTIONAL SERVICES. The cost of transactional services consists
primarily of personnel and related expenses, hosting and bandwidth costs and
the amortization of intangibles associated with the AdCenter and GPS
offerings. The cost of transactional services was $19,000 and $1.3 million
for the quarters ended June 30, 1998 and 1999, respectively, and $19,000 and
$2.2 million for the six months ended June 30, 1998 and 1999, respectively.
The cost of transactional services as a percentage of transactional services
revenues was 158.3% and 213.2% for the quarters ended June 30, 1998 and 1999,
respectively, and 158.3% and 201.7% for the six months ended June 30, 1998
and 1999, respectively. The Company expects the cost of transactional
services to continue to increase in absolute dollars in future periods as the
Company continues to hire additional personnel and continues to investment in
capital equipment necessary to increase the transactional capacity of its
service offerings.
Overall gross margins may be impacted by the mix of products sold by the
Company, the mix of software licenses revenues, software upgrades revenues,
consulting and support revenues and transactional services revenues, the mix
of international and North American revenues, the mix of distribution
channels used by the Company and the level of royalty payments, amortization
charges and other costs related to the acquisition of technology or other
intangible assets. The Company typically realizes higher gross margins on
software upgrades revenues than on software licenses revenues, substantially
higher gross margins on software licenses revenues than on consulting and
support revenues and higher gross margins on direct sales than on indirect
sales. Shifts in the mix of revenues towards lower margin revenues or a
greater percentage of sales through indirect channels would adversely impact
the Company's overall gross margin and could materially adversely impact the
Company's operating results. There can be no assurance that such adverse
fluctuations in the mix of revenue or costs of revenues will not recur in the
future. Moreover, the Company expects that increases in costs of
transactional services will materially and adversely impact overall gross
margins for the foreseeable future.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of personnel-related
costs (including overhead), consulting expenses and related equipment. To
date, the Company has not capitalized any such development costs under
Statement of Financial Accounting Standards No. 86; all research and
development costs have been expensed as incurred. Research and development
expenses increased from $1.1 million for the quarter ended June 30, 1998 to
$1.6 million for the quarter ended June 30, 1999. Research and development
expenses increased from $2.1 million for the six months ended June 30, 1998
to $3.6 million for the six months ended June 30, 1999. The increase in
absolute dollars in all periods was primarily due to increased personnel
costs and related overhead, and a large increase in outside consulting
expenses associated with enhancements of
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existing products and development of new products. The Company has recorded
deferred stock compensation expense under Statement of Financial Accounting
Standards No. 123 of $240,000 for stock options issued to consultants engaged
in research and development activities. Stock compensation expense associated
with these stock options charged to research and development expense totaled
approximately $121,000 for the six months ended June 30, 1999.
The Company believes that continued investment in research and development is
critical to attaining its strategic objectives and, as a result, expects that
research and development expenses may increase in absolute dollars in future
periods.
SELLING AND MARKETING
Selling and marketing expenses consist primarily of personnel-related costs
(including overhead), travel expenses, advertising expenses, trade show
expenses, seminars and costs of marketing materials. Selling and marketing
expenses increased from $2.4 million for the quarter ended June 30, 1998 to
$3.5 million for the quarter ended June 30, 1999. Selling and marketing
expenses increased from $4.4 million for the six months ended June 30, 1998
to $6.9 million for the six months ended June 30, 1999. The increase in
absolute dollars was due primarily to the increase in compensation paid to
sales and marketing personnel (including commissions) and related overhead,
and increased travel costs associated with the Company's direct selling
efforts.
The Company expects selling and marketing expenses to increase significantly
in absolute dollars in future periods, as the Company hires additional
personnel, introduces new products and services, expands into new markets and
continues to promote the NetGravity brand.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of personnel-related
costs (including overhead) for the Company's executive, administrative,
finance and human resources personnel, support services and professional
services fees. General and administrative expenses increased from $754,000
for the quarter ended June 30, 1998 to $1.4 million for the quarter ended
June 30, 1999. General and administrative expenses increased from $1.5
million for the six months ended June 30, 1998 to $2.4 million for the six
months ended June 30, 1999. The increase in absolute dollars in both periods
was primarily a result of increased personnel costs and related overhead
necessary to support the Company's increased scale of operations, including
the additional costs associated with being a publicly traded company. The
Company has recorded compensation expense under Statement of Financial
Accounting Standards No. 123 as general and administrative expense of
$133,000 in the three- and six- month periods ended June 30, 1999 related to
a warrant issued to a recruitment firm as partial consideration for services
rendered in connection with the recruitment and hiring of the Company's new
CEO. The Company expects general and administrative expenses to increase in
absolute dollars in future periods as the Company expands its staff and
incurs additional costs related to expansion of its operations.
DEFERRED STOCK COMPENSATION EXPENSE
Amortization of deferred compensation associated with employee stock option
grants totaling approximately $264,000 and $559,000 was recognized in the
three-and six- months ended June 30, 1999, respectively.
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Total amortization of deferred compensation expenses and non-employee
compensation expenses in the three- and six- months ended June 30, 1999 were
$355,000 and $813,000, respectively.
Amortization of deferred stock compensation expense is allocated to costs of
consulting and support, cost of transactional services and to all operating
expense lines identified on the statement of operations over the life of the
options, which is generally four years. As a result, amortization of deferred
compensation expense will adversely impact the company's operating results
through June, 2002.
OTHER INCOME (EXPENSES)
Net other income was primarily comprised of the interest earned from
investments in investment-grade, short-term interest bearing securities. Net
other income was $26,000 and $1.4 million for the quarters ended June 30,
1998 and 1999, respectively. Net other income was $56,000 and $1.6 million
for the six months ended June 30, 1998 and 1999, respectively.
The increase in net other income was primarily due to short-term investment
interest earned on the net proceeds from the Company's IPO, which was
completed in July 1998, and from the Company's secondary public offering,
which was completed in April 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had $125.0 million in cash, cash equivalents
and short-term investments. In June 1998, the Company sold 3,000,000 shares
of its common stock in its IPO, generating net proceeds of $23.9 million. In
July 1998, the Company sold an additional 250,000 shares of its common stock
and generated an additional $2.1 million of net proceeds in connection with
the exercise of the over-allotment option granted to the underwriters of the
Company's IPO. In March of 1999 the Company sold 3,218,440 shares of common
stock in a secondary public offering for net proceeds of approximately $94.8
million. The cash proceeds were received by the Company during the second
quarter. In addition, in April of 1999, the underwriters of the Company's
secondary public offering purchased an additional 612,000 shares of the
Company's common stock upon the exercise of their over-allotment option,
generating additional net proceeds of approximately $18.2 million.
During the six months ended June 30, 1999, the Company used $5.2 million in
cash to fund its operating activities, primarily attributable to the
Company's operating loss, offset by certain non-cash charges and increases in
certain liabilities. Net cash used in investing activities during the six
months ended June 30, 1999 of $4.1 million was primarily attributable to
purchases of property and equipment totaling approximately $3.3 million and
net short-term investments totaling approximately $800,000. Net cash provided
by financing activities during the six months ended June 30, 1999 of $112.7
million was primarily attributable to proceeds from the Company's secondary
public offering, offset slightly by the repayment of certain debts.
The Company's deferred revenue balance includes deferred software licenses
revenues and revenues attributable to uncompleted consulting engagements, as
well as the unamortized portion
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of the revenues from software upgrades and support contracts. The Company
records an accounts receivable and deferred revenue upon shipment and
invoicing of a software license to a customer. The Company's accounts
receivable balance is relatively large in comparison to quarterly and annual
revenues because the Company generally recognizes revenue from the licensing
of software later than shipment and invoicing. Further, the Company's
deferred revenue balance or changes therein may not be indicative of changes
in the ordering patterns of customers or the Company's backlog.
The Company believes that it has sufficient resources to meet its anticipated
cash needs for working capital and capital expenditures for the next 12
months. However, there can be no assurance that additional funds will not be
required either during or after such 12-month period.
Year 2000 Compliance
The Company is aware that many currently installed information technology
("IT") systems, such as computer systems and software products, as well as
non-IT systems that include embedded technology, were not designed to
correctly process dates after December 31, 1999. NetGravity is currently
assessing the impact this issue, commonly referred to as the "Year
2000"issue, may have on its business and operations. The Company has formed
an ad-hoc Year 2000 project team to identify and address Year 2000 issues,
including potential issues with the significant non-IT systems in its
buildings, plant, equipment and other infrastructure. The Year 2000 project
team has reviewed the Company's products, is continuing to review the
Company's IT and non-IT systems. The Company has not identified any
significant non-compliance issues with its products that have not already
been corrected. The review of IT and non-IT systems has been completed for
the United States and Asia Pacific operations of the Company. The Company
expects that its review of its IT and non-IT systems for European operations
will be completed by September 30, 1999. In addition to its internal reviews,
the Company is discussing with its significant suppliers and service
providers their plans to investigate and address their Year 2000 issues. The
Company can give no assurances that it will be able to identify and
accurately evaluate all Year 2000 issues that it faces.
In September 1998, NetGravity released version 3.5 of its AdServer product
which included enhancements designed to correctly accept and process 21st
century dates and, as a result, the Company now believes that the current
versions of its AdServer family of software products are Year 2000 compliant.
However, given the complexity of software systems such as AdServer and the
need for them to interoperate with other systems, the Company can give no
assurances that its products will not experience Year 2000 problems in the
future. Any such Year 2000 issues could result in:
- a decrease in sales of the Company's products;
- deferral of revenue recognition on contracts in which the Company has
warranted (or may in the future warrant) compliance with Year 2000
requirements;
- an increase in the allocation of resources to address Year 2000
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problems of the Company's customers without additional revenue
commensurate with such dedicated resources; or
- an increase in litigation costs relating to losses suffered by the
Company's customers due to Year 2000 problems.
In addition, NetGravity has determined that certain of its software IT
systems are not currently Year 2000 compliant. The Company has upgraded its
Support and Sales and Financials systems, completed testing and believes that
they are not Year 2000 compliant. The Company believes that its other
software IT systems will become compliant through updates and upgrades
purchased in the ordinary course of business for reasons unrelated to Year
2000. However, the Company can give no assurances that the incremental costs
of such IT software will not materially exceed its preliminary estimates.
Higher incremental costs of upgrading or replacing its IT software could have
a material and adverse effect on the Company's business, results of
operations and financial condition.
As the Company reviews its non-IT systems, it may identify situations that
present material Year 2000 risks or that will require substantial time and
material expense to address. In addition, if its customers or its potential
customers are required to expend significant resources to address their Year
2000 issues (or if they fail to appropriately address such Year 2000 issues),
the Company's business, results of operation and financial condition could be
adversely affected due to resulting changes in purchasing patterns.
Furthermore, if Year 2000 problems experienced by any of the Company's
significant suppliers or service providers cause or contribute to delays or
interruptions in the delivery of products or services, such delays or
interruptions could have a material and adverse effect on the Company's
business, results of operations and financial condition. Although the Year
2000 project team has not yet determined the most likely worst-case Year 2000
scenarios or quantified the likely impact of such scenarios, it is clear that
the occurrence of one or more of the risks described above could have a
material and adverse effect on the Company's business, financial condition or
results of operations.
The Company does not separately account for Year 2000 related expenses but
estimates that the expenses it has incurred to date to address Year 2000
issues have not been material and, although it has not completed its full
assessment of its Year 2000 readiness, it does not expect to incur material
expenses in connection with any required future remediation efforts. However,
the Company's Year 2000 compliance efforts related to AdServer consumed
significant software engineering resources that would otherwise have been
devoted to product development efforts. To the extent that significant
additional software engineering resources are required to address other Year
2000 issues that may be discovered, the Company's product development efforts
may be significantly hampered which, in turn, could have a material and
adverse effect on the Company's business, financial condition and results of
operations.
The Company's Year 2000 project team's activities will also include the
update of existing contingency plans in the event that the Company has not
completed all of its remediation programs in a timely manner. In addition,
the Year 2000 project team will develop contingency plans in the event that
any third parties that provide goods or services essential to the Company's
business fail to appropriately address their Year 2000 issues. The Year 2000
project team expects to conclude the development of additional contingency
plans by September 30, 1999. Even if these plans are
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completed on time and put in place, it is possible that unresolved or
undetected internal and external Year 2000 issues will have a material and
adverse effect on the Company's business, financial condition and results of
operations.
The information set forth above and elsewhere in this Report relating to Year
2000 issues constitute "Year 2000 Readiness Disclosures," as such term is
defined by the Year 2000 Information and Readiness Disclosure Act of 1998,
enacted October 19, 1998 (Public Law 105-271, 112 State. 2386).
FACTORS AFFECTING OUR OPERATING RESULTS AND FINANCIAL CONDITION
The following is a discussion of certain factors that currently impact or may
impact NetGravity's business, operating results and/or financial condition,
which includes a discussion of certain risk factors related to the proposed
merger of NetGravity with DoubleClick. Anyone making an investment decision
with respect to NetGravity's Common Stock or other securities of the Company
is cautioned to carefully consider these factors, along with the factors
discussed in the Company's 1998 Form 10-K, particularly in Item 1 of Part I
thereof under the section entitled "Factors Affecting our Business, Operating
Results and Financial Condition."
WE HAVE A LIMITED OPERATING HISTORY.
We were founded in September 1995 and commercially released version 1.0 of
AdServer in May 1996. Accordingly, we have a limited operating history, and
we face all of the risks and uncertainties encountered by early-stage
companies. The new and evolving nature of the online interactive marketing
solutions markets increases these risks and uncertainties. Also, because we
have a limited operating history, our past results may not be meaningful and
you should not rely on them as indicators of our future performance.
WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE CONTINUED LOSSES.
Since our inception in September 1995, we have incurred substantial losses.
Our losses were $6.9 million for the year ended December 31, 1997, $11.3
million for the year ended December 31, 1998 and $5.9 million for the six
months ended June 30, 1999. As of June 30, 1999, we had an accumulated
deficit of $28.8 million.
We anticipate that our expenses relating to developing, marketing and
supporting our current and future products and services will increase
substantially in the future. In particular, we expect to spend significantly
on the following activities:
- developing new market opportunities for our current and future
products and services;
- funding more research and development to improve our current
solutions and to create new solutions, including the recently
announced AdServer 4.0;
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- expanding and improving our sales and marketing operations;
- expanding and enhancing our outsourced interactive marketing solution
(AdCenter), our enhanced targeting service (Global Profile Service)
and possible future products and services designed for e-commerce
merchants and advertising agencies (including our recently announced
AdCenter for Agencies offering);
- developing new channels for distributing our products and providing
our services;
- expanding and improving our financial and operational infrastructure;
and
- broadening our customer support capabilities.
Accordingly, for the foreseeable future, we expect to experience additional
losses as our expenses for developing, marketing and supporting our current
solutions and developing new solutions exceed our total revenues. These
additional losses will increase our accumulated deficit.
OUR FUTURE OPERATING RESULTS ARE UNCERTAIN AND ARE LIKELY TO
FLUCTUATE SIGNIFICANTLY.
Our revenues, gross margins and other operating results may vary
significantly from quarter to quarter. The fluctuations may be due to a
number of factors, many of which are beyond our control. These factors
include:
- our or our competitors' introduction of new or enhanced online
interactive marketing solutions;
- market acceptance of existing or planned products and services,
including future versions of AdServer (such as the recently announced
version 4.0) and AdCenter, our enhanced targeting services (Global
Profile Service) and possible future products and services designed
for e-commerce merchants and advertising agencies (including AdCenter
for Agencies);
- the time it takes us to sell our services and license and implement
our products and the size of each transaction;
- the mix of software licenses, software upgrades, consulting and
support and transactional services revenues;
- the amount of advertising spending budgeted by advertisers and direct
marketers for online interactive marketing;
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- our or our competitors' price changes or changes in pricing models;
- our customers' failure to renew their AdServer upgrade and support
contracts;
- the shift from higher gross margins from software license and upgrade
revenues to lower gross margins from consulting and support and
transactional services revenues;
- the mix of distribution channels through which we sell our products
and services;
- our sales and licensing activities in international markets;
- costs relating to possible acquisitions of technology or businesses;
and
- the amounts of royalty payments, amortization charges and other costs
related to the licensing or acquisition of technology or other
intangible assets.
Due to all of the foregoing factors, we do not believe that period-to-period
comparisons of our historical results of operations are good predictors of
future performance. Furthermore, it is possible that in some future quarters
our results of operations may fall below the expectations of securities
analysts and investors. In such event, the trading price of our stock will
likely be materially and adversely affected.
WE RELY HEAVILY ON SALES OF ONE PRODUCT FAMILY.
To date, we have generated nearly all of our revenues from the license and
related upgrades, consulting and support of our AdServer family of software
products. We expect that our current AdServer family of software products and
software products in development, together with the related consulting and
support services, will continue to account for a substantial majority of our
revenues for the foreseeable future. Therefore, our future financial
performance is dependent, in significant part, upon the successful
development, introduction and customer acceptance of new and enhanced
versions of AdServer and of related new products and services that we may
develop. We cannot assure you that we will be successful in upgrading
AdServer or that we will successfully develop new products and services or
that any new product or service will achieve market acceptance. Consequently,
factors affecting the pricing of and demand for AdServer, such as
competition, technological changes, failure of the market for online
interactive marketing solutions to develop as we expect or lack of customer
acceptance of AdServer could have a material and adverse effect on our
business, results of operations or financial condition.
OUR FUTURE SUCCESS DEPENDS ON THE TIMELY COMPLETION OF NEW SOLUTIONS
UNDER DEVELOPMENT.
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We must successfully complete the development of AdServer 4.0, AdCenter for
Agencies and the next version of Global Profile Service (which is being
designed to provide much more detailed consumer profiles than the current
version). Our future revenues will likely fall below our expectations (and
the expectations of investors in our common stock) if we do not successfully
develop, market and support these products and services. Any actual or
expected revenue shortfall would likely reduce the trading price of our
common stock.
WE HAVE AN UNPROVEN AND CHANGING BUSINESS MODEL.
Our core business model has been to license software designed to enable our
customers to directly manage their online interactive marketing activities.
We believe that it is too early to determine whether this business model will
be successful in the future. An alternate business model employed by some of
our competitors (including DoubleClick and AdForce) is to provide outsourced,
service-based solutions to customers who choose not to directly manage their
online interactive marketing activities.
In 1998 we broadened our business by releasing AdCenter for Publishers, a
service-based service that transfers to us the responsibility for managing
our customers' online systems and the data generated from their online
interactive marketing activities, but preserves customers' control over their
advertising sales functions. We also recently introduced our Global Profile
Service which allows our customers to more narrowly target consumers through
the use of anonymous consumer profiles from our centralized database.
Although revenues from AdCenter and the Global Profile Service to date have
been much less significant than revenues related to our software business, we
intend to place more emphasis on developing these services in the future. Our
increased emphasis on AdCenter and the Global Profile Service may not be
successful. In particular, AdCenter may not compete effectively with current
or future outsourced service providers based on price, performance or other
features. Similarly, our Global Profile Service may not be competitive with
current or future providers of consumer profile data or related targeting
services. In addition, we expect to devote significant engineering,
marketing, sales, consulting and customer support resources to enhance
AdCenter's and the Global Profile Service's competitiveness, scalability and
cost-effectiveness. These actions may divert resources from our other
products and services and may thus harm our core AdServer business.
OUR MARKETS ARE HIGHLY COMPETITIVE.
The market for online interactive marketing solutions is new, intensely
competitive and rapidly evolving. We expect competition to continue to
increase both from existing competitors and new market entrants. We believe
that our ability to compete depends on many factors both within and beyond
our control, including:
- the ease of use, performance, features, price and reliability of our
solutions as compared to those of our competitors;
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- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us and our competitors;
- the quality of our customer service and support; and
- the effectiveness of our sales and marketing efforts.
In the online advertising market, we compete directly with DoubleClick, CMGI,
Inc. (through its Engage/Accipiter unit), Excite, Inc. (through its
MatchLogic unit), AdForce, Inc., Real Media, Inc. and a variety of other
online advertising service providers. To date, we have focused primarily on
developing software-based solutions, which we license to our customers,
although we have recently begun offering an outsourced solution (AdCenter).
Some of our competitors (including DoubleClick and AdForce) have adopted a
business model focused on outsourcing of interactive marketing solutions.
These competitors have much more experience offering these outsourced
solutions and may have lower cost structures due, in part, to efficiencies
created from the larger scale of their operations. If the outsourced model
gains popularity over the software model in our target market, we cannot
assure you that we will be able to compete effectively with our current
products and services.
In the online direct marketing market, we expect to face indirect competition
from the vendors of electronic commerce systems, including BroadVision, Inc.,
InterWorld Corporation and Open Market, Inc. among others. In addition, if
providers of electronic commerce systems begin including advanced online
direct marketing functionality in their products, this could reduce or
eliminate the need for separate direct marketing management solutions,
including our current and future products and services targeted at the direct
marketing market. We also encounter competition from Netscape and Microsoft,
which build or bundle advertising management products with their Internet
commerce solutions. Both Netscape and Microsoft have significantly greater
resources than we do, and, due to their control of the browser market, if
either of them were to offer online advertising and direct marketing
management solutions with features comparable to those offered by us, there
can be no assurance that we would be able to compete effectively.
Many of our current and potential competitors have longer operating histories
and significantly greater financial, technical, marketing and other resources
than we do and thus may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. Also, many of our
current and potential competitors have greater name recognition, more
extensive customer bases and larger proprietary consumer databases. These
competitors may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies, or offer more attractive terms to
purchasers than we can. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or
with third parties to enhance their products. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share.
In addition to these current and potential commercial competitors, we also
face competition from the internal capabilities of some potential customers.
Some of the largest and most popular online content publishers use internally
developed interactive marketing solutions rather than the commercial
solutions offered by NetGravity and our competition. We cannot assure you
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that we will be able to compete successfully with these internally-developed
solutions.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any one of which could impair our finances
and business prospects. We cannot assure you that we will be able to compete
successfully against existing or potential competitors or that competitive
pressures will not materially impair our finances or business prospects.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS AND PLANS
FOR EXPANSION.
WE HAVE A LIMITED OPERATING HISTORY IN OUR INTERNATIONAL MARKETS. We
have only limited experience in marketing, selling and distributing our
products and services internationally. Through our three subsidiaries,
NetGravity Europe Limited, NetGravity Asia Pacific K.K. and NetGravity (Hong
Kong) Limited, we recently began operations in a number of markets in Europe
and Asia Pacific. The Company currently plans to establish operations in
France and Australia, as well. International revenues comprised approximately
28% of our total revenues in 1998, 29.5% of our total revenues in the three
months ended June 30, 1999 and are expected to comprise a significant portion
of our total revenues in 1999.
THERE ARE CERTAIN RISKS AND CHALLENGES INHERENT IN DOING BUSINESS IN
INTERNATIONAL MARKETS. Such risks include:
- difficulties in collecting accounts receivable and longer collection
periods;
- changing and conflicting regulatory requirements;
- potentially adverse tax consequences;
- tariffs and general export restrictions, including export controls
relating to encryption technology;
- difficulties in staffing and managing foreign operations;
- political instability;
- fluctuations in currency exchange rates ;
- the uncertain impact of the introduction of the Euro;
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and
- the impact of local economic conditions and practices.
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INTERNATIONAL MARKETS FOR ONLINE INTERACTIVE MARKETING ARE IN THEIR
VERY EARLY STAGES OF DEVELOPMENT.
International markets for online advertising and direct marketing are in
earlier stages of development than in the United States, and we cannot assure
you that the market for, and use of online advertising and direct marketing
in international markets will be significant in the future. Factors that may
further account for slower growth in the online advertising and direct
marketing markets in Europe and Asia include:
- slower growth in the number of individuals using the Internet
internationally;
- privacy concerns;
- a lower rate of advertising spending internationally than in the
United States; and
- a greater reluctance internationally to use the Internet for
advertising and direct marketing.
WE NEED TO DEVELOP LOCALIZED VERSIONS OF OUR PRODUCTS AND TO EXPAND
OUR INTERNATIONAL PRESENCE.
We believe that having localized versions of our products may become an
important competitive factor for international sales in the future. We also
believe that our international sales may be limited in the future if we do
not increase our physical presence abroad, including hiring additional
personnel for local service and support. The development of localized
versions of our products and the expansion of our international presence will
likely require significant resources.
Any of the above factors could have a material and adverse affect on our
international sales and operations, which, in turn, could adversely affect
our overall business, operating results and financial condition.
OUR SUCCESS DEPENDS ON CERTAIN KEY EMPLOYEES.
Our future performance will depend largely on the efforts and abilities of
our key technical, customer support, sales and managerial personnel and on
our ability to retain them. We have in the past experienced difficulty in
hiring qualified technical, customer support, sales and managerial personnel.
Our success will depend on our ability to attract and retain such personnel
in the future. In addition, the loss of any of our current executive officers
could materially and adversely affect our business, financial condition and
operating results. During the twelve months ended June 30, 1999, we hired a
new Chief Executive Officer and have had three officers leave or announce
their intention to leave the Company to pursue other opportunities. Although
we do not believe that this level of turn-over is significantly higher than
that faced by other emerging companies in our industry, we cannot assure you
that the potential instability and other effects of such senior management
changes (along with normal turn-over among lower-level employees) will not
adversely affect our business, financial conditions and operating results.
WE MAY ACQUIRE OTHER COMPANIES' PRODUCT LINES, TECHNOLOGIES OR
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BUSINESSES.
As part of our growth strategy, we may in the future attempt to purchase
other companies' product lines, technologies or businesses. In connection
with any such acquisitions, we may pay cash, issue stock, incur debt or be
required to amortize expenses related to goodwill and other intangible
assets. For example, in September 1998 we paid $2 million to MatchLogic for
rights to use certain of MatchLogic's proprietary consumer profile databases
for limited purposes. We accounted for this transaction as a purchase of an
intangible asset, which is being amortized over its expected useful life of
three years. In addition to these issues, acquisitions of companies and
businesses involve numerous risks, including difficulties in the assimilation
of the operations, technologies, products and personnel of the acquired
company, the diversion of management's attention from other business
concerns, risks of entering markets in which we have no or limited direct
prior experience and the potential loss of key employees of the acquired
company. From time to time, we have engaged in discussions with third parties
concerning potential acquisitions of product lines, technologies and
businesses. In the event that such an acquisition were to occur, our
business, results of operations, financial condition and the trading price of
our common stock may be materially and adversely affected due to the factors
described above.
RISKS RELATED TO THE PROPOSED MERGER OF NETGRAVITY WITH DOUBLECLICK.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT NETGRAVITY'S
STOCK PRICE AND FUTURE BUSINESS AND OPERATIONS.
If the merger with DoubleClick is not completed for any reason, NetGravity
may be subject to a number of material risks, including the following:
- NetGravity may be required to pay DoubleClick a termination
fee of $30.0 million under certain circumstances;
- the price of NetGravity common stock may decline to the extent
that the current market price of NetGravity common stock
reflects a market assumption that the merger will be
completed; and
- costs related to the merger, such as legal and accounting
fees, must be paid even if the merger is not completed.
In addition, NetGravity customers or suppliers may, in response to the
announcement of the merger, delay or defer decisions concerning NetGravity.
Any delay or deferral in those decisions by NetGravity customers or suppliers
could have a material adverse effect on NetGravity's business. Similarly,
current and prospective NetGravity employees may experience uncertainty about
their future roles with DoubleClick until DoubleClick's strategies with
regard to NetGravity are announced or executed. This may adversely affect
NetGravity's ability to attract and retain key management, sales, marketing
and technical personnel.
Further, if the merger is terminated and NetGravity's board of directors
determines to seek another merger or business combination, NetGravity cannot
assure you that it will be able to find a partner willing to pay an
equivalent or more attractive price than the price to be paid in the merger.
In
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addition, while the merger agreement is in effect, and subject to certain
limited exceptions, NetGravity is prohibited from soliciting, initiating or
encouraging or entering into certain extraordinary transactions, such as a
merger, sale of assets or other business combination, with any party other
than DoubleClick.
NETGRAVITY STOCKHOLDERS WILL RECEIVE A FIXED NUMBER OF SHARES OF
DOUBLECLICK COMMON STOCK DESPITE CHANGES IN THE MARKET VALUE OF NETGRAVITY
COMMON STOCK OR DOUBLECLICK COMMON STOCK.
Upon the merger's completion, each share of NetGravity common stock will be
exchanged for 0.28 shares of DoubleClick common stock. There will be no
adjustment for changes in the market price of either NetGravity common stock
or DoubleClick common stock. In addition, neither NetGravity nor DoubleClick
may terminate the merger agreement or "walk away" from the merger or
resolicit the vote of NetGravity's stockholders solely because of changes in
the market price of DoubleClick common stock. Accordingly, the specific
dollar value of DoubleClick common stock that NetGravity stockholders will
receive upon the merger's completion will depend on the market value of
DoubleClick common stock when the merger is completed and may decrease. The
share price of DoubleClick common stock is by nature subject to the general
price fluctuations in the market for publicly traded equity securities and
has experienced significant volatility. NetGravity and DoubleClick cannot
predict or give any assurances as to the market price of NetGravity Common
Stock before completion of the merger or of DoubleClick common stock at any
time before or after the completion of the merger.
DOUBLECLICK AND NETGRAVITY MAY NOT ACHIEVE THE BENEFITS THEY EXPECT
FROM THE MERGER.
We entered into the merger agreement with the expectation that the merger
will result in significant benefits. Achieving the benefits of the merger
depends on the timely, efficient and successful execution of a number of
post-merger events, including integrating the operations and personnel of the
two companies. We will need to overcome significant issues, however, in order
to realize any benefits or synergies from the merger. The successful
execution of these post-merger events will involve considerable risk and may
not be successful. NetGravity is a provider of online interactive marketing
solutions. NetGravity's business model has principally been to license
software designed to enable its customers to directly manage their online
interactive marketing activities. DoubleClick is a provider of advertising
solutions for advertisers and Web publishers. DoubleClick provides
outsourced, service-based solutions to customers who choose not to directly
manage their online interactive marketing activities. DoubleClick has little
direct experience with NetGravity's primary business model. Furthermore,
NetGravity's principal offices are located in San Mateo, California, while
DoubleClick's principal offices are located in New York, New York. There are
currently no plans to relocate either of these principal offices. In order
for the merger to be successful, we must successfully integrate NetGravity's
operations and personnel with DoubleClick's operations and personnel. The
failure of DoubleClick to complete the integration successfully could result
in the loss of DoubleClick's key personnel and customers.
FAILURE OF THE MERGER TO RECEIVE GOVERNMENTAL APPROVALS IN A TIMELY
MANNER COULD SLOW THE PROGRESS OF THE TRANSACTION WHICH COULD NEGATIVELY IMPACT
THE VALUE OF YOUR INVESTMENT.
25
<PAGE>
The merger's consummation is conditioned upon the expiration or termination
of the applicable waiting period under the Hart-Scott-Rodino Act. In
addition, other filings with, notifications to and authorizations and
approvals of various governmental agencies relating primarily to antitrust
and securities law issues must be made and received prior to the consummation
of the merger. Failure to obtain any of the necessary governmental clearances
could slow the progress of the transaction. For instance, we cannot be sure
that a court-ordered injunction will not be issued enjoining consummation of
the merger. Any of the above could have a negative effect on NetGravity's and
DoubleClick's stock prices and the value of your investment.
DOUBLECLICK AND NETGRAVITY MAY NOT BE ABLE TO SUCCESSFULLY CROSS-MARKET
THEIR PRODUCTS OR DEVELOP NEW PRODUCTS.
Each company initially intends to offer its respective products and services
to the customers of the other company. There can be no assurance that either
company's customers will have any interest in the other company's products
and services. The failure of such cross-marketing efforts would diminish the
benefits realized by this merger.
In addition, we believe that DoubleClick intends to develop new products and
services that combine the knowledge and resources of both the DoubleClick and
NetGravity businesses after the merger. We cannot offer any assurances that
such products or services will be successful or that we can successfully
integrate or realize the anticipated benefits of the merger. To date, the
companies have not thoroughly investigated the obstacles - technological,
market-driven or otherwise - to developing and marketing these new products
and services in a timely and efficient way. We cannot assure you that
DoubleClick will be able to overcome the obstacles in developing new products
and services, or that there will be a market for the new products or services
developed by DoubleClick after the merger. Any such failure or inability
could have a material adverse effect on the combined company's business,
financial condition and operating results or could result in loss of key
personnel. In addition, the attention and effort devoted to the integration
of the two companies will significantly divert management's attention from
other important issues, and could seriously harm the combined company.
THE MERGER COULD ADVERSELY AFFECT COMBINED FINANCIAL RESULTS.
We expect that DoubleClick will incur a significant one-time charge related
to the merger. If the benefits of the merger do not exceed the costs
associated with the merger, including any dilution to DoubleClick's
stockholders resulting from the issuance of shares in connection with the
merger, DoubleClick's financial results and, thus, the value of your
investment, could be adversely affected.
THE MARKET PRICE OF DOUBLECLICK COMMON STOCK MAY DECLINE AS A RESULT
OF THE MERGER.
The market price of DoubleClick common stock may decline as a result of the
merger if:
- the integration of DoubleClick and NetGravity is unsuccessful;
- DoubleClick does not achieve the perceived benefits of the
merger as rapidly or to the extent anticipated by financial or
industry analysts; or
26
<PAGE>
- the effect of the merger on DoubleClick's financial results is
not consistent with the expectations of financial or industry
analysts.
FAILURE OF THE MERGER TO QUALIFY AS A POOLING OF INTERESTS WOULD
NEGATIVELY AFFECT COMBINED FINANCIAL RESULTS.
The failure of the merger to qualify for pooling-of-interests accounting
treatment for financial reporting purposes for any reason would materially
and adversely affect DoubleClick's reported financial results and, likely,
the price of DoubleClick's common stock.
The availability of pooling-of-interests accounting treatment for the merger
depends upon circumstances and events occurring both before and after the
merger's completion. For example, no significant changes in the business of
the combined company may occur, including significant dispositions of assets,
for a period of two years following the effective time of the merger.
Further, affiliates of DoubleClick and NetGravity must not sell any
significant number of shares of either DoubleClick or NetGravity capital
stock for a period beginning before the merger and ending on the day that
DoubleClick publicly announces financial results covering at least 30 days of
combined operations of DoubleClick and NetGravity after the merger. If the
effective time of the merger occurs before November 30, 1999, DoubleClick
expects that such combined financial results would be published in January
2000. If affiliates of DoubleClick or NetGravity sell certain amounts of
their shares of DoubleClick common stock prior to that time, despite a
contractual obligation restricting such sale, the merger may not qualify for
accounting as a pooling of interests for financial reporting purposes.
NETGRAVITY'S OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY
INFLUENCE THEM TO SUPPORT OR APPROVE THE MERGER.
The directors and officers of NetGravity participate in arrangements and have
continuing indemnification against liabilities that provide them with
interests in the merger that are different from, or in addition to, yours,
including the following:
- As of July 12, 1999, the executive officers and directors of
NetGravity owned stock options to purchase an aggregate of
1,347,613 shares of NetGravity Common Stock, of which
1,199,753 are unvested. If the merger is completed, 146,250
of the unvested options will accelerate and become
immediately exercisable;
- Certain officers of NetGravity are entitled to certain
benefits, including substantial severance packages, under
their employment agreements with NetGravity if their
employment is terminated upon NetGravity's change of control,
such as the merger;
- Upon completion of the merger, DoubleClick and NetGravity will
enter into employment agreements with certain NetGravity
executive officers; and
- DoubleClick has agreed to cause the surviving corporation in
the merger to indemnify each present and former NetGravity
officer and director against liabilities arising out of such
person's services as an officer or director. DoubleClick will
cause the surviving
27
<PAGE>
corporation to maintain officers' and directors' liability
insurance to cover any such liabilities for the next six
years.
The directors and officers of NetGravity could therefore be more likely to
vote to approve the merger agreement than if they did not hold these
interests. In addition, all directors and executive officers of NetGravity
have entered into Stockholder Agreements pursuant to which they have agreed
to vote as stockholders of NetGravity in favor of approval of the merger.
NetGravity stockholders should consider whether these interests may have
influenced these directors and officers to support or recommend the merger.
DOUBLECLICK MUST MANAGE THE INTEGRATION OF ACQUIRED COMPANIES
SUCCESSFULLY IN ORDER TO ACHIEVE DESIRED RESULTS.
As a part of its business strategy, we understand that DoubleClick expects to
enter into additional business combinations and acquisitions such as the
recently announced merger with Abacus Direct Corporation. Acquisition
transactions are accompanied by a number of risks, including:
- the difficulty of assimilating the operations and personnel of
the acquired companies;
- the potential disruption of its ongoing business and
distraction of management;
- the difficulty of incorporating acquired technology and rights
into its products and services;
- unanticipated expenses related to technology integration;
- the maintenance of uniform standards, controls, procedures and
policies;
- the impairment of relationships with employees and customers
as a result of any integration of new management personnel;
and
- potential unknown liabilities or duplicate assets associated
with acquired businesses.
The combined company may not succeed in addressing these risks or any other
problems encountered in connection with such business combinations and
acquisitions.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVES AND FINANCIAL INSTRUMENTS
FOREIGN CURRENCY HEDGING INSTRUMENTS
The Company transacts business in various foreign currencies. Accordingly,
the Company is subject to exposure from adverse movements in foreign currency
exchange rates. This exposure is primarily related to revenues and operating
expenses in the U.K. and Japan denominated in the respective local currency.
However, as of June 30, 1999, the Company had no hedging contracts
outstanding.
The Company currently does not use financial instruments to hedge operating
expenses in the U.K. or Japan denominated in the respective local currency.
Instead, the Company believes that a natural
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partial hedge exists, because local currency revenues will substantially
offset the operating expenses denominated in the respective local currency.
The Company assesses the need to utilize financial instruments to hedge
currency exposures on an ongoing basis.
The Company does not use derivative financial instruments for speculative
trading purposes, nor does the Company hedge its foreign currency exposure in
a manner that entirely offsets the effects of changes in foreign exchange
rates. The Company regularly reviews its hedging program and may as part of
this review determine at any time to change its hedging program.
FIXED INCOME INVESTMENTS
The Company's exposure to market risks for changes in interest rates relates
primarily to investments in debt securities issued by U.S. government
agencies and corporate debt securities. The Company places its investments
with high credit quality issuers and, by policy, limits the amount of the
credit exposure to any one issuer.
The Company's general policy is to limit the risk of principal loss and
ensure the safety of invested funds by limiting market and credit risk. All
highly liquid investments with a maturity of three months or less at the date
of purchase are considered to be cash equivalents; investments with
maturities greater than three months are considered to be short-term
investments. The weighted average pre-tax interest rate on the investment
portfolio as of June 30, 1999 is approximately 5.23%.
The following schedule summarizes the scheduled maturities of the Company's
cash equivalent and short-term investments (and associated weighted average
interest rates of return) as of June 30, 1999:
<TABLE>
<CAPTION>
Weighted Ave.
Amounts Interest Rates
--------- --------------
<S> <C> <C>
Due within one year $ 112,900 5.19%
Due beyond one year $ 10,400 5.68%
Total $ 123,300
</TABLE>
The Company had no investments that matured beyond two years.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Following the announcement of the proposed merger with DoubleClick,
complaints were filed in the San Mateo County, California, Superior Court and
the Chancery Court of the State of Delaware against NetGravity and several of
its directors. The complaints allege that the defendants breached their
fiduciary duties to NetGravity's stockholders in connection with the proposed
merger with DoubleClick. The California complaint asks the court to enjoin
the consummation of the merger or, alternatively, seeks to rescind the merger
or an award of unspecified damages from the defendants in the event the
merger is consummated. The Delaware complaint asks the court to invalidate the
termination fee provision of the merger agreement by and between NetGravity
and DoubleClick. The Company believes the claims asserted in the complaints
are without merit and intends to vigorously contest them.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS.
(a) Not applicable.
(b) Not applicable.
(c) On May 27, 1999, the Company issued to Heidrick &
Struggles, Inc., an executive recruitment firm ("Heidrick & Struggles"), a
warrant to purchase 30,000 shares of the Company's Common Stock at a price
per share of $18.8125 as partial consideration for services rendered by
Heidrick & Struggles in connection with the recruitment and hiring by the
Company of Eric W. Spivey, the Company's Chief Executive Officer (the
"Heidrick & Struggle Warrant").
Heidrick & Struggles exercised the Heidrick & Struggles
Warrant on July 22, 1999, by way of a net exercise and, accordingly, received
thereupon an aggregate of 7,156 of the shares of Common Stock underlying the
Heidrick & Struggles Warrant.
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The offer, sale and issuance of the above securities were
deemed to be exempt from registration under the Securities Act of 1933, as
amended, in reliance on Section 4(2) of the Securities Act. In the Heidrick &
Struggles Warrant, Heidrick & Struggles represented to the Company its
intention to acquire the Common Stock underlying the Heidrick & Struggles
Warrant for investment only and not with a view to or for sale in connection
with any distribution thereof. Heidrick & Struggles had adequate access,
through its relationship with the Company and through the public filings of
the Company, to information about the Company.
(d) Pursuant to a Registration Statement on Form S-1 (File No.
333-51007) filed with and declared effective by the Commission on June 11,
1998, the Company offered an aggregate of 3,250,000 shares of its Common
Stock for an aggregate offering price of $29.3 million and certain selling
stockholders offered an aggregate of 200,000 shares of the Company's Common
Stock for an aggregate offering price of $1.8 million (such offering, the
"IPO"). Net of underwriters' discounts and commissions of 7% of the offering
price, the Company and the selling stockholders received proceeds of $27.2
million and $1.7 million, respectively, from the IPO. In addition to
underwriters' discounts and commissions, the Company reasonably estimates
that it incurred approximately $1.3 million in additional expenses related to
the IPO, leaving it with approximately $25.9 million in net proceeds.
Pursuant to a Registration Statement on Form S-1 (file Nos.
333-73203 and 333-75237) filed with and declared effective by the Commission
on March 30, 1999, the Company offered an aggregate of 3,830,000 shares of
its Common Stock (which includes shares issued upon exercise of the
underwriters' 612,000 share over-allotment option) for an aggregate offering
price of $120.7 million and certain selling stockholders offered an aggregate
of 862,000 shares of the Company's Common Stock for an aggregate offering
price of $27.1 million. Net of underwriters' discounts and commissions of
5.5% of the offering price, the Company and selling stockholders received
proceeds of $114.0 million and $25.6 million, respectively, from the
secondary public offering. In addition to underwriters' discounts and
commissions, the Company reasonably estimates that it incurred approximately
$0.9 million in additional expenses related to the secondary public offering,
leaving it with approximately $113.1 million in net proceeds.
From June 11, 1998 through June 30, 1999, the Company has
used, from the net proceeds of the IPO and the Company's secondary offering,
approximately (i) $5.6 million to fund certain capital expenditures, (ii)
$17.9 million to fund operating expenses related to entering new markets,
increasing research and development spending, expanding sales and marketing
operations, developing new distribution channels, improving its operational
and financial systems and broadening its customer support capabilities and
(iii) $2.2 million to repay certain indebtedness. In addition, the Company
used net proceeds from the IPO to make a $2.0 million payment to MatchLogic
pursuant to an agreement between the Company and MatchLogic related to the
use of certain of MatchLogic's proprietary consumer profile databases. The
use of proceeds from the IPO and the Company's secondary offering does not
represent a material change in the use of proceeds described in the final
prospectus related to the IPO or in the final prospectus related to the
Company's secondary offering. Pending other uses, the Company has invested
most of the remaining net proceeds in investment grade, short-term interest
bearing securities.
None of the payments described in this Item 2(d)
constituted direct or indirect payments to directors, officers or general
partners of the issuer or their associates, or to persons owning ten percent
or more of any class of equity securities of the issuer or to affiliates of
the issuer.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
30
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ITEM 5. OTHER INFORMATION.
(a) Execution of Merger Agreement. As disclosed in the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 21, 1999 (the "Merger Agreement Report"), the Company, on
July 12, 1999, entered into an Agreement and Plan of Merger and
Reorganization (the "Merger Agreement") with DoubleClick pursuant to which
DoubleClick has agreed to merge with the Company. A copy of the Merger
Agreement is attached as Exhibit 2.1 to the Merger Agreement Report and is
also incorporated herein by reference. The merger is to be effected through
the issuance of 0.28 shares of DoubleClick common stock in exchange for each
share of common stock of the Company outstanding immediately prior to the
consummation of the merger and the assumption of the Company's stock options
and warrants outstanding at the effective date of the merger, based on such
exchange ratio. The amount of such consideration was determined based upon
arm's-length negotiations between DoubleClick and the Company. The Merger
Agreement also provides for the payment by the Company to DoubleClick under
certain circumstances of a fee of $30 million in the event the Merger
Agreement is terminated.
The merger is intended to qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended, and is
intended to be accounted for under the pooling of interests method. The
consummation of the merger is subject to the satisfaction of certain
conditions, including certain regulatory approvals and the approval of the
stockholders of the Company. In connection with the merger, certain
affiliates of the Company have agreed to vote in favor of approval of the
merger pursuant to Stockholder Agreements in the form attached to the Merger
Agreement Report as Exhibit 99.1.
See "PART I - FACTORS AFFECTING OUR OPERATING RESULTS AND
FINANCIAL CONDITION - RISKS RELATED TO THE MERGER."
(b) Resignation of Director. Effective as of June 30, 1999, the
John Kohler resigned from the Company's Board of Directors.
(c) Appointment of Director. Effective June 30, 1999, Howard
Smith became a member of the Company's Board of Directors.
(d) Resignation of Vice President of Marketing. Rick E.D.
Jackson has announced his intent to leave his position as the Company's Vice
President of Marketing effective as of July 30, 1999.
(e) Appointment of Vice President of Data Services. Effective
June 29, 1999, John A. Lloyd was appointed as the Company's Vice President of
Data Services.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The followings exhibits are attached hereto and incorporated
herein by reference.
*2.1 Agreement and Plan of Merger and Reorganization dated as of
July 12, 1999 by and among DoubleClick Inc., NJ Merger
Corporation and the Registrant (excluding exhibits).
31
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3.2 Amended and Restated Bylaws of the Registrant.
10.1 Employment Agreement by and between the Registrant and Eric W.
Spivey dated as of April 20, 1999.
10.2 Amendment to Eric W. Spivey Employment Agreement dated as of
June 4, 1999.
10.3 Employment Agreement by and between the Registrant and John
Andrew Lloyd dated as of June 11, 1999.
27.1 Financial Data Schedule (Second Quarter 1999).
- -------------------
* Incorporated herein by reference to exhibit 2.1 filed with the Registrant's
Current Report on Form 8-K filed on July 21, 1999.
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the Company's quarter ended June 30, 1999. On July 21, 1999, the
Company filed the Merger Agreement Report announcing the execution by the
Company and by DoubleClick of the Merger Agreement. See "Part I - FACTORS
AFFECTING OUR OPERATING RESULTS AND FINANCIAL CONDITION - RISKS RELATED TO
THE MERGER" and "-OTHER INFORMATION, ITEM 5, OTHER INFORMATION."
32
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SIGNATURE
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, on August 2, 1999.
NETGRAVITY, INC.
By: /s/ Stephen E. Recht
---------------------------------
Stephen E. Recht
CHIEF FINANCIAL OFFICER
AND SECRETARY
(Principal financial and accounting
officer and duly authorized officer)
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Exhibit 3.2
AMENDED AND RESTATED BYLAWS OF
NETGRAVITY, INC.
(A DELAWARE CORPORATION)
<PAGE>
AMENDED AND RESTATED BYLAWS OF
NETGRAVITY, INC.
(A DELAWARE CORPORATION)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I CORPORATE OFFICES. . . . . . . . . . . . . . . . . . . . . . . 1
1.1 REGISTERED OFFICE. . . . . . . . . . . . . . . . . . . . . . . 1
1.2 OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . 1
2.1 PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . 1
2.2 ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . . 2
2.7 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . . . . 3
2.9 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. . . . 3
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING . . . . . . . . . . 4
2.12 PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE. . . . . . . . . . . . . 5
ARTICLE III DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 NUMBER OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . 5
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS . . . . . . . . . . . 5
3.4 RESIGNATION AND VACANCIES. . . . . . . . . . . . . . . . . . . 6
3.5 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . 7
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . . 7
3.7 FIRST MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . 8
3.9 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . . 8
3.10 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.11 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.12 ADJOURNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.13 NOTICE OF ADJOURNMENT. . . . . . . . . . . . . . . . . . . . . 9
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. . . . . . . 9
3.15 FEES AND COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . 9
3.16 APPROVAL OF LOANS TO OFFICERS. . . . . . . . . . . . . . . . . 9
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION . . . .10
3.18 NOMINATION OF DIRECTORS; STOCKHOLDER BUSINESS AT
ANNUAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE IV COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . .12
4.1 COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . . . .12
4.2 MEETINGS AND ACTION OF COMMITTEES. . . . . . . . . . . . . . .12
4.3 COMMITTEE MINUTES. . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . .13
5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . .13
5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . .13
5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . .13
5.4 REMOVAL AND RESIGNATION OF OFFICERS. . . . . . . . . . . . . .14
5.5 VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . . . .14
5.6 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . . .14
5.7 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . .15
5.8 VICE PRESIDENTS. . . . . . . . . . . . . . . . . . . . . . . .15
5.9 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . .15
5.10 CHIEF FINANCIAL OFFICER. . . . . . . . . . . . . . . . . . . .16
5.11 ASSISTANT SECRETARY. . . . . . . . . . . . . . . . . . . . . .16
5.12 ADMINISTRATIVE OFFICERS. . . . . . . . . . . . . . . . . . . .16
5.13 AUTHORITY AND DUTIES OF OFFICERS . . . . . . . . . . . . . . .17
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . .17
6.2 INDEMNIFICATION OF OTHERS. . . . . . . . . . . . . . . . . . .18
6.3 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . .18
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE VII RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . .18
7.1 MAINTENANCE AND INSPECTION OF RECORDS. . . . . . . . . . . . .18
7.2 INSPECTION BY DIRECTORS. . . . . . . . . . . . . . . . . . . .18
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . . . .19
7.4 CERTIFICATION AND INSPECTION OF BYLAWS . . . . . . . . . . . .19
ARTICLE VIII GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . .19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. . . . .19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. . . . . . . . . . .20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED . . . . . .20
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES . . . . . . .20
8.5 SPECIAL DESIGNATION ON CERTIFICATES. . . . . . . . . . . . . .21
8.6 LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . .21
8.7 TRANSFER AGENTS AND REGISTRARS . . . . . . . . . . . . . . . .22
8.8 CONSTRUCTION; DEFINITIONS. . . . . . . . . . . . . . . . . . .22
ARTICLE IX AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .22
</TABLE>
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AMENDED AND RESTATED BYLAWS
OF
NETGRAVITY, INC.
(A DELAWARE CORPORATION)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
certificate of incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence
of any such designation, stockholders' meetings shall be held at the
principal executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Friday in June in each year at 3:00 p.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At the meeting, directors shall be
elected, and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise given
in accordance with Section 2.5 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a
special meeting, the purpose or purposes for which the meeting is called (no
business other than that specified in the notice may be transacted) or (ii)
in the case of the annual meeting, those matters which the board of
directors, at the time of giving the notice, intends to present for action by
the stockholders (but any proper matter may be presented at the meeting for
such action). The notice of any meeting at which directors are to be elected
shall include the name of any nominee or nominees who, at the time of the
notice, the board intends to present for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
To be properly brought before an annual meeting or special meeting,
nominations for the election of directors or other business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, (b) otherwise properly brought
before the meeting by or at the direction of the board of directors or (c)
otherwise properly brought before the meeting by a stockholder. For such
nominations or other business to be considered properly brought before the
meeting by a stockholder, such stockholder must have given timely notice and
in proper form of his or her intent to bring such business before such
meeting in accordance with Section 3.18 of these bylaws.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges
prepaid and shall be addressed to the stockholder at the address of that
stockholder appearing on the books of the corporation or given by the
stockholder to the corporation for the purpose of notice. Notice shall be
deemed to have been given at the time when delivered personally or deposited
in the mail or sent by telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
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2.7 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman
of the meeting or (ii) the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting in
accordance with Section 2.8 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the laws of the State of
Delaware or of the certificate of incorporation or these bylaws, a different
vote is required, in which case such express provision shall govern and
control the decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by
a majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact
any business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these
bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation
or these bylaws, each stockholder shall be entitled to one vote for each
share of capital stock held by such stockholder.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
The stockholders of the corporation may not take action by written
consent without a meeting but must take any such actions at a duly called
annual or special meeting.
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2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a
record date, which shall not precede the date upon which the resolution
fixing the record date is adopted by the board of directors and which shall
not be more than sixty (60) days nor less than ten (10) days before the date
of any such meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote, notwithstanding any
transfer of any shares on the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting unless the board of directors fixes a new record date for the
adjourned meeting, but the board of directors shall fix a new record date if
the meeting is adjourned for more than thirty (30) days from the date set for
the original meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the
secretary of the corporation, but no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period. A proxy shall be deemed signed if the stockholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic
transmission, telefacsimile or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on
its face that it is irrevocable shall be governed by the provisions of
Section 212(e) of the General Corporation Law of Delaware (relating to the
irrevocability of proxies).
2.13 ORGANIZATION
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of
the board, and all of the vice presidents, the stockholders shall appoint a
chairman for such meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such matters as the regulation of the manner of voting and the conduct of
business. The secretary of the corporation shall act as secretary of all
meetings of the stockholders, but in the absence of the secretary at any
meeting of the stockholders, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
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2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
to any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors shall not be less than three (3) nor more than
nine (9). The exact number of directors shall be seven (7) until changed,
within the limits specified above, by a bylaw amending this Section 3.2, duly
adopted by the board of directors or by the stockholders. The indefinite
number of directors may be changed, or a definite number may be fixed without
provision for an indefinite number, by a duly adopted amendment to the
Certificate of Incorporation or by an amendment to this bylaw duly adopted by
the board of directors or by the stockholders.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified; except that if any such election
shall not be so held, such election shall take place at a stockholders'
meeting called and held in accordance with the Delaware General Corporation
Law.
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3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of
directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a director is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective. Each director so elected shall hold office
until the expiration of the term of office of the director whom he has
replaced and until a successor has been elected and qualified.
Vacancies occurring on the Board of Directors for any reason and newly
created directorships resulting from an increase in the authorized number of
directors may be filled only by vote of a majority of the remaining members
of the Board of Directors, although less than a quorum, at any meeting of the
Board of Directors. A person so elected by the Board of Directors to fill a
vacancy or newly created directorship shall hold office until the next
election of the Class for which such director shall have been chosen and
until his or her successor shall have been duly elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting
from any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by
a sole remaining director.
(ii) Whenever the holders of any class or classes of
stock or series thereof are entitled to elect one or more directors by the
provisions of the certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a majority
of the directors elected by such class or classes or series thereof then in
office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or
these bylaws, or may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation
Law of Delaware (relating to meetings of shareholders).
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten (10) percent of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or
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newly created directorships, or to replace the directors chosen by the
directors then in office as aforesaid, which election shall be governed by
the provisions of Section 211 of the General Corporation Law of Delaware
(relating to meetings of shareholders) as far as applicable.
3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors; provided,
however, that, if and so long as stockholders of the corporation are entitled
to cumulative voting, if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire board of directors. Whenever the holders of any class or series
are entitled to elect one or more directors by the certificate of
incorporation, this Section 3.5 shall apply, in respect to the removal
without cause of a director or directors so elected, to the vote of the
holders of the outstanding shares of that class or series and not to the vote
of the outstanding shares as a whole.
Any director may be removed from office by the stockholders of the
corporation only for cause.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
corporation. Special meetings of the board may be held at any place within
or outside the State of Delaware that has been designated in the notice of
the meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held
at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected board of
directors, or in the event such meeting is not held at the time and place so
fixed by the stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the board of directors, or as shall be specified in a written
waiver signed by all of the directors.
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3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting
shall be held at the same time and place on the next succeeding full business
day.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any
vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least
four (4) days before the time of the holding of the meeting. If the notice
is delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated either to
the director or to a person at the office of the director who the person
giving the notice has reason to believe will promptly communicate it to the
director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of
the corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in
Section 3.12 of these bylaws. Every act or decision done or made by a
majority of the directors present at a duly held meeting at which a quorum is
present shall be regarded as the act of the board of directors, subject to
the provisions of the certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends
the meeting other than for the express purposed of objecting at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened. All such waivers shall be filed with the
corporate
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records or made part of the minutes of the meeting. A waiver of notice need
not specify the purpose of any regular or special meeting of the board of
directors.
3.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the board to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the
board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than
twenty-four (24) hours, then notice of the time and place of the adjourned
meeting shall be given before the adjourned meeting takes place, in the
manner specified in Section 3.9 of these bylaws, to the directors who were
not present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action
by written consent shall have the same force and effect as a unanimous vote
of the board of directors. Such written consent and any counterparts thereof
shall be filed with the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall
not be construed to preclude any director from serving the corporation in any
other capacity as an officer, agent, employee or otherwise and receiving
compensation for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of
its subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with
or without interest and may be unsecured, or secured in such manner as the
board of directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing contained in this section shall
be deemed to deny, limit or restrict the powers of guaranty or warranty of
the corporation at common law or under any statute.
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3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise
all of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
3.18 NOMINATION OF DIRECTORS; STOCKHOLDER BUSINESS AT ANNUAL MEETINGS
Subject to the rights of holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the board of
directors or any nominating committee appointed by the board of directors or
by any stockholder entitled to vote in the election of directors generally.
However, a stockholder generally entitled to vote in the election of
directors may nominate one or more persons for election as directors at a
meeting only if written notice of such stockholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
U.S. mail, postage prepaid, to the secretary of the corporation not later
than (i) with respect to an election to be held at an annual meeting of
stockholders, 60 days in advance of such meeting and (ii) with respect to an
election to be held at a special meeting of stockholders for the election of
directors, the close of business on the seventh day following the date on
which notice of such meeting is first given to stockholders. Each such
notice shall set forth the following information: (a) the name and address of
the stockholder who intends to make the nomination and of the person or
persons to be nominated; (b) a representation that the stockholder is a
holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder, each nominee or any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission, had the nominee been
nominated, or intended to be nominated, by the board of directors of the
corporation; and (e) the consent of each nominee to serve as a director of
the corporation if so elected. At the request of the board of directors,
any person properly nominated by the board of directors for election as a
director shall furnish to the secretary of the corporation that information
required to be set forth in a stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the
procedures set forth herein. A majority of the board of directors may reject
any nomination by a stockholder not timely made or otherwise not in
accordance with the terms of this Section 3.18. If a majority of the board
of directors reasonably determines that the information provided in a
stockholder's notice does not satisfy the informational requirements of this
Section 3.18 in any material respect, the secretary of the corporation shall
promptly notify such stockholder of the deficiency in writing. The
stockholder shall have an opportunity to cure the deficiency by
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providing additional information to the secretary within such period of time,
not to exceed ten days from the date such deficiency notice is given to the
stockholder, as a majority of the board of directors shall reasonably
determine. If the deficiency is not cured within such period, or if a
majority of the board of directors reasonably determines that the additional
information provided by the stockholder, together with the information
previously provided, does not satisfy the requirements of this Section 3.18
in any material respect, then a majority of the board of directors may reject
such stockholder's nomination. The secretary of the corporation shall notify
a stockholder in writing whether the stockholder's nomination has been made
in accordance with the time and information requirements of this Section 3.18.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the chairman of the meeting or (ii) by any stockholder of the
corporation who complies with the notice procedures set forth in this Section
3.18. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the secretary of the corporation. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive
offices of the corporation not less than 60 days prior to the meeting;
provided, however, that in the event that less than 70 days notice or prior
public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not
later than the close of business on the tenth day following the earlier of
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A stockholder's notice to the secretary
shall set forth as to each matter the stockholder proposes to bring before
the annual meeting the following information: (a) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the corporation which are
beneficially owned by the stockholder and (d) any material direct or indirect
interest, financial or otherwise of the stockholder or its affiliates or
associates in such business. The board of directors may reject any
stockholder proposal not timely made in accordance with this Section 3.18. If
the board of directors determines that the information provided in a
stockholder's notice does not satisfy the informational requirements hereof,
the secretary of the corporation shall promptly notify such stockholder of
the deficiency in the notice. The stockholder shall then have an opportunity
to cure the deficiency by providing additional information to the secretary
within such period of time, not to exceed ten days from the date such
deficiency notice is given to the stockholder, as the board of directors
shall determine. If the deficiency is not cured within such period, or if
the board of directors determines that the additional information provided by
the stockholder, together with the information previously provided, does not
satisfy the requirements of this Section 3.18, then the board of directors
may reject such stockholder's proposal. The secretary of the corporation
shall notify a stockholder in writing whether the stockholder's proposal has
been made in accordance with the time and information requirements hereof.
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This provision shall not prevent the consideration and approval or
disapproval at an annual meeting of reports of officers, directors and
committees of the board of directors, but in connection therewith no new
business shall be acted upon at any such meeting unless stated, filed and
received as herein provided. Notwithstanding anything in these bylaws to the
contrary, no business brought before a meeting by a stockholder shall be
conducted at an annual meeting except in accordance with procedures set forth
in this Section 3.18.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of one or more directors, to serve at the pleasure of the board.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of
directors. Any committee, to the extent provided in the resolution of the
board, shall have and may exercise all the powers and authority of the board,
but no such committee shall have the power or authority to (i) amend the
certificate of incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the board of directors as provided in Section
151(a) of the General Corporation Law of Delaware, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the corporation), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware (relating to mergers and consolidations of domestic and foreign
corporations), (iii) recommend to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and
assets, (iv) recommend to the stockholders a dissolution of the corporation
or a revocation of a dissolution or (v) amend the bylaws of the corporation;
and, unless the board resolution establishing the committee, the bylaws or
the certificate of incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend, to authorize the
issuance of stock, or to adopt a certificate of ownership and merger pursuant
to Section 253 of the General Corporation Law of Delaware (relating to
mergers of parent and subsidiary corporations).
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the following provisions of Article III of these
bylaws: Section 3.6 (place of meetings;
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meetings by telephone), Section 3.8 (regular meetings), Section 3.9 (special
meetings; notice), Section 3.10 (quorum), Section 3.11 (waiver of notice),
Section 3.12 (adjournment), Section 3.13 (notice of adjournment) and Section
3.14 (board action by written consent without meeting), with such changes in
the context of those bylaws as are necessary to substitute the committee and
its members for the board of directors and its members; provided, however,
that the time of regular meetings of committees may be determined either by
resolution of the board of directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the board
of directors, and that notice of special meetings of committees shall also be
given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The Corporate Officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at
the discretion of the board of directors, a chairman of the board, one or
more vice presidents (however denominated), one or more assistant
secretaries, one or more assistant treasurers, and such other officers as may
be appointed in accordance with the provisions of Section 5.3 of these
bylaws. Any number of offices may be held by the same person.
In addition to the Corporate Officers of the Company described above,
there may also be such Administrative Officers of the corporation as may be
designated and appointed from time to time by the president of the
corporation in accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 5.3 or Section 5.5
of these bylaws, shall be chosen by the board of directors, subject to the
rights, if any, of an officer under any contract of employment, and shall
hold their respective offices for such terms as the board of directors may
from time to time determine.
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5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12
of these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any contract
of employment, any Corporate Officer may be removed, either with or without
cause, by the board of directors at any regular or special meeting of the
board or, except in case of a Corporate Officer chosen by the board of
directors, by any Corporate Officer upon whom such power of removal may be
conferred by the board of directors.
Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the
receipt of that notice or at any later time specified in that notice; and,
unless otherwise specified in that notice, the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the corporation under any contract to
which the Corporate Officer is a party.
Any Administrative Officer designated and appointed by the president may
be removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed
in these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such
other powers and perform such other duties as may from time to time be
assigned to him by the board of directors or as may be prescribed by these
bylaws. If there is no president, then the chairman of the board shall also
be the chief executive officer of the corporation and shall have the powers
and duties prescribed in Section 5.7 of these bylaws.
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5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation.
He or she shall preside at all meetings of the stockholders and, in the
absence or nonexistence of a chairman of the board, at all meetings of the
board of directors. He or she shall have the general powers and duties of
management usually vested in the office of president of a corporation, and
shall have such other powers and perform such other duties as may be
prescribed by the board of directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, and if there is no
chairman of the board, the vice presidents, if any, in order of their rank as
fixed by the board of directors or, if not ranked, a vice president
designated by the board of directors, shall perform all the duties of the
president and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the president. The vice presidents shall have
such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of
directors, committees of directors and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register or a duplicate share register, showing the names
of all stockholders and their addresses, the number and classes of shares
held by each, the number and date of certificates evidencing such shares and
the number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law
or by these bylaws. He or she shall keep the seal of the corporation, if one
be adopted, in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by these
bylaws.
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5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director for a purpose reasonably related
to his position as a director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as
may be designated by the board of directors. He or she shall disburse the
funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account
of all of his or her transactions as chief financial officer and of the
financial condition of the corporation, and shall have such other powers and
perform such other duties as may be prescribed by the board of directors or
these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or
if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of
the secretary and shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be
such Administrative Officers of the corporation as may be designated and
appointed from time to time by the president of the corporation.
Administrative Officers shall perform such duties and have such powers as
from time to time may be determined by the president or the board of
directors in order to assist the Corporate Officers in the furtherance of
their duties. In the performance of such duties and the exercise of such
powers, however, such Administrative Officers shall have limited authority to
act on behalf of the corporation as the board of directors shall establish,
including but not limited to limitations on the dollar amount and on the
scope of agreements or commitments that may be made by such Administrative
Officers on behalf of the corporation, which limitations may not be exceeded
by such individuals or altered by the president without further approval by
the board of directors.
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5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all officers
of the corporation shall respectively have such authority and powers and
perform such duties in the management of the business of the corporation as
may be designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware as the same now exists or may
hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually
and reasonably incurred in connection with any threatened, pending or
completed action, suit, or proceeding in which such person was or is a party
or is threatened to be made a party by reason of the fact that such person is
or was a director or officer of the corporation. For purposes of this
Section 6.1, a "director" or "officer" of the corporation shall mean any
person (i) who is or was a director or officer of the corporation, (ii) who
is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was
a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to
indemnification hereunder in defending any action, suit or proceeding
referred to in this Section 6.1 in advance of its final disposition;
provided, however, that payment of expenses incurred by a director or officer
of the corporation in advance of the final disposition of such action, suit
or proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should ultimately be
determined that the director or officer is not entitled to be indemnified
under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's Certificate of
Incorporation, these bylaws, agreement, vote of the stockholders or
disinterested directors or otherwise.
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Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action,
suit, or proceeding, in which such person was or is a party or is threatened
to be made a party by reason of the fact that such person is or was an
employee or agent of the corporation. For purposes of this Section 6.2, an
"employee" or "agent" of the corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the
corporation, (ii) who is or was serving at the request of the corporation as
an employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under the
provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record
of its stockholders listing their names and addresses and the number and
class of shares held by each stockholder, a copy of these bylaws as amended
to date, accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to
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inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent is the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing that
authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at
its registered office in Delaware or at its principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a
purpose reasonably related to his or her position as a director.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president,
the chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise
on behalf of this corporation all rights incident to any and all shares of
the stock of any other corporation or corporations standing in the name of
this corporation. The authority herein granted may be exercised either by
such person directly or by any other person authorized to do so by proxy or
power of attorney duly executed by such person having the authority.
7.4 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered
to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the
stockholders of the corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which
shall not precede the date upon which the resolution fixing the record date
is adopted and which shall not be more than sixty (60) days before any such
action. In that case, only stockholders of record at the close of business
on the
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date so fixed are entitled to receive the dividend, distribution or allotment
of rights, or to exercise such rights, as the case may be, notwithstanding
any transfer of any shares on the books of the corporation after the record
date so fixed, except as otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close
of business on the day on which the board of directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders
for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize and empower any officer or officers, or agent or agents, to
enter into any contract or execute any instrument in the name of and on
behalf of the corporation; such power and authority may be general or
confined to specific instances. Unless so authorized or ratified by the
board of directors or within the agency power of an officer, no officer,
agent or employee shall have any power or authority to bind the corporation
by any contract or engagement or to pledge its credit or to render it liable
for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not
apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the board of directors, every holder of stock represented by
certificates and, upon request, every holder of uncertificated shares, shall
be entitled to have a certificate signed by, or in the name of the
corporation by, the chairman or vice-chairman of the board of directors, or
the president or vice-president, and by the chief financial officer or an
assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be
issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
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Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of
shares for which it is issued; a summary statement or reference to the
powers, designations, preferences or other special rights of such stock and
the qualifications, limitations or restrictions of such preferences and/or
rights, if any; a statement or summary of liens, if any; a conspicuous notice
of restrictions upon transfer or registration of transfer, if any; a
statement as to any applicable voting trust agreement; and, if the shares be
assessable, or, if assessments are collectible by personal action, a plain
statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, or upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated. Upon the declaration of any dividend on fully paid shares,
the corporation shall declare a dividend upon partly paid shares of the same
class, but only upon the basis of the percentage of the consideration
actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights shall be set forth in full
or summarized on the face or back of the certificate that the corporation
shall issue to represent such class or series of stock; provided, however,
that, except as otherwise provided in Section 202 of the General Corporation
Law of Delaware (relating to transfers of stock, stock certificates and
uncertificated stock), in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate that the corporation shall issue
to represent such class or series of stock a statement that the corporation
will furnish without charge to each stockholder who so requests the powers,
the designations, the preferences and the relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter
is surrendered to the corporation and canceled at the same time. The board
of directors may, in case any share certificate or certificate for any other
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security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account
of the alleged loss, theft or destruction of the certificate or the issuance
of the replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company -- either domestic or foreign, who shall
be appointed at such times and places as the requirements of the corporation
may necessitate and the board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, as used in these bylaws, the singular number includes the
plural, the plural number includes the singular, and the term "person"
includes both an entity and a natural person.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to
adopt, amend or repeal bylaws upon the directors. The fact that such power
has been so conferred upon the directors shall not divest the stockholders of
the power, nor limit their power to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which
the repeal was enacted or the filing of the operative written consent(s)
shall be stated in said book.
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NETGRAVITY, INC.
ERIC W. SPIVEY EMPLOYMENT AGREEMENT
This Agreement is made by and between NetGravity, Inc. (the "Company"), and
Eric W. Spivey ("Executive") as of April 20, 1999.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITIONS; EMPLOYMENT COMMENCEMENT DATE; BOARD MEMBERSHIP;
DUTIES. Executive's employment with the Company pursuant to this Agreement
shall commence on April 20, 1999 (the "Employment Commencement Date"). As of
the Employment Commencement Date, the Company shall employ the Executive as
the President and Chief Executive Officer of the Company. The period of
Executive's employment hereunder is referred to herein as the "Employment
Term." During the Employment Term, Executive shall render such business and
professional services in the performance of his duties, consistent with
Executive's position within the Company, as shall reasonably be assigned to
him by the Board.
(b) BOARD MEMBERSHIP. It is expected that Executive shall be
appointed as a member of the Board of Directors (the "Board") on or shortly
following May 27, 1999. It is expected that Executive will be elected
Chairman of the Board within six to nine months following his Employment
Commencement Date. Upon becoming a member of the Board, Executive may
propose the addition of two new members to the Board, subject to Board and/or
stockholder approval.
(c) OBLIGATIONS. During the Employment Term, Executive shall
devote his full business efforts and time to the Company. Executive agrees,
during the Employment Term, not to actively engage in any other employment,
occupation or consulting activity for any direct or indirect remuneration
without the prior approval of the Board; provided, however, that Executive
may serve in any capacity with any civic, educational or charitable
organization, or as a member of corporate Boards of Directors or committees
thereof upon which Executive currently serves plus one additional Board of
Directors of a company that does not compete with the Company, without the
approval of the Board.
2. EMPLOYEE BENEFITS.
(a) GENERAL. During the Employment Term, Executive shall be
eligible to participate in the employee benefit plans maintained by the
Company that are applicable to other senior management to the full extent
provided for under those plans. Moreover, Executive shall be eligible for
fringe benefits, expense reimbursement and perquisites equivalent to those of
Chief Executive Officers at typical comparable companies.
<PAGE>
(b) RELOCATION EXPENSE REIMBURSEMENT. If Executive chooses to
relocate his principal residence closer to the Company's offices, the Company
will reimburse Executive up to $100,000 for the following reasonable costs:
(i) Transaction costs associated with buying Executive's
new residence (closing costs, inspections, title insurance, brokerage and
related fees, etc.).
(ii) Transaction costs associated with selling
Executive's old residence (closing costs, inspections, title insurance,
brokerage and related fees, etc.).
(iii) Moving household furnishings and personal effects.
Executive will be fully grossed-up by the Company for any imputed income
required to be recognized with respect to this reimbursement so that the
economic effect to Executive, after taking into account any tax deductions
available to Executive, is the same as if this reimbursement was provided to
Executive on a non-taxable basis.
3. AT-WILL EMPLOYMENT. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes
"at-will" employment. Subject to the Company providing severance benefits as
specified herein, Executive and the Company acknowledge that this employment
relationship may be terminated at any time, upon written notice to the other
party, with or without good cause or for any or no cause, at the option
either of the Company or Executive.
4. COMPENSATION.
(a) BASE SALARY. While employed by the Company, the Company
shall pay the Executive as compensation for his services a base salary at the
annualized rate of $325,000 (the "Base Salary"). The Compensation Committee
of the Board shall review the Base Salary at least annually, and after such
review may increase, but not decrease, the Base Salary. The Base Salary
shall be paid periodically in accordance with normal Company payroll
practices and subject to the usual, required withholding.
(b) BONUSES. Executive shall receive a bonus on account of the
Company's 1999 fiscal year equal to 50% of the Base Salary paid to Executive
in 1999. In subsequent fiscal years, Executive shall be eligible a target
bonus equal to 50% of Base Salary for the fiscal year (the "Target Bonus")
(with a greater payment based on achievement in excess of the target
milestones) based upon performance criteria specified by the Compensation
Committee of the Board of Directors; provided, however, that the payment of
any such bonuses shall be subject to Executive's employment with the Company
through the end of such fiscal years (which year-end employment requirement
is further subject to the severance, death and disability provisions hereof).
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<PAGE>
(c) EQUITY COMPENSATION.
(i) EMPLOYMENT-BASED VESTING STOCK OPTION. Executive
shall receive a nonstatutory stock option to purchase a total of seven
hundred thousand (700,000) shares of Company common stock with a per share
exercise price of $30.375 (the "Employment Commencement Date Stock Option").
The Employment Commencement Date Stock Option shall be for a term of ten
years (or shorter upon termination of employment or consulting relationship
with the Company) and, subject to accelerated vesting as set forth elsewhere
herein, shall vest at the rate of 1/48 of the original seven hundred thousand
(700,000) shares on the twentieth day of each month following the Employment
Commencement Date, so as to be 100% vested on the four year anniversary
thereof, conditioned upon Executive's continued employment or consulting
relationship with the Company as of each vesting date. Except as specified
otherwise herein, this option grant is in all respects subject to the terms,
definitions and provisions of the Company's 1998 Stock Plan (the "Stock
Plan") and the standard form of stock option agreement thereunder to be
entered into by and between Executive and the Company (the "Employment
Commencement Date Option Agreement"), both of which documents are
incorporated herein by reference.
(ii) PERFORMANCE-BASED VESTING STOCK OPTION. Executive
shall receive a non-statutory stock option to purchase a total of three
hundred thousand (300,000) shares of Company common stock with a per share
exercise price of $30.375 (the "Performance-Based Stock Option"). The
Performance-Based Stock Option shall be for a term of ten years (or shorter
upon termination of employment or consulting relationship with the Company)
and, subject to accelerated vesting as set forth elsewhere herein, shall vest
as to 1/24 of the original three hundred thousand (300,000) shares on May 20,
2001 and as to the same amount of shares on the twentieth day of each month
thereafter, so as to be 100% vested on the four year anniversary of the
Employment Commencement Date; provided, however that the Performance-Based
Option shall have its vesting accelerated 100% in the event that the closing
sales price of the Company's stock on Nasdaq (or at the successor exchange
upon which the Company's shares of common stock are principally traded) is
$40 or higher (with the $40 target adjusted appropriately for any stock
splits or stock dividends effected by the Company without receipt of
consideration), for thirty (30) calendar days within any sixty (60) calendar
day period, conditioned upon Executive's continued employment or consulting
relationship with the Company as of any such vesting dates. Except as
specified otherwise herein, this option grant is in all respects subject to
the terms, definitions and provisions of the Stock Plan and the standard form
of stock option agreement thereunder to be entered into by and between
Executive and the Company (the "Performance-Based Option Agreement"), both of
which documents are incorporated herein by reference.
(iii) SUBSEQUENT AWARDS. During the Employment Term,
Executive shall be eligible to receive annual stock and stock option grants
equal to or greater than the median grants made to Chief Executive Officers
of typical comparable companies, as determined in good faith by the Board's
compensation committee.
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<PAGE>
(iv) REGISTRATION ON FORM S-8. All shares of Company
common stock to be issued upon the exercise of options granted to Executive
shall be registered with the Securities Exchange Commission on Form S-8.
(d) SEVERANCE.
(i) TERMINATION PRIOR TO THE CHANGE OF CONTROL PERIOD.
In the event that prior to the beginning of the six month period immediately
preceding the Company entering into a written agreement resulting in a
"Change of Control" (as defined below) (the period beginning six months prior
to the Company entering into a written agreement resulting in a Change of
Control and continuing thereafter shall be referred to herein as "Change of
Control Period"), Executive's employment with the Company is involuntarily
terminated by the Company without "Cause" or is voluntarily terminated by
Executive for "Good Reason" (both as defined below), then (i) Executive's
stock options shall have their vesting accelerated to the same extent as such
options would have vested (based on service-based vesting provisions solely
and not on the minimum $40 share price vesting or on change of control
vesting) had Executive remained employed by the Company for an additional
eighteen months, (ii) Executive's stock options shall have their
post-termination exercisability provisions extended by eighteen months, (iii)
Executive shall receive a lump-sum payment equal to 150% of the sum of his
Base Salary plus Target Bonus, less applicable withholding, promptly
following such termination of employment, and (iv) Executive and his covered
dependents shall receive coverage under the Company's health and other
welfare benefit plans for a period of eighteen (18) months, or, if and to the
extent ineligible under the terms of such plans, Executive shall receive an
amount equal to the Company's costs of providing such benefits; provided,
however, that Executive will be fully grossed-up by the Company for any
imputed income required to be recognized with respect to the payments made in
lieu of welfare benefit plan coverage so that the economic effect to
Executive is the same as if these payments were provided to Executive on a
non-taxable basis.
(ii) FOLLOWING THE CHANGE OF CONTROL PERIOD. In the
event that, on or after the commencement of the Change of Control Period,
Executive's employment with the Company is involuntarily terminated by the
Company without "Cause" or is voluntarily terminated by Executive for "Good
Reason" (both as defined below), then (i) Executive's stock options shall
have their vesting 100% accelerated, (ii) Executive's stock options shall
have their post-termination exercisability provisions extended by twenty-four
months, (iii) Executive shall receive a lump-sum payment equal to 200% of the
sum of his Base Salary plus Target Bonus, less applicable withholding,
promptly following such termination of employment, and (iv) Executive and his
covered dependents shall receive coverage under the Company's health and
other welfare benefit plans for a period of twenty-four (24) months, or, if
and to the extent ineligible under the terms of such plans, Executive shall
receive an amount equal to the Company's costs of providing such benefits;
provided, however, that Executive will be fully grossed-up by the Company for
any imputed income required to be recognized with respect to the payments
made in lieu of welfare benefit plan coverage so that the economic effect to
Executive is the same as if these payments were provided to Executive on a
non-taxable basis.
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<PAGE>
For the purposes of this Agreement, "Cause" means fraud or intentional
misconduct with is materially harmful to the Company.
For the purposes of this Agreement, "Good Reason" means (i) the failure
of the Company to appoint Executive Chairman of the Board by March 2, 2000,
(ii) a reduction in Executive's Base Salary, Target Bonus or benefits, (iii)
the relocation of the Company's headquarters more than thirty (30) miles from
its current location or, (iv) a reduction in title, authority, status,
obligations or responsibilities, including, without limitation, any change
which results in Executive not serving as President, Chief Executive Officer
and Director, and on and after March 2, 2000, Chairman of the Board, of a
publicly-traded corporation. For example, if after a Change of Control
Executive remains Chief Executive Officer of and a director of NetGravity,
but NetGravity becomes a wholly-owned, privately held subsidiary of a larger
company, Executive may resign for Good Reason. Notwithstanding the
foregoing, Executive will not terminate his employment for Good Reason
pursuant to clause (iv) above for such period following the Change of Control
as may be requested by the corporation surviving after the Change of Control,
provided that such period shall not exceed six (6) months, and at the end of
such period, if any, he may resign for Good Reason. During any such
requested period of continued employment, Executive shall provide transition
services, provided that he is allowed to continue to serve in a capacity
substantially equivalent to Chief Executive Officer of the Company (which as
a result of the Change of Control may be a division or wholly-owned
subsidiary of another entity) and to receive the full benefits of employment
(including, without limitation, salary and bonus) under this Agreement.
For the purposes of this Agreement, "Change of Control" is defined as:
(a) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(b) A change in the composition of the Board occurring within
a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof,
or (B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company); or
(c) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or
-5-
<PAGE>
(d) the consummation of the sale or disposition by the
Company of all or substantially all the Company's assets.
5. CHANGE OF CONTROL VESTING ACCELERATION. In the event of a Change
of Control, Executive's Performance-Based Stock Option shall become 100%
vested and any remaining unvested stock options held by Executive shall have
their vesting accelerated by an amount equal to 50% of the remaining unvested
shares; provided, however, that if Executive remains employed by the Company
for one year following the date of a Change of Control, all of Executive's
stock options shall become 100% vested.
6. GOLDEN PARACHUTE EXCISE TAX. In the event that the benefits
provided for in this Agreement or otherwise payable to the Executive
constitute "parachute payments" within the meaning of Section 280G of the
Code and will be subject to the excise tax imposed by Section 4999 of the
Code, then the Executive shall receive (i) a payment from the Company
sufficient to pay such excise tax, and (ii) an additional payment from the
Company sufficient to pay the excise tax and federal and state income taxes
arising from the payments made by the Company to Executive pursuant to this
sentence (together, the "Full Gross-Up Amount"); provided, however, that the
total amount of the payment to Executive under this Section 6 shall not
exceed the greater of (i) $2,500,000, or (ii) one-half of the Full Gross-Up
Amount. The determination of Executive's excise tax liability and the
amount, if any, required to be paid under this Section 6 shall be made in
writing by the Company's independent auditors (the "Accountants"). For
purposes of making the calculations required by this Section 6, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The
Company and the Executive shall furnish to the Accountants such information
and documents as the Accountants may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 6.
7. TOTAL DISABILITY OF EXECUTIVE. Upon Executive's becoming
permanently and totally disabled (as defined in accordance with Internal
Revenue Code Section 22(e)(3) or its successor provision) during the term of
this Agreement, then (i) Executive's stock options shall have their vesting
accelerated to the same extent as such options would have vested (based on
service-based vesting provisions solely and not on the minimum $40 share
price vesting or on change of control vesting) had Executive remained
employed by the Company for an additional twelve (12) months, (ii) Executive
shall receive a lump-sum payment equal to 100% of the sum of his Base Salary
plus Target Bonus, less applicable withholding, and (iii) Executive and his
covered dependents shall receive coverage under the Company's health and
other welfare benefit plans for a period of twelve (12) months, or, if and to
the extent ineligible under the terms of such plans, Executive shall receive
an amount equal to the Company's costs of providing such benefits; provided,
however, that Executive will be fully grossed-up by the Company for any
imputed income required to be recognized with respect to the payments made in
lieu of welfare benefit plan coverage so that the economic effect to
Executive is the same as if these payments were provided to Executive on a
non-taxable basis.
-6-
<PAGE>
8. DEATH OF EXECUTIVE. If Executive dies while employed by the
Company pursuant to this Agreement, then (i) Executive's stock options shall
have their vesting accelerated to the same extent as such options would have
vested (based on service-based vesting provisions solely and not on the
minimum $40 share price vesting or on change of control vesting) had
Executive remained employed by the Company for an additional twelve (12)
months, (ii) Executive's estate or designated beneficiary shall receive a
lump-sum payment equal to 100% of the sum of his Base Salary plus Target
Bonus, less applicable withholding, and (iii) Executive's covered dependents
shall receive coverage under the Company's health and other welfare benefit
plans for a period of twelve (12) months, or, if and to the extent ineligible
under the terms of such plans, Executive's covered dependents shall receive
an amount equal to the Company's costs of providing such benefits; provided,
however, that Executive's covered dependents will be fully grossed-up by the
Company for any imputed income required to be recognized with respect to the
payments made in lieu of welfare benefit plan coverage so that the economic
effect to them is the same as if these payments were provided to them on a
non-taxable basis.
9. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive
upon Executive's death and (b) any successor of the Company. Any such
successor of the Company shall be deemed substituted for the Company under
the terms of this Agreement for all purposes. As used herein, "successor"
shall include any person, firm, corporation or other business entity which at
any time, whether by purchase, merger or otherwise, directly or indirectly
acquires all or substantially all of the assets or business of the Company.
None of the rights of Executive to receive any form of compensation payable
pursuant to this Agreement shall be assignable or transferable except through
a testamentary disposition or by the laws of descent and distribution upon
the death of Executive following termination without cause. Any attempted
assignment, transfer, conveyance or other disposition (other than as
aforesaid) of any interest in the rights of Executive to receive any form of
compensation hereunder shall be null and void.
10. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if (i)
delivered personally, (ii) one (1) day after being sent by Federal Express or
a similar commercial overnight service, or (iii) three (3) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors in interest at the following
addresses, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
If to the Company: NetGravity, Inc.
1700 S. Norfolk Blvd., Suite 150
San Mateo, CA 94402
ATTN: Chief Financial Officer
If to Executive: Eric W. Spivey
at the last residential address known by the Company.
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<PAGE>
11. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
12. PROPRIETARY INFORMATION AGREEMENT. Executive agrees to enter into
the Company's standard Proprietary Information Agreement (the "Proprietary
Information Agreement") upon commencing employment hereunder.
13. ENTIRE AGREEMENT. This Agreement, the Stock Plan, the Employment
Commencement Date Option Agreement, the Performance-Based Option Agreement
and the Proprietary Information Agreement represent the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersede and replace any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
14. ARBITRATION AND EQUITABLE RELIEF.
(a) Except as provided in Section 14(d) below, Executive agrees
that any dispute or controversy arising out of, relating to, or in connection
with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof shall be settled by arbitration
to be held in San Mateo County, California, in accordance with the National
Rules for the Resolution of Employment Disputes then in effect of the
American Arbitration Association (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of
the arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any
court having jurisdiction.
(b) The arbitrator shall apply California law to the merits of
any dispute or claim, without reference to rules of conflict of law. The
arbitration proceedings shall be governed by federal arbitration law and by
the Rules, without reference to state arbitration law. Executive hereby
expressly consents to the personal jurisdiction of the state and federal
courts located in California for any action or proceeding arising from or
relating to this Agreement and/or relating to any arbitration in which the
parties are participants.
(c) The Company and Executive shall each pay one-half of the
costs and expenses of such arbitration, and shall separately pay its counsel
fees and expenses.
(d) Executive understands that nothing in Section 14 modifies
Executive's at-will status. Either the Company or Executive can terminate the
employment relationship at any time, with or without cause.
(e) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 14, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT,
EXECUTIVE AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR
IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE, BREACH, OR
-8-
<PAGE>
TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE
CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE
RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE
COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT
OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR
PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL
STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT
OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND
HOUSING ACT, AND LABOR CODE SECTION 201, ET SEQ;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
15. LEGAL FEE REIMBURSEMENT. The Company agrees to pay Executive's
reasonable legal fees associated with entering into this Agreement upon
receiving invoices for such services.
16. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement
may only be amended, canceled or discharged in writing signed by Executive
and the Company.
17. WITHHOLDING. The Company shall be entitled to withhold, or cause
to be withheld, from payment any amount of withholding taxes required by law
with respect to payments made to Executive in connection with his employment
hereunder.
18. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California.
19. EFFECTIVE DATE. This Agreement is effective April 20, 1999.
20. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement:
NETGRAVITY, INC.
/s/ John W. Danner
- ---------------------------------------
John W. Danner
EXECUTIVE
/s/ Eric W. Spivey
- ---------------------------------------
Eric W. Spivey
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<PAGE>
AMENDMENT TO ERIC W. SPIVEY EMPLOYMENT AGREEMENT
This Amendment is made effective as of June 4, 1999 (the "Effective
Date"), by and between NetGravity, Inc. (the "Company"), and Eric W. Spivey
(the "Executive"). Unless otherwise defined herein, capitalized terms used
in this Amendment shall have the same meaning as in the Employment Agreement
dated April 20, 1999.
WHEREAS, the Executive and the Company entered into an Employment
Agreement dated April 20, 1999 (the "Employment Agreement"); and
WHEREAS, the Executive and the Company hereby desire to amend the
Employment Agreement in the manner described below to provide that, on the
Effective Date, the Company shall grant to Executive an additional stock
option to purchase 200,000 shares of the Company's common stock at a per
share exercise price of $17.00.
NOW, THEREFORE, in consideration of the foregoing recitals and the
respective covenants and agreements of the parties contained in this
document, the Company and the Executive agree to amend the Employment
Agreement as follows:
1. Section 4(c) shall be amended to read, in its entirety, as follows:
"EQUITY COMPENSATION.
(i) EMPLOYMENT-BASED VESTING STOCK OPTIONS.
(A) EMPLOYMENT COMMENCEMENT DATE OPTION. Executive shall
receive a nonstatutory stock option to purchase a total of seven hundred
thousand (700,000) shares of Company common stock with a per share exercise
price of $30.375 (the "Employment Commencement Date Stock Option"). The
Employment Commencement Date Stock Option shall be for a term of ten years
(or shorter upon termination of employment or consulting relationship with
the Company) and, subject to accelerated vesting as set forth elsewhere
herein, shall vest at the rate of 1/48 of the original seven hundred thousand
(700,000) shares on the twentieth day of each month following the Employment
Commencement Date, so as to be 100% vested on the four year anniversary
thereof, conditioned upon Executive's continued employment or consulting
relationship with the Company as of each vesting date. Except as specified
otherwise herein, this option grant is in all respects subject to the terms,
definitions and provisions of the Company's 1998 Stock Plan (the "Stock
Plan") and the standard form of stock option agreement thereunder to be
entered into by and between Executive and the Company (the "Employment
Commencement Date Option Agreement"), both of which documents are
incorporated herein by reference.
(B) JUNE 4, 1999 OPTION. On June 4, 1999 Executive shall be
granted a stock option, which shall be, to the extent possible under the
$100,000 rule of Section 422(d) of the Internal Revenue Code of 1986, as
amended (the "Code") an "incentive stock option" (as defined in Section 422
of the Code) to purchase a total of two hundred thousand (200,000) shares of
Company
<PAGE>
common stock with a per share exercise price of $17.00 (the "June 4, 1999
Stock Option"). The June 4, 1999 Stock Option shall be for a term of ten
years (or shorter upon termination of employment or consulting relationship
with the Company) and, subject to accelerated vesting as set forth elsewhere
herein, shall be immediately vested as to one hundred thousand (100,000)
shares on the date of grant, and thereafter shall vest at the rate of 1/48 of
the remaining one hundred thousand (100,000) shares on the fourth day of each
month following June 4, 1999, so as to be 100% vested on the four year
anniversary of the date of grant, conditioned upon Executive's continued
employment or consulting relationship with the Company as of each vesting
date. Except as specified otherwise herein, this option grant is in all
respects subject to the terms, definitions and provisions of the Stock Plan
and the standard form of stock option agreement thereunder to be entered into
by and between Executive and the Company (the "June 4, 1999 Option
Agreement"), both of which documents are incorporated herein by reference.
(ii) PERFORMANCE-BASED VESTING STOCK OPTION. Executive shall
receive a non-statutory stock option to purchase a total of three hundred
thousand (300,000) shares of Company common stock with a per share exercise
price of $30.375 (the "Performance-Based Stock Option"). The
Performance-Based Stock Option shall be for a term of ten years (or shorter
upon termination of employment or consulting relationship with the Company)
and, subject to accelerated vesting as set forth elsewhere herein, shall vest
as to 1/24 of the original three hundred thousand (300,000) shares on May 20,
2001 and as to the same amount of shares on the twentieth day of each month
thereafter, so as to be 100% vested on the four year anniversary of the
Employment Commencement Date; provided, however that the Performance-Based
Option shall have its vesting accelerated 100% in the event that the closing
sales price of the Company's stock on Nasdaq (or at the successor exchange
upon which the Company's shares of common stock are principally traded) is
$40 or higher (with the $40 target adjusted appropriately for any stock
splits or stock dividends effected by the Company without receipt of
consideration), for thirty (30) calendar days within any sixty (60) calendar
day period, conditioned upon Executive's continued employment or consulting
relationship with the Company as of any such vesting dates. Except as
specified otherwise herein, this option grant is in all respects subject to
the terms, definitions and provisions of the Stock Plan and the standard form
of stock option agreement thereunder to be entered into by and between
Executive and the Company (the "Performance-Based Option Agreement"), both of
which documents are incorporated herein by reference.
(iii) SUBSEQUENT AWARDS. During the Employment Term, Executive
shall be eligible to receive annual stock and stock option grants equal to or
greater than the median grants made to Chief Executive Officers of typical
comparable companies, as determined in good faith by the Board's compensation
committee.
(iv) REGISTRATION ON FORM S-8. All shares of Company common
stock to be issued upon the exercise of options granted to Executive shall be
registered with the Securities Exchange Commission on Form S-8."
2. Section 5 shall be amended to read, in its entirety, as follows:
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<PAGE>
"CHANGE OF CONTROL VESTING ACCELERATION. In the event of a Change of
Control, Executive's Performance-Based Stock Option and June 4, 1999 Stock
Option shall become 100% vested and any remaining unvested stock options
held by Executive shall have their vesting accelerated by an amount equal to
50% of the remaining unvested shares; provided, however, that if Executive
remains employed by the Company for one year following the date of a Change
of Control, all of Executive's stock options shall become 100% vested."
3. Section numbers and references shall be amended as necessary
throughout the Employment Agreement to reflect the foregoing.
4. To the extent not expressly amended hereby, the Employment Agreement
remains in full force and effect.
5. This Amendment, the Employment Agreement, the Stock Plan, the
Employment Commencement Date Option Agreement, the June 4, 1999 Option
Agreement, the Performance-Based Option Agreement and the Proprietary
Information Agreement represent the entire agreement and understanding
between the Company and Executive concerning Executive's employment
relationship with the Company, and supersede and replace any and all prior
agreements and understandings concerning Executive's employment relationship
with the Company.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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<PAGE>
IN WITNESS WHEREOF, this amendment has been entered into as of the date
first set forth above.
EXECUTIVE: NETGRAVITY, INC.
/s/ Eric W. Spivey /s/ Stephen E. Recht
-------------------------- --------------------------
Eric W. Spivey
By: Stephen E. Recht
-----------------------
Title: Chief Financial Officer
and Secretary
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<PAGE>
Exhibit 10.3
CONFIDENTIAL
June 11, 1999
John Andrew Lloyd
116 Forest Drive
Glen Gardner, New Jersey 08826
Re: Offer of At-Will Employment
Dear John:
As we have previously discussed, NetGravity, Inc., a Delaware
corporation (the "Company"), is pleased to offer you the position of Vice
President (Full title to be determined at a later date). The purpose of this
letter is to confirm our mutual understanding of the general terms of the
offer.
Should you accept this offer, the Company will grant you, on the start
date of your employment, and upon approval of the Board of Directors, a Stock
Option (the "Option") to purchase 125,000 shares of the Company's Common
Stock at an exercise price equal to the current fair market value of the
shares on such date. The Option will vest as to 1/4th of the shares twelve
months after vesting commences, and as to an additional 1/48th of the shares
each month thereafter until fully vested, provided, of course, that you are
still employed by the Company on such dates. The Option would be granted
under the Company's 1998 Stock Option Plan and would be subject to the terms
and conditions of the Plan and of the Company's standard form of Option
Agreement.
Your salary will be $7500.00 per pay period to equal an annual
equivalent of $180,000.00. All salary earned will be paid to you in cash on a
semi-monthly basis.
NetGravity currently has a target executive bonus program. Each
participating executive's bonus target is based on company performance. The
current bonus target is 20% of annual base salary. There are also
accelerators to 30% if defined goals for that level are achieved. However,
the continuation of this program, as well as the decision to award a bonus,
in any amount, remains within NetGravity's sole discretion. The bonus may be
pro-rated based on start date.
We would also like to assist you with relocating from New Jersey to
Northern California. Please see the "Relocation Agreement" for details
regarding the relocation package we wish to offer you.
<PAGE>
Page 2
June 9, 1999
Your continued employment with the Company shall be on an at-will basis.
Either you or the Company may terminate your employment at any time and,
unless otherwise expressly agreed to by the Company in writing, nothing shall
alter the at-will nature of your employment. Your compensation and benefits
package or any discussion of it is not a commitment that your employment will
have a minimum or fixed term or that it is terminable only for cause. Neither
you nor NetGravity, Inc. makes any promise, express or implied, that
employment is for any minimum or fixed term or that cause is required for the
termination of the employment relationship.
If your employment with the Company terminates as a result of an
Involuntary Termination at any time within twelve (12) months after a
"Change of Control" (as defined below), then the Executive shall be entitled
to receive a lump-sum severance payment equal to eighteen (18) months of your
base salary (as in effect immediately prior to the Change of Control).
If your employment with the Company terminates either other than as a
result of a Involuntary Termination at any time within twelve (12) months
after a Change of Control, then you shall not be entitled to receive
severance or other benefits hereunder, and shall only be eligible for those
benefits (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the termination date.
Definition of Change of Control: For this purpose, "Change of Control"
of the Company is defined as:
(A) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the
Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting
securities; or
(B) The date of the consummation of a merger or consolidation of
the Company with any other corporation that has been approved
by the stockholders of the Company, other than a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a
plan of complete liquidation of the Company; or
(C) The date of the consummation of the sale or disposition by the
Company of all or substantially all the Company's assets (if
Executive transfers employment to the purchaser).
NetGravity's proprietary rights and confidential information are among
the Company's most important assets. We must therefore ask that you sign, as
a condition of your employment at NetGravity, Inc., the NetGravity, Inc.
Employment, Confidential Information, and Information Assignment Agreement.
<PAGE>
Page 3
June 9, 1999
To accept this offer, please sign one of the enclosed copies of this
letter (confirming your intended start date), and return it to the attention
of Jill Howes of our Human Resources Department at 1900 S. Norfolk St. San
Mateo, CA 94403 or fax to our confidential fax at: (650) 425-6061. In order
to comply with the Immigration Reform and Control Act of 1986, you are
required to produce, as a condition of employment, documents which will prove
your legal right to work in the United States.
Employment and employee benefits will begin only after the offer letter
and the Employment and Confidentiality Agreement have been signed and all
other documents required by Human Resources have been received by that
department.
This offer will remain open until June 18, 1999. We sincerely hope that
you will accept this offer and look forward to working with you as we build
the success of NetGravity.
Very truly yours,
/s/ ERIC W. SPIVEY
Eric W. Spivey
CEO
ACKNOWLEDGED AND ACCEPTED:
JUNE 18, 1999 /s/ JOHN ANDREW LLOYD
- ---------------------------- ----------------------------
Date John Andrew Lloyd
Intended Start Date: To Be Determined
EWS/jh
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