<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1999
Registration No. 333-71909
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT 4 TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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FLYCAST COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 7319 77-0431028
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
---------------
181 Fremont Street
San Francisco, California 94105
(415) 977-1000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
George R. Garrick, Chairman of the Board, Chief Executive Officer and President
FLYCAST COMMUNICATIONS CORPORATION
181 Fremont Street
San Francisco, California 94105
(415) 977-1000
(Name, Address Including Zip Code, and Telephone Number Including Area Code, of
Agent for Service)
---------------
Copies to:
Jeffrey Y. Suto Laird H. Simons III
Alissa W. Lee Katherine Tallman Schuda
Scott S. Ring Nicholas S. Khadder
VENTURE LAW GROUP FENWICK & WEST LLP
A Professional Corporation Two Palo Alto Square
2800 Sand Hill Road Palo Alto, CA 94306
Menlo Park, CA 94025 (650) 494-0600
(650) 854-4488
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title Of Each Class Of Securities Proposed Maximum Aggregate
To Be Registered Offering Price (1) Amount Of Registration Fee
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<S> <C> <C>
Common Stock, par value
$0.0001........................ $58,650,000 $16,305(2)
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act.
(2) Previously paid.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
April 29, 1999
3,000,000 Shares
[LOGO OF FLYCAST(R) NETWORK]
FLYCAST COMMUNICATIONS CORPORATION
Common Stock
---------
This is the initial public offering of Flycast Communications Corporation and
we are offering 3,000,000 shares of our common stock. We anticipate the initial
public offering price will be between $15.00 and $17.00 per share. We have
requested that the underwriters reserve up to 312,000 shares to be offered to
the persons identified on page 69 of the prospectus.
We have applied to list our common stock on the Nasdaq National Market under
the symbol "FCST."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price................................ $ $
Underwriting Discounts and Commissions............... $ $
Proceeds to Flycast.................................. $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
Flycast has granted the underwriters the right to purchase up to 450,000
additional shares to cover any over-allotments.
BT Alex. Brown
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Hambrecht & Quist
Wit Capital Corporation
as e-Manager(TM)
, 1999
<PAGE>
[INSIDE FRONT COVER]
Title: Maximizing Return On Investment by Acting as a Market Maker
Flow chart beginning with larger sites and smaller sites (represented by larger
and smaller three-dimensional cylinders), from which arrows point to the
Flycast logo and "flycast network." Two-way arrows also point between the logo
and Media Sales Force, represented by a series of faces, and Ad Agent,
represented by a desktop computer. Two-way arrows also point between "Media
Sales Force" and "Larger Advertisers and Agencies," which is accompanied by
corporate logos, and "Ad Agent" and "Smaller Buyers," which is also accompanied
by corporate logos. From the Flycast network and the Flycast logo, a two-way
arrow also points to the BellSouth logo, the SBC logo and "Value Added
Resellers." A two-way arrow also points between these items and "Targeted
Marketplace Solutions."
[INSIDE FRONT COVER FOLD-OUT]
Title: AdExchange, our automated advertising management platform that enables
real-time advertising delivery using ValueTrak reporting and immediate
adjustments by both advertisers and Web sites.
Text to the left of the bottom graphics representing process:
1.The viewer requests a Web page from a browser representing process.
2.An advertisement is requested from AdEx.
3.AdEx delivers the advertisement to the viewer.
4.The site delivers the requested page with an embedded advertisement.
5.The viewer selects an advertisement and goes to an e-commerce site.
6.ValueTrak records any transactions initiated by the viewer on the site and
conveys it to AdEx.
7.Advertisers use AdAgent to execute and manage their advertising campaigns and
AdReporter to monitor the performance of their campaign.
8.Web sites use SiteRegistry to register their ad space with the Flycast
Network and SiteReporter to monitor the performance of advertising campaigns
run on their site.
Text box to the right of the bottom graphic representing process: AdEx receives
orders from advertisers and matches them with appropriate advertising space
available on the Flycast Network. AdEx allows Flycast to target advertising to
viewers based on a wide selection of Web site and viewer characteristics,
including geographical location, content, prior use of the Web and advertising
previously viewed.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information, financial statements and notes to financial statements appearing
elsewhere in this prospectus.
The Company
Our company, Flycast Communications Corporation, is a leading provider of
Web-based direct response advertising solutions to advertisers. We work closely
with advertisers to maximize the value of their advertising campaigns on the
Web. Other advertising solution companies seek to maximize the value for Web
sites by representing them in their sale of space to advertisers. Our
advertiser customers are primarily companies selling goods and services over
the Internet, direct marketing agencies, or other advertisers who are
interested in driving the Web user towards specific actions. Those actions
include things such as clicking on advertisements, registering their names or
other information, or buying products. We offer our customers direct response
solutions that include widespread placement of advertisements over the Web,
prices that minimize their cost per action and continuous improvement and
optimization of their campaign through the application of technology and
through the services of our trained staff.
Advertising on the Web is expanding rapidly. Forrester Research, Inc.
estimates that $1.5 billion was spent on Web advertising in 1998 and that this
amount will grow to $15 billion in 2003. On the Web, as in traditional media,
there are two types of advertising:
. brand advertising, which is intended to generate awareness of and create
a specific image for a particular company, product or service; and
. direct response advertising, which is intended to generate a specific
response or action from the consumer after exposure to an advertisement.
Direct response advertising solutions are measured on the short-term
benefit from the advertisement and are designed to maximize the number
of responses per advertising dollar.
Forrester Research, Inc. estimates that direct marketing will account for 65%
of total Web advertising spending in 2002, or $5.5 billion, as compared to
brand advertising.
We believe the Web is particularly well-suited for direct response
advertising for the following reasons:
. the Web makes it easier for consumers to read and respond to an
advertisement than traditional direct marketing methods such as toll-
free numbers or reply cards in direct mailings;
. measuring response rates, an essential element for direct marketers, is
easier on the Web than in traditional media, enabling advertisers to
modify their campaigns quickly to increase response rates; and
. Web-based direct marketers benefit from the growing supply of unsold ad-
vertising space on the Web.
An industry source, Paul Kagan Associates, Inc., estimates that approximately
75% of available Web advertising space goes unsold. This imbalance of supply
and demand for advertising space enables us to offer advertisers a critical
mass of space from our Web site partners at low cost. This, in turn, minimizes
their cost per action.
Our advertising network currently combines advertising space from over 850
Web sites. The number of advertisements served on our network has increased
from 93 million in December 1997 to
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950 million in March 1999. Our network reached over 22 million individual Web
users or 37% of all Web users in the U.S. during the month of February 1999. We
believe this compares favorably to the audience reach of the top 10 Web sites.
Many of our Web site partners are small and medium sites that do not maintain
their own sales forces. We also partner with larger Web sites that offer us
their unsold advertising space. For our Web site partners, we create value by
generating revenue from space on their sites that would otherwise go unsold.
Once an advertiser defines an advertising campaign, we place that campaign
onto the Flycast Network. We use our technology system, called AdEx, which we
developed over the past three years, to match individual advertisements from
the campaign with appropriate advertising space on our network. AdEx also
measures the effectiveness of the campaign, which allows our media consultants
to regularly optimize the placement across our network of sites and improve the
campaign performance.
We have also recently entered the market for local Web advertising solutions.
We signed agreements with BellSouth, SBC Communications and U S WEST. Under
these agreements, we will deliver local Web advertising inventory to
BellSouth's, SBC's and U S WEST's sales forces that they, in turn, will offer
to local advertisers. We believe that local advertisers represent a growing
market on the Web. We intend to develop relationships with other companies that
are seeking local advertising solutions.
Our principal executive offices are located at 181 Fremont Street, San
Francisco, California 94105. Our telephone number at that location is (415)
977-1000. Information contained on our Web site does not constitute part of
this prospectus.
----------------
Unless otherwise indicated, the information in this prospectus assumes:
. the exercise of warrants to purchase 7,143 shares of common stock and
158,649 shares of preferred stock prior to the closing of this offering;
. the conversion of each outstanding share of preferred stock into common
stock, which will occur upon the closing of this offering;
. our reincorporation in Delaware in May 1999; and
. no exercise of the Underwriters' over-allotment option.
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<PAGE>
The Offering
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of March 31, 1999. This number
excludes:
. 1,932,669 shares subject to outstanding options or reserved for issuance
under our 1997 Stock Option Plan;
. 3,469,749 shares subject to outstanding options or reserved for issuance
under our 1999 Stock Option Plan;
. 169,067 shares subject to warrants outstanding at March 31, 1999, net of
warrants to purchase 165,792 shares that will be exercised immediately
before the completion of this offering; and
. 550,000 shares reserved for issuance under our 1999 Directors' Stock
Option Plan and 1999 Employee Stock Purchase Plan.
See "Management--Stock Plans" and Notes 5 and 8 of Notes to Financial
Statements.
<TABLE>
<S> <C>
Common stock offered by Flycast..... 3,000,000 shares
Common stock to be outstanding after
the offering....................... 14,106,795 shares
Use of proceeds..................... For working capital and general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol....... FCST
</TABLE>
5
<PAGE>
Summary Financial Information
See Note 6 of Notes to Financial Statements for a description of the method
that we used to compute our net loss per share, and Note 1 of Notes to
Financial Statements for how we calculated the number of shares used in that
computation. The Pro Forma column in the Balance Sheet Data below reflects:
. the exercise of warrants outstanding at March 31, 1999 to purchase
165,792 shares that will expire upon the closing of this offering for a
total exercise price of approximately $1.2 million; and
. the conversion of all outstanding shares of preferred stock into common
stock upon the closing of this offering.
The Pro Forma As Adjusted column gives effect to the sale of the shares of
common stock that we are offering under this prospectus at an assumed initial
public offering price of $16.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. See
"Capitalization."
<TABLE>
<CAPTION>
Years Ended
December 31, Three Months Ended
---------------- ------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31,
1997 1998 1998 1998 1998 1998 1999
------- ------- -------- -------- -------- -------- --------
Statement of Operations
Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................ $ 630 $ 8,029 $ 603 $ 1,172 $ 2,116 $ 4,138 $ 4,656
Gross profit........... 74 2,084 120 293 546 1,125 1,278
Operating loss......... (3,411) (8,895) (1,495) (1,758) (2,477) (3,165) (4,533)
Net loss............... (3,417) (9,307) (1,467) (1,776) (2,532) (3,532) (4,596)
Basic and diluted loss
per common share...... $(31.80) $(11.93) $ (3.26) $ (2.37) $ (2.85) $ (3.43) $ (4.04)
Shares used in basic
and diluted loss per
common share.......... 114 835 500 819 945 1,076 1,252
Pro forma basic and
diluted loss per
common share.......... $ (1.40) $(.24) $ (.53)
Shares used in pro
forma basic and
diluted loss per
common share.......... 7,113 6,778 9,502
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C>
Cash, cash equivalents and investments.......... $15,217 16,462 $60,102
Working capital................................. 11,468 12,713 56,353
Total assets.................................... 25,049 26,294 69,934
Long-term obligations, less current portion..... 4,722 4,722 4,722
Mandatorily redeemable preferred stock.......... 27,900 -- --
Total stockholders' equity (deficit)............ (16,814) 12,331 55,971
</TABLE>
6
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. If
any of the following risks actually occur, our business, results of operations
and financial condition could be materially adversely affected. This could
cause the trading price of our common stock to decline, and you might lose part
or all of your investment.
We have only a three-year operating history, making it difficult for you to
evaluate our business and your investment
We commenced operations in April 1996 and did not begin to generate revenue
until the second quarter of 1997. Thus, we have only a limited operating
history upon which you can evaluate our business. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by early-stage companies in the Web advertising market, which is
new and rapidly evolving. We may not be successful in addressing these risks
and our business strategy may not be successful. These risks include our
ability to:
. maintain and increase our inventory of advertising space on Web sites;
. maintain and increase the number of advertisers that use our products
and services; and
. continue to expand the number of products and services we offer.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more detailed information.
We have a history of losses and anticipate continued losses
Our accumulated deficit as of March 31, 1999 was $19.1 million. Although we
have experienced revenue growth in recent periods, this growth may not be
sustained and is not necessarily indicative of our future revenue. We have not
achieved profitability and, given the level of planned operating and capital
expenditures, we expect to continue to incur losses for the foreseeable future.
In this regard, you should ignore revenue projections of $30 million in 1999
and $70 million in 2000 that received limited circulation in the press in the
fall of 1998. Our current internal revenue projections are lower than those
revenue projections by at least 20% to 30% in 1999 and at least 35% to 45% in
2000. You should not base your decision as to whether to invest in shares of
our common stock on either the published revenue projections or any calculation
of what our current internal revenue projections may be. Any projections or
other forward-looking statements are subject to a great deal of uncertainty and
change. Our future revenue and operating results will be affected by a number
of factors, including those set forth in this section. It is likely that our
internal projections for 1999 and 2000 will change throughout 1999 and 2000. In
addition, projections published by market analysts may differ from our internal
revenue projections. We do not believe that we will be required to provide any
updates or further information as to our internal revenue projections for 1999
and 2000 and it is not our present intention to do so.
We plan to increase our operating expenses to expand our infrastructure to
support our current business and new lines of businesses, including our
reseller network. The timing of this expansion and the rate at which our
reseller network generates revenue could cause material fluctuations in our
results of operations. We also plan to purchase additional capital equipment.
Our losses may increase in the future and we may not be able to achieve or
sustain profitability. Even if we do achieve profitability, we may not be able
to sustain or increase profitability on a quarterly or annual basis in the
future. If our revenue grows more slowly than we anticipate, or if our
operating expenses exceed our expectations and cannot be adjusted accordingly,
our business, results of operations and financial
7
<PAGE>
condition will be materially and adversely affected. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more detailed information.
Our quarterly operating results are subject to fluctuations and seasonality
that make it difficult to predict our financial performance
Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors, some of which are outside of our control.
Therefore, you should not rely on period-to-period comparisons of results of
operations as an indication of our future performance. It is possible that in
some future periods our operating results may fall below the expectations of
market analysts and investors. In this event, the market price of our common
stock would likely fall.
The factors that affect our quarterly operating results include:
. demand for our advertising solutions;
. the number of available advertising views on Web sites in the Flycast
Network;
. the mix of types of advertising we sell, including the amount of
advertising sold at higher rates;
. changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for advertising on the Web generally; and
. costs related to acquisitions of technology or businesses.
We believe that our revenue will be subject to seasonal fluctuations because
advertisers generally place fewer advertisements during the first and third
calendar quarters of each year. In addition, expenditures by advertisers tend
to be cyclical, reflecting overall economic conditions as well as budgeting and
buying patterns. A decline in the economic prospects of advertisers or the
economy generally, which could alter current or prospective advertisers'
spending priorities or the time periods in which they determine their budgets,
or increase the time it takes to close a sale with our advertisers, could cause
our business to be materially and adversely affected.
Revenue and operating results for the foreseeable future are difficult to
forecast. Our current and future expense estimates are based, in large part, on
our estimates of future revenue and on our investment plans. In particular, we
plan to increase our operating expenses significantly in order to expand our
sales and marketing operations, including our reseller network, to enhance
AdEx, our advertising management platform, and to expand internationally. To
the extent that these expenses precede increased revenue, our business, results
of operations and financial condition would be materially and adversely
affected. We may be unable to, or may elect not to, adjust spending quickly
enough to offset any unexpected revenue shortfall. Therefore, any significant
shortfall in revenue in relation to our expectations would also have a material
adverse effect on our business, results of operations and financial condition.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more detailed information.
We may experience capacity constraints that could affect our advertising
revenue
Our future success depends in part on the efficient performance of AdEx, as
well as the efficient performance of the systems of third parties such as our
Internet service providers. An increase in the volume of advertising delivered
through our servers could strain the capacity of the software or hardware that
we have deployed, which could lead to slower response times or system failures
and adversely affect the availability of advertisements, the number of
advertising views received by
8
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advertisers and our advertising revenues. Due to unexpected growth in the
number of advertising views that we served in 1998, we experienced a slowdown,
and in some cases an interruption, in delivering advertisements to viewers over
a three-week period that limited the number of advertising views we were able
to serve. As the numbers of Web pages and users increase, our products,
services and infrastructure may not be able to grow to meet the demand. To the
extent that we do not effectively address any capacity constraints or system
failures, our business, results of operations and financial condition would be
materially and adversely affected. Please see "Business--Technology and
Operations" for more detailed information.
We run the risk of system failure that could adversely affect our business
The continuing and uninterrupted performance of our system is critical to our
success. Customers may become dissatisfied by any system failure that
interrupts our ability to provide our services to them, including failures
affecting the ability to deliver advertisements quickly and accurately to the
targeted audience. Sustained or repeated system failures would reduce
significantly the attractiveness of our solutions to advertisers and Web sites.
Our business, results of operations and financial condition could be materially
and adversely affected by any damage or failure that interrupts or delays our
operations.
Our operations depend on our ability to protect our computer systems against
damage from a variety of sources, including telecommunications failures,
malicious human acts and natural disasters. In this regard, we lease server
space in the San Francisco Bay Area. Therefore, any of the above factors
affecting the San Francisco Bay Area would have a material adverse effect on
Flycast's business. Further, despite network security measures, our servers are
vulnerable to computer viruses and disruptions from unauthorized tampering with
our computer systems. We do not carry enough business interruption insurance to
compensate for losses that may occur as a result of any of these events.
Despite precautions, unanticipated problems affecting our systems could cause
interruptions in the delivery of our solutions in the future. Our data storage
centers incorporate redundant systems, consisting of additional servers, but
the primary system does not switch over to the backup system automatically.
We also depend upon Internet service providers that provide consumers with
access to our products and services. In the past, users have occasionally
experienced difficulties due to system failures unrelated to our systems. Any
disruption in the Internet access provided by third-party providers or any
failure of third-party providers to handle higher volumes of user traffic could
have a material adverse effect on our business, results of operations and
financial condition.
We have a limited number of customers upon whom we rely, and the loss of a
major customer could adversely affect our revenue
We expect that a limited number of customers will account for a significant
portion of our revenue for the foreseeable future. As a result, if we lose a
major customer, our revenue could be adversely affected. In addition, we cannot
be certain that customers that have accounted for significant revenue in past
periods, individually or as a group, will continue to generate revenue in any
future period. We also target small advertisers that have limited advertising
budgets and/or are interested in reaching small and limited target audiences.
We may not be able to generate sufficient revenue from these advertisers to
lessen our dependence on our largest customers. We typically enter into short-
term contracts with Web sites for their supply of advertising views. The loss
of a significant number of these advertising views might result in the loss of
customers, which could have a material adverse effect on our business, results
of operations and financial condition. For more detailed information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
9
<PAGE>
We depend on the evolution of Web advertising for our future success
We expect to derive substantially all of our revenue in the foreseeable
future from Web advertising. Therefore, our future success depends on increased
use of the Web as an advertising medium. If the market for Web advertising
fails to develop or develops more slowly than we expect, then our business,
results of operations and financial condition would be materially and adversely
affected. The Web has not existed long enough as an advertising medium to
demonstrate its effectiveness relative to traditional advertising media.
Customers that have relied on traditional media for advertising may be
reluctant to use Web advertising. Many customers have limited or no experience
using the Web as an advertising medium, have allocated only a limited portion
of their advertising budgets to Web advertising or may find Web advertising to
be less effective for promoting their products and services than advertising
using traditional media. In addition, advertisers and advertising agencies that
have invested substantial resources in traditional methods of advertising may
be reluctant to reallocate their media buying resources to Web advertising. We
cannot assure you that the market for Web advertising will continue to develop
or be sustainable.
Substantially all of our revenue is derived from the delivery of banner
advertisements. If advertisers determine that banner advertising is not
effective or attractive as an advertising medium, we may not be able to shift
to any other form of Web advertising. Also, users can install "filter" software
programs that limit or prevent advertising from being delivered to a Web site.
The widespread adoption of filter software by Web users or the failure to
develop successful alternative forms of Web advertising could have a material
and adverse effect on the Web advertising market and our business, results of
operations and financial condition.
Our business model has a limited history, is different from other Web
advertising networks and may not succeed
Our business model is to generate revenue primarily by providing Web
advertising solutions to response-oriented advertisers. We cannot assure you
that Web advertising, response-oriented marketing or our model for providing
solutions based upon providing an improved return on investment for advertisers
will achieve broad market acceptance or generate significant revenue. Other Web
advertising companies' business models focus on selling advertising space on
premium Web sites. Many of these other Web advertising companies have a longer
history than we do. Our ability to generate significant revenue from
advertisers will depend, in part, on our ability to:
. demonstrate to advertisers the effectiveness of direct response
advertising on the Web;
. demonstrate to advertisers that they do not need to pay higher rates for
advertisements on premium Web sites in order to conduct an effective
advertising campaign on the Web;
. attract advertisers and Web sites to the Flycast Network;
. retain advertisers by differentiating the technology and services we
provide to them;
. obtain adequate available advertising space from a large base of Web
sites, whether they are small Web sites or large, premium Web sites; and
. obtain adequate advertising space from large, premium Web sites that
either have direct sales forces or are represented by Web advertising
companies that focus on selling advertising space on premium Web sites.
Further, the Web sites in the Flycast Network must continue to generate
sufficient user traffic characteristics attractive to advertisers. The intense
competition among Web sites has led to the creation of a number of pricing
alternatives for Web advertising. These alternatives make it difficult for us
to project future levels of advertising revenue and applicable gross margins
that can be sustained either by us or the Web advertising industry in general.
A key component of our strategy is to enhance return on investment and other
performance measurements for the advertisers using the
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Flycast Network. We have limited experience in implementing and following this
strategy and we cannot assure you that this strategy will succeed or that we
will be able to achieve or maintain adequate gross margins.
We face intense competition from more established Web advertising companies
that could adversely affect our business
We face intense competition from Web advertising networks and providers of
advertising inventory management products and services. We expect this
competition to continue to increase because there are no substantial barriers
to entry. Increased competition is likely to result in price reductions for
advertising space, reduced gross margins and loss of our market share. We may
not be able to compete successfully, and competitive pressures may materially
and adversely affect our business, results of operations and financial
condition. Many of our existing competitors, as well as a number of potential
new competitors, have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than we do. Please see "Business--Competition" for more
detailed information.
We will depend on distribution relationships to increase our revenue
We believe that our future success will depend in part on our relationships
with companies that distribute or resell our Web advertising solutions. These
relationships have not generated significant revenue to date, and, in order for
us to be successful, revenue generated by our resellers must increase. Our
inability to enter into future distribution relationships might limit the
number and size of the markets that we serve. This could limit our revenue
growth and have a material adverse effect on our business, results of
operations and financial condition. We have recently initiated reseller
relationships with BellSouth, SBC Communications and U S WEST. Our agreements
with them provide that Flycast will deliver a wholesale supply of local Web
advertising that their Yellow Pages sales forces will resell to local
advertisers. These resellers have no obligation to resell our inventory of
advertising space on Web sites and can terminate their relationships with us
with limited or no penalty with as little as 120 days' notice. The loss of any
reseller, the failure of any reseller to perform under its agreement with us or
our inability to attract and retain new resellers could have a material adverse
effect on our business, results of operations and financial condition.
Intensive marketing and sales efforts may be necessary to educate prospective
local advertisers about the uses and benefits of our products and services in
order to generate demand for our services in the local advertiser market
segment. These companies may not have adequate resources available to advertise
their products and services and may not be willing to devote the staff
necessary to educate themselves on the uses and benefits of our advertising
solutions for localized or otherwise limited target customers. We will depend
on our distributors to sell our Web advertising solutions. If these
distributors do not sell our solutions in an effective manner, our business,
results of operations and financial condition may be materially adversely
affected. Please see "Business--Products and Services--Flycast Local
Market/Value Added Reseller Division" for more detailed information.
We need to manage our available advertising space and to establish
relationships with diverse Web sites to attract customers
We need to make available a consistent supply of attractive advertising
space to attract customers. Our failure to do so could have a material and
adverse effect on our business, results of operations and financial condition.
The Web sites that list their unsold advertising space with us are not bound by
contracts that ensure us a consistent supply of inventory. In addition, Web
sites can change the number of advertising views they make available to us at
any time, subject to monthly minimums. If a Web site publisher decides not to
make advertising space from its Web sites available to the Flycast Network, we
may not be able to replace this advertising space with advertising space from
other Web sites that have comparable traffic patterns and user demographics in
time to fulfill a buyer's request. We expect
11
<PAGE>
our customers' requirements to become more sophisticated as the Web matures as
an advertising medium. For example, we expect our customers to become more
precise in their requirements for geographically-targeted advertising that we
sell through our reseller network. We cannot assure you that the amount or type
of advertising space listed or the number of Web sites listing their
advertising space on the Flycast Network will increase or even remain constant
in the future.
We need to manage our growth effectively in a rapidly growing Web advertising
market where the requirements for success change frequently
As we continue to increase the scope of our operations, we will need an
effective planning and management process to implement our business plan
successfully in the rapidly evolving market for Web advertising. Our business,
results of operations and financial condition will be materially and adversely
affected if we are unable to manage our expanding operations effectively. We
anticipate that we will commence international operations starting in the
second quarter of 1999. We have grown from 31 employees on January 1, 1998 to
86 employees on March 31, 1999. We plan to continue to expand our sales and
marketing, customer support and research and development organizations. Past
growth has placed, and any future growth will continue to place, a significant
strain on our management systems and resources. We have recently implemented a
new financial reporting system and expect that we will need to continue to
improve our financial and managerial controls and our reporting systems and
procedures. In addition, we will need to expand, train and manage our
work force.
We depend on key personnel for our future success
Our future success depends to a significant extent on the continued service
of our key senior management, technical and sales personnel. We do not have
long-term employment agreements with any of our key personnel nor do we have
key-person insurance on any of our employees. The loss of the services of any
member of our management team, or of any other key employees, would have a
material adverse effect on our business, results of operations and financial
condition. Recently, we have experienced significant changes to our executive
management team. For example, our Chief Financial Officer, Vice President,
Engineering and Vice President, Media Sales joined Flycast in January 1999, our
Executive Vice President Finance, Administration and Corporate Development,
Vice President, Direct Marketing, Vice President, Business Development and Vice
President, Network Operations joined Flycast in March 1999. Three other members
of our management team, including our Chief Executive Officer, have been
employed by us for less than one year. We cannot assure you that the new
members of our management team will work effectively together or with the rest
of our management. Our future success also depends on our continuing ability to
attract, retain and motivate highly skilled employees. Competition for
employees in the industry is intense. We may be unable to retain our key
employees or attract, assimilate or retain other highly qualified employees in
the future. We have experienced difficulty from time to time in attracting the
personnel necessary to support the growth of our business, and we may
experience similar difficulty in the future. Please see "Management" for more
detailed information.
We may face potential claims that would affect our financial results
As described more completely under "Related Party Transactions--Employment
and Severance Agreements," we were unable to close an oral severance agreement
that we reached with a former employee and we were therefore forced to
foreclose on a promissory note from that employee. If that employee should
elect to contest the number of shares issued to him or any of the payments made
to him, we would be subjected to the costs and diversion of management time
that this litigation would entail. In addition, should we ultimately be
required to issue additional shares to this employee, our stockholders would
experience additional dilution in their holdings and we would incur a non-cash
charge equal to the fair market value of the additional shares at the time they
are issued.
12
<PAGE>
We depend on the continued growth of Internet usage and infrastructure for our
business
Our market is new and rapidly evolving. Our business would be adversely
affected if Web usage does not continue to grow. Web usage may be inhibited for
a number of reasons, such as:
. inadequate network infrastructure;
. security concerns;
. inconsistent quality of service; and
. unavailability of cost-effective, high-speed service.
If Web usage grows, the Internet infrastructure may not be able to support
the demands placed on it by this growth or its performance and reliability may
decline. In addition, Web sites have experienced interruptions in their service
as a result of outages and other delays occurring throughout the Internet
network infrastructure. If use of the Internet does not continue to grow, or if
the Internet infrastructure does not effectively support growth that may occur,
our business, results of operations and financial condition would be materially
and adversely affected.
We must keep pace with rapidly changing technologies to be successful
The Web and Web advertising markets are characterized by rapidly changing
technologies, evolving industry standards, frequent new product and service
introductions and changing customer demands. The introduction of new products
and services embodying new technologies and the emergence of new industry
standards and practices can render existing products and services obsolete and
unmarketable or require unanticipated investments in research and development.
Our future success will depend on our ability to adapt to rapidly changing
technologies, to enhance existing solutions and to develop and introduce a
variety of new solutions to address our customers' changing demands. For
example, advertisers may require the ability to deliver advertisements
utilizing new formats that go beyond stationary images and incorporate video,
audio and interactivity, and more precise consumer targeting techniques. In
addition, increased availability of Internet access that delivers greater
amounts of data faster is expected to enable the development of new products
and services that take advantage of this expansion in delivery capability. Our
failure to adapt successfully to these changes could adversely affect our
business, results of operations and financial condition. We may also experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our solutions. In addition, any new solutions or
enhancements that we develop must meet the requirements of our current and
prospective customers and must achieve significant market acceptance. Material
delays in introducing new solutions and enhancements may cause customers to
forego purchases of our solutions and purchase those of our competitors.
Our planned international expansion may be affected by factors beyond our
control
We expect to initiate operations in selected international markets in the
second quarter of 1999. To date, we have not developed international versions
of our solutions. Expansion into international markets will require management
attention and resources. We also may enter into a number of international
alliances as part of our international strategy and rely extensively on these
business partners to conduct operations, establish local networks, register Web
sites as affiliates and coordinate sales and marketing efforts. Our success in
these markets will depend on the success of our business partners and their
willingness to dedicate sufficient resources to our relationships. We cannot
assure you that we will be successful in expanding internationally.
International operations are subject to other inherent risks, including:
. the impact of recessions in economies outside the United States;
. changes in regulatory requirements;
13
<PAGE>
. export restrictions, including export controls relating to encryption
technology;
. reduced protection for intellectual property rights in some countries;
. potentially adverse tax consequences;
. difficulties and costs of staffing and managing foreign operations;
. political and economic instability;
. tariffs and other trade barriers;
. fluctuations in currency exchange rates; and
. seasonal reductions in business activity.
Our failure to address these risks adequately may materially and adversely
affect our business, results of operations and financial condition.
Our patent status is uncertain
We have filed two regular patent applications and one provisional patent
application in the United States, but we do not have any issued patents. In
September 1998, we mistakenly announced that we had been issued one United
States patent. At the time of our announcement, that patent had been allowed by
the United States Patent and Trademark Office. Subsequently, the United States
Patent and Trademark Office informed us that the patent application had been
withdrawn from issue. A Patent Cooperation Treaty application covering this
invention has been filed and an application has also been filed in the European
Patent Office. The application relates to our AdEx technology, specifically the
ability to serve Web advertisements targeted to yield a viewer response. In
January 1999, the United States Patent and Trademark Office suggested a claim
for interference purposes with respect to this application. In March 1999, the
United States Patent and Trademark Office informed Flycast that all claims were
allowable but that ex parte prosecution was suspended for a period of
six months due to a potential interference. The purpose of an interference
proceeding is to determine the relative priority between two or more
applicants, and which of the applicants, if any, will ultimately be issued the
patent. The United States Patent and Trademark Office has not informed us of
the identity of the other patent applicant(s) involved. If an interference is
declared, we may not obtain a patent with respect to the application that is
the subject of the interference or may obtain a patent only for some subset of
our original claims. Regardless of the outcome of any interference, it may take
years to resolve and it might result in substantial expense to Flycast. Patents
may not be issued with respect to our pending or future patent applications.
Even if patents are issued, the patents may not be upheld as valid or prevent
the development of competitive solutions. Third parties may have or may in the
future be granted patents that cover our technology. We may be limited in our
ability to use our technology, whether or not patented, without licenses, which
may not be available on commercially reasonable terms.
We depend on our intellectual property rights and are subject to the risk of
infringement
Our success and ability to compete are substantially dependent on our
internally-developed technologies and trademarks, including AdEx, our
advertising management platform, and applications that use the AdEx platform,
which we protect through a combination of patent, copyright, trade secret and
trademark law. We cannot guarantee that any of our patent applications or
trademark registrations will be approved. Even if they are approved, these
patents or trademarks may be successfully challenged by others or invalidated.
We cannot guarantee that any of our intellectual property rights will be
viable or valuable in the future since the validity, enforceability and scope
of protection of proprietary rights in Internet-related industries is uncertain
and still evolving. Any claims could subject us to significant liability for
damages and could result in the invalidation of our intellectual property
rights. Any claims or litigation from third parties may also result in
limitations on our ability to use the intellectual property subject to any
14
<PAGE>
claims or litigation unless we enter into arrangements with the third parties
responsible for those claims or litigation, which may be unavailable on
commercially reasonable terms. Please see "Business--Intellectual Property
Rights" for more detailed information.
We are subject to privacy concerns that may limit our success
Our technology collects and utilizes data derived from user activity on the
Web sites in the Flycast Network. AdEx enables the use of personal profiles, in
addition to other mechanisms, to deliver targeted advertising, to help compile
demographic information and to limit the frequency with which an advertisement
is shown to the user. The effectiveness of our technology and the success of
our business could be limited by any reduction or limitation in the use of
personal profiles. These personal profiles contain bits of information keyed to
a specific server, file pathway or directory location that are stored in the
Internet user's hard drive and passed to a Web site's server through the user's
browser software. Personal profiles are placed on the user's hard drive without
the user's knowledge or consent, but can be removed by the user at any time
through the modification of the user's browser settings. In addition, currently
available Web browsers can be configured to prevent personal profiles from
being stored on their hard drive. Some commentators, privacy advocates and
governmental bodies have suggested limiting or eliminating the use of personal
profiles.
The European Union has recently adopted a directive addressing data privacy
that may result in limitations on the collection and use of information
regarding Internet users. These limitations may limit our ability to target
advertising or collect and use information in most European countries.
We are subject to government regulation and legal uncertainties of doing
business on the Web
Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could affect the
costs of communicating on the Web and adversely affect the demand for our
advertising solutions or otherwise have a material and adverse effect on our
business, results of operations and financial condition. Recently, the United
States Congress enacted Internet legislation regarding children's privacy,
copyrights and taxation. A number of other laws and regulations may be adopted
covering issues such as user privacy, pricing, acceptable content, taxation and
quality of products and services. This legislation could hinder growth in the
use of the Web generally and decrease the acceptance of the Web as a
communications, commercial and advertising medium. In addition, the growing use
of the Web has burdened the existing telecommunications infrastructure and has
caused interruptions in telephone service. Telephone carriers have petitioned
the government to regulate and impose fees on Internet service providers and
online service providers in a manner similar to long distance carriers.
Due to the global nature of the Web, it is possible that, while our
transmissions originate in California, the governments of other states or
foreign countries might attempt to regulate our transmissions or levy sales or
other taxes relating to our activities. Furthermore, the European Union
recently adopted a directive addressing data privacy that may result in limits
on the collection and use of user information. The laws governing the Internet
remain largely unsettled, even in areas where there has been some legislative
action. It may take years to determine whether and how existing laws including
those governing intellectual property, privacy, libel and taxation apply to the
Internet and Internet advertising. In addition, the growth and development of
the market for Internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the Internet. Our
business, results of operations and financial condition could be adversely
affected by the adoption or modification of laws or regulations relating to the
Internet, or the application of existing laws to the Internet.
We face an unknown number of Year 2000 risks
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products will need
15
<PAGE>
to accept four digit entries to distinguish 21st century dates from 20th
century dates. As a result, computer systems and/or software used by many
companies and governmental agencies may need to be upgraded to comply with
these Year 2000 requirements or risk system failure or miscalculations causing
disruptions of normal business activities. We do not yet know the extent of our
exposure to the Year 2000 risks.
We have made a preliminary assessment of our Year 2000 readiness. We plan to
perform a Year 2000 simulation on our software during the second quarter of
1999. We are also in the process of contacting third-party vendors, licensors
and providers of software, hardware and services regarding their Year 2000
readiness. Following this testing and after contacting these vendors and
licensors, we will be better able to make a complete evaluation of our Year
2000 readiness, to determine what costs will be necessary to be Year 2000
compliant, and to determine whether contingency plans need to be developed.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance" for more detailed information.
Virtually all of our shares will be eligible for sale shortly after the
offering, and that could result in a decline in our stock price
If our stockholders sell substantial amounts of common stock in the public
market following this offering, the market price of our common stock could
fall. These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Based on shares outstanding as of March 31, 1999, upon completion
of this offering, we will have 14,106,795 shares of common stock outstanding.
Of these shares, the 3,000,000 shares being offered hereby will be freely
tradable and 11,106,795 shares will become eligible for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
------------ -----------------------------------------------------------------------
<C> <S>
10,351,651 At various times after the date of this prospectus pursuant to Rule 144
755,144 At various times after 90 days from the date of this prospectus
</TABLE>
These shares are subject to contractual restrictions with us and, in most
cases, with the underwriters, that prevent them from being sold until 180 days
after the effective date of the registration statement for this offering
without the consent of BT Alex. Brown Incorporated.
In addition, upon the effective date of this offering, we expect to register
for sale
. 2,800,000 shares of common stock reserved for issuance under the 1997
Stock Option Plan;
. 3,500,000 shares of common stock reserved for issuance under the 1999
Stock Option Plan;
. 200,000 shares of common stock reserved for issuance under the Direc-
tors' Stock Option Plan; and
. 350,000 shares of common stock reserved for issuance under the 1999 Em-
ployee Stock Purchase Plan.
As of March 31, 1999, options to purchase 3,719,654 shares of common stock
were outstanding and shares acquired upon exercise of these options will be
eligible for sale in the public market from time to time subject to vesting and
the 180-day lockup restrictions that apply to the outstanding stock. These
stock options generally have exercise prices significantly below the expected
initial public offering price of our common stock. The possible sale of a
significant number of these shares may cause the price of the common stock to
decline. As of March 31, 1999, we also have 334,859 shares of common stock that
may be issued upon the exercise of outstanding warrants, including 165,792
shares of common stock that may be issued upon the exercise of outstanding
warrants that terminate upon the effective date of this offering.
16
<PAGE>
Stockholders and warrant holders representing approximately 10,250,995 shares
of common stock may have the right, subject to conditions, to include their
shares in registration statements relating to our securities. By exercising
their registration rights and causing a large number of shares to be registered
and sold in the public market, these holders could cause the price of the
common stock to decline. In addition, any demand to include these shares in our
registration statements could have an adverse effect on our ability to raise
needed capital. Please see "Shares Eligible for Future Sale" for more detailed
information.
We expect to experience volatility in our stock price that could affect your
investment
Prior to this offering, there has been no public market for our common stock.
Accordingly, we cannot predict the extent to which investor interest in our
common stock will lead to the development of a trading market or how liquid
that market might become. The initial public offering price for the shares will
be determined by us and the representatives of the underwriters and may not be
indicative of prices that will prevail in the trading market. The price at
which our common stock will trade after this offering is likely to be highly
volatile and may fluctuate substantially due to factors such as:
. actual or anticipated fluctuations in our results of operations;
. changes in or failure by us to meet securities analysts' expectations;
. announcements of technological innovations;
. introduction of new services by us or our competitors;
. developments with respect to intellectual property rights;
. conditions and trends in the Internet and other technology industries;
and
. general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stocks of technology companies, particularly Internet companies. In the
past, these broad market fluctuations have been unrelated or disproportionate
to the operating performance of these companies. Any significant fluctuations
in the future might result in a material decline in the market price of our
common stock. In the past, following periods of volatility in the market price
of a particular company's securities, securities class action litigation has
often been brought against that company. We may become involved in this type of
litigation in the future. Litigation is often expensive and diverts
management's attention and resources, which could have a material adverse
effect upon our business and operating results.
We will be substantially influenced by officers and directors
We anticipate that executive officers, directors and entities affiliated with
them will beneficially own approximately 49.9% of our common stock following
the completion of this offering, or 48.4% if the over-allotment option is
exercised in full. These stockholders may be able to control all matters
requiring approval by our stockholders, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control of
Flycast. Please see "Principal Stockholders" for more detailed information.
We will have broad discretion in use of the proceeds from this offering in ways
with which you may not agree
Of the net proceeds to Flycast from this offering, estimated at approximately
$43.6 million, a substantial portion will be used for general corporate
purposes and has not yet been designated for a
17
<PAGE>
particular purpose. Our management can therefore spend most of the proceeds
from this offering in ways with which the stockholders may not agree. Please
see "Use of Proceeds" for more detailed information.
We have adopted anti-takeover provisions that could affect the sale of Flycast
Provisions of our Certificate of Incorporation, our Bylaws and Delaware law,
such as the elimination of the ability to act by written consent, could make it
more difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders. Please see "Description of Capital Stock--
Delaware Anti-Takeover Law and Charter and Bylaw Provisions" for more detailed
information.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN
This prospectus contains forward-looking statements that involve risks and
uncertainties. You should not rely on these forward-looking statements. We use
words such as "anticipates," believes," "plans," expects," "future," "intends"
and similar expressions to identify forward-looking statements. This prospectus
also contains forward-looking statements attributed to third parties relating
to their estimates regarding the growth of Internet use, electronic commerce
and Internet advertising. You should not place undue reliance on these forward-
looking statements, which apply only as of the date of this prospectus. Our
actual results could differ materially from those anticipated in these forward-
looking statements for many reasons, including the risks faced by us and
described in the preceding pages and elsewhere in this prospectus.
USE OF PROCEEDS
The net proceeds to Flycast from the sale of the 3,000,000 shares being
offered by Flycast at an assumed initial public offering price of $16.00 per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses, are estimated to be $43,640,000, or $50,336,000 if
the underwriters' over-allotment option is exercised in full. Flycast expects
to use the net proceeds of the offering for general corporate purposes,
including working capital, capital expenditures and possible acquisitions of
companies or technology, although there are no current agreements or
negotiations with respect to any acquisitions. Pending these uses, Flycast
intends to invest the net proceeds in short-term, interest-bearing, investment
grade securities.
DIVIDEND POLICY
Flycast has never declared or paid cash dividends on its capital stock.
Flycast currently intends to retain all available funds and any future earnings
for use in the operation of its business and does not anticipate paying any
cash dividends in the foreseeable future.
THE COMPANY
Flycast was incorporated in California under the name "Orst, Inc." on
February 14, 1994, changed its name to Flycast Communications Corporation and
began operations on April 14, 1996 and will reincorporate in Delaware prior to
this offering. Flycast's principal executive offices are located at 181 Fremont
Street, San Francisco, California 94105. Our telephone number at that location
is (415) 977-1000. Information contained in our Web site does not constitute
part of this prospectus.
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<PAGE>
CAPITALIZATION
The Actual column in the following table sets forth Flycast's actual
capitalization as of March 31, 1999. The Pro Forma column in the following
table gives effect to:
. the filing of an amendment to Flycast's Certificate of Incorporation to
provide for authorized capital stock of 100,000,000 shares of common
stock and 2,000,000 shares of undesignated preferred stock;
. the issuance of 165,792 shares of common and preferred stock upon the
exercise of outstanding warrants that will expire upon the closing of
this offering; and
. the conversion of all outstanding shares of preferred stock into shares
of common stock upon the closing of this offering.
The Pro Forma As Adjusted column in the following table gives effect to the
receipt of the net proceeds from the sale by Flycast of the shares of common
stock offered at an assumed initial public offering price of $16.00 per share,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds."
The following table does not include:
. 5,402,418 shares subject to outstanding options or reserved for issuance
under our stock option plans as of March 31, 1999;
. 169,067 shares subject to outstanding warrants as of March 31, 1999, net
of warrants to purchase 165,792 shares outstanding at March 31, 1999
that will be exercised immediately before the completion of this
offering; and
. 550,000 shares reserved for issuance under our 1999 Directors' Stock
Option Plan and 1999 Employee Stock Purchase Plan.
See "Management--Stock Plans" and Notes 5 and 8 of Notes to Financial
Statements.
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Current portion of long-term obligations....... $ 2,002 $2,002 $ 2,002
======== ======== ========
Long-term obligations, less current portion.... $ 4,722 $4,722 4,722
-------- -------- --------
Mandatorily redeemable preferred stock, $0.0001
par value; 9,904,000 shares authorized;
8,250,216 shares issued and outstanding,
actual; 9,904,000 shares authorized, no shares
issued and outstanding, pro forma; no shares
authorized issued and outstanding, pro forma
as adjusted................................... 27,900 --
Stockholders' equity (deficit)(1):
Preferred stock, $0.0001 par value; no shares
authorized, issued or outstanding, actual and
pro forma; 2,000,000 shares authorized, no
shares issued and outstanding, pro forma as
adjusted ....................................
Common stock, $0.0001 par value; 20,000,000
shares authorized; 2,690,787 shares issued
and outstanding, actual; 100,000,000 shares
authorized, 11,106,795 shares issued and
outstanding, pro forma; 100,000,000 shares
authorized, 14,106,795 shares issued and
outstanding, pro forma as adjusted........... 1,204 30,349 73,989
Common stock options.......................... 2,837 2,837 2,837
Deferred stock compensation................... (1,369) (1,369) (1,369)
Notes receivable from stockholders............ (394) (394) (394)
Accumulated deficit........................... (19,092) (19,092) (19,092)
-------- -------- --------
Total stockholders' equity (deficit)......... (16,814) 12,331 55,971
-------- -------- --------
Total capitalization......................... $ 15,808 $ 17,053 $ 60,693
======== ======== ========
</TABLE>
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<PAGE>
DILUTION
The pro forma net tangible book value of Flycast as of March 31, 1999 was
approximately $1.11 per share of common stock. "Net tangible book value" per
share represents the amount of total tangible assets of Flycast reduced by the
amount of its total liabilities and divided by the total number of shares of
common stock outstanding. After giving effect to the sale of the shares of
common stock offered by Flycast at an assumed initial public offering price of
$16.00 per share after deducting estimated underwriting discounts and
commissions and estimated offering expenses, the pro forma net tangible book
value of Flycast as of March 31, 1999 would have been $3.97 per share of common
stock. This represents an immediate increase in net tangible book value of
$2.86 per share to existing stockholders and an immediate dilution of $12.03
per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $16.00
Pro forma net tangible book value per share before the
offering................................................... $1.11
Increase attributable to new investors...................... 2.86
-----
Pro forma net tangible book value after the offering.......... 3.97
------
Dilution per share to new investors........................... $12.03
======
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1999,
the differences between the existing stockholders and new investors with
respect to the number of shares of common stock purchased from Flycast, the
total consideration paid to Flycast and the average price per share paid. The
following table does not include:
. 5,402,418 shares subject to outstanding options or reserved for issuance
under our 1997 and 1999 Stock Option Plans as of March 31, 1999;
. 169,067 shares subject to outstanding warrants as of December 31, 1998,
net of warrants to purchase 165,792 shares outstanding at March 31, 1999
that will be exercised immediately before the completion of this
offering; and
. 550,000 shares reserved for issuance under our 1999 Directors' Stock
Option Plan and 1999 Employee Stock Purchase Plan.
See "Management--Stock Plans" and Notes 5 and 8 of Notes to Financial
Statements.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 11,106,795 78.7% $30,349,000 38.7% $ 2.73
New investors............. 3,000,000 21.3 48,000,000 61.3 $16.00
---------- ----- ----------- -----
Totals................ 14,106,795 100.0% $78,349,000 100.0%
========== ===== =========== =====
</TABLE>
20
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the financial statements, the notes to the financial statements and the
other information contained in this prospectus. The selected balance sheet data
as of December 31, 1997 and 1998 and the selected statement of operations data
for the period from April 14, 1996 (inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 have been derived from the audited
financial statements of Flycast appearing elsewhere in this prospectus. The
selected balance sheet data as of March 31, 1999 and the selected Statement of
Operations Data for the quarters ended March 31, 1998 and 1999 have been
derived from the unaudited financial statements of Flycast appearing elsewhere
in this prospectus. We believe that the unaudited financial statements contain
all adjustments necessary to present fairly the information included in those
statements, and that the adjustments consist only of normal recurring
adjustments. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
<TABLE>
<CAPTION>
April 14, 1996 Years Ended Quarters Ended
(Inception) to December 31, March 31,
December 31, ---------------- ----------------
1996 1997 1998 1998 1999
-------------- ------- ------- ------- -------
Statement of Operations Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenue........................ $ -- $ 630 $ 8,029 $ 603 $ 4,656
Cost of revenue................ -- 556 5,945 483 3,378
-------- ------- ------- ------- -------
Gross profit................... -- 74 2,084 120 1,278
Operating expenses:
Sales and marketing.......... 103 1,384 5,180 697 3,149
Research and development..... 201 1,376 2,621 414 1,311
General and administrative... 141 725 2,031 422 1,030
Stock-based compensation..... -- -- 1,147 82 321
-------- ------- ------- ------- -------
Total operating expenses... 445 3,485 10,979 1,615 5,811
------- ------- ------- -------
Operating loss................. (445) (3,411) (8,895) (1,495) (4,533)
Interest income (expense),
net........................... -- (6) (412) 28 (63)
-------- ------- ------- ------- -------
Net loss....................... $ (445) $(3,417) $(9,307) (1,467) (4,596)
======== ======= ======= ======= =======
Basic and diluted loss per
common share(1)............... $(445.00) $(31.80) $(11.93) $ (3.26) $ (4.04)
======== ======= ======= ======= =======
Shares used in basic and
diluted loss per common
share(1)...................... 1 114 835 500 1,252
======== ======= ======= ======= =======
Pro forma basic and diluted
loss per common share(2)...... $ (1.40) $ (.24) $ (.53)
======= ======= =======
Shares used in pro forma basic
and diluted loss per common
share(2)...................... 7,113 6,778 9,502
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------- ---------
1996 1997 1998 1999
-------- ------- -------- ---------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C>
Cash, cash equivalents and
investments.......................... $ 11 $ 3,560 $ 5,193 $ 15,217
Working capital (deficiency).......... (51) 3,498 4,088 11,468
Total assets.......................... 214 4,675 10,791 25,049
Long term obligations, less current
portion.............................. -- 40 4,704 4,722
Mandatorily redeemable preferred
stock................................ -- 8,195 13,855 27,900
Total stockholders' equity (deficit).. 150 (4,058) (12,578) (16,814)
</TABLE>
- --------
(1) Computed by dividing loss attributable to common stockholders by shares
used in basic and diluted loss per common share. See Note 6 of Notes to
Financial Statements for an explanation of the determination of the number
of shares used in computing basic and diluted loss per common share
amounts.
(2) Pro forma basic and diluted loss per common share gives effect to the
assumed conversion of all outstanding shares of preferred stock into shares
of common stock as if this conversion had occurred on January 1, 1998 or,
if later, the date of original issuance. See Note 1 of Notes to Financial
Statements for an explanation of the determination of the number of shares
used in computing pro forma basic and diluted loss per common share.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Flycast delivers Web-based advertising solutions designed to maximize the
return on investment for response-oriented advertisers, direct marketers and
electronic commerce companies. By combining unsold advertising space from over
850 Web sites, the Flycast Network offers advertisers a large audience of Web
users and high-quality advertising space at favorable prices. Additionally, by
selling advertising space on an unnamed basis, Flycast creates a supplemental
revenue opportunity for Web sites that does not conflict with their other sales
efforts.
We commenced operations in April 1996 as a California corporation. From April
1996 through May 1997, our operating activities related primarily to developing
our AdEx technology and the Flycast Network, identifying markets and recruiting
personnel.
Revenue from advertisements delivered on the Flycast Network began in the
second quarter of 1997. We generate revenue by delivering advertisements to Web
sites in the Flycast Network. Pricing of advertising is based on cost per
advertising impression and varies depending on whether the advertising is run
across the network, across specific categories or on individual Web sites. We
sell our services through our sales and marketing staff located in San
Francisco, Atlanta, Boston, Boulder, Chicago, Los Angeles, New York,
Philadelphia, Sarasota, Seattle and Virginia. The advertisements we deliver are
typically sold under short-term agreements that are subject to cancellation.
Advertising revenue is recognized in the period that advertisements are
delivered. We pay each Web site in the Flycast Network an agreed upon
percentage of the revenue generated by advertisements run on its site. That
amount is included in cost of revenues. Generally we bill and collect for
advertisements delivered on the Flycast Network and assume the risk of non-
payment from advertisers.
We expect to generate most of our revenue for the foreseeable future from
advertisements delivered to Web sites on the Flycast Network. Our ten largest
customers accounted for 40% of our revenue for the year ended December 31, 1998
and 45% of our revenue for the quarter ended March 31, 1999. No single customer
accounted for more than 10% of our revenue for the year ended December 31,
1998. One customer accounted for 13% of our revenue for the quarter ended March
31, 1999. No Web site contributed more than 6% of our advertising views served,
as measured based on the fees we paid to Web sites, during the quarter ended
March 31, 1999.
We have entered into value added reseller relationships with BellSouth, SBC
Communications and U S WEST. Under these agreements, we will deliver local Web
advertising inventory to BellSouth's, SBC's and U S WEST's sales forces that
they, in turn, will offer to local advertisers. To date, these agreements have
not accounted for significant revenue. However, we anticipate that revenue from
these agreements will account for an increasing percentage of our revenue in
the future.
We have incurred significant losses since inception and, as of March 31,
1999, had an accumulated deficit of $19.1 million. In addition, we have
recorded stock-based compensation, which represents the difference between the
exercise price and the fair market value of our common stock issuable upon the
exercise of stock options granted to employees. Stock-based compensation of
$1.1 million was amortized during the year ended December 31, 1998 and $321,000
was amortized during the quarter ended March 31, 1999. Stock-based compensation
of $1.4 million will be amortized over the remaining vesting periods of the
related options, including $664,000 in the remainder of the year ending
December 31, 1999.
In light of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our
operating results are not meaningful and that the
22
<PAGE>
results for any period should not be relied upon as an indication of future
performance. We currently expect to increase significantly our operating
expenses in order to expand our sales and marketing operations, including our
reseller network, to enhance our AdEx technology platform and to expand
internationally. As a result of these factors, we expect to incur significant
losses on a quarterly and annual basis for the foreseeable future.
Results of Operations
The following table sets forth statement of operations data for the periods
indicated as a percentage of revenue:
<TABLE>
<CAPTION>
Quarters
Years Ended Ended March
December 31, 31,
--------------- --------------
1997 1998 1998 1999
------ ------ ------ -----
<S> <C> <C> <C> <C>
Revenue..................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue............. 88.3 74.0 80.1 72.6
------ ------ ------ -----
Gross profit.............. 11.7 26.0 19.9 27.4
Operating expenses:
Sales and marketing....... 219.8 64.6 115.6 67.6
Research and development.. 218.4 32.6 68.7 28.2
General and
administrative........... 115.1 25.3 70.0 22.1
Stock-based compensation.. -- 14.3 13.6 6.9
------ ------ ------ -----
Total operating
expenses............... 553.3 136.8 267.9 124.8
------ ------ ------ -----
Operating loss.............. (541.6) (110.8) (248.0) (97.4)
Interest income (expense),
net ....................... (1.0) (5.1) 4.7 (1.3)
------ ------ ------ -----
Net loss.................... (542.6)% (115.9)% (243.3)% (98.7)%
====== ====== ====== =====
</TABLE>
Quarters Ended March 31, 1998 and 1999
Revenue. Our revenue is derived primarily from the delivery of advertisements
on Web sites in the Flycast Network. Our revenue increased from $603,000 for
the quarter ended March 31, 1998 to $4.7 million for the quarter ended March
31, 1999. This increase was due to an increase in the number of advertisers
purchasing advertisements on the Flycast Network and an increase in purchases
made by existing advertisers.
Cost of Revenue. Cost of revenue consists primarily of amounts we pay to Web
Sites on the Flycast Network, which represent a percentage of the revenue
generated by delivering advertisements. Cost of revenue also includes costs of
the advertising delivery system and Internet access costs. Cost of revenue was
$483,000 for the quarter ended March 31, 1998 and $3.4 million for the quarter
ended March 31, 1999. The increase in cost of revenue was due to the related
growth in advertising revenue and associated amounts paid to Web sites,
increased expenses from third-party Internet service providers and increased
depreciation expenses. These expenses increased in absolute dollars but
decreased as a percentage of revenue due to a decrease in the average
percentage of revenue paid to Web sites. We cannot predict whether this latter
decrease as a percentage of revenue will continue in the future.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation (including commissions), travel, advertising, trade show costs and
marketing materials expenses. Sales and marketing expenses were $697,000, or
115.6% of revenue for the quarter ended March 31, 1998 and $3.1 million, or
67.6% of revenue, for the quarter ended March 31, 1999. The increase in
absolute dollars was due primarily to the increase in sales personnel and costs
related to the continued
23
<PAGE>
development and implementation of our marketing campaigns. We expect sales and
marketing expenses to increase on an absolute dollar basis in future periods as
we hire additional personnel in sales and marketing, expand into new markets
and continue to promote our advertising solutions.
Research and Development. Research and development expenses consist primarily
of compensation, depreciation and supplies. To date, all research and
development costs have been expensed as incurred. Research and development
expenses were $414,000, or 68.7% of revenue, for the quarter ended March 31,
1998 and $1.3 million, or 28.2% of revenue, for the quarter ended March 31,
1999. The increase in absolute dollars was due primarily to increased personnel
expenses. We believe that continued investment in research and development is
critical to attaining our strategic objectives and, as a result, we expect
research and development expenses to increase significantly on an absolute
dollar basis in future periods. Research and development expenses may fluctuate
as a percentage of revenue over time depending on the projects we undertake
from time to time.
General and Administrative. General and administrative expenses consist
primarily of compensation and professional service fees. General and
administrative expenses were $422,000, or 70.0% of revenue for the quarter
ended March 31, 1998 and $1.0 million, or 22.1% of revenue for the quarter
ended March 31, 1999. The increase in absolute dollars was consistent with our
growth. We expect general and administrative expenses to increase on an
absolute dollar basis in future periods as we hire additional personnel and
incur additional costs related to the growth of our business and our operations
as a public company, but to decrease as a percentage of revenue.
Stock-Based Compensation. Stock-based compensation of $82,000 was amortized
during the quarter ended March 31, 1998 compared to $321,000 during the quarter
ended March 31, 1999. Stock-based compensation of $1.4 million will be
amortized over the remaining vesting periods of the related options, including
$664,000 during the remainder of 1999.
Interest Income (Expense), Net. Interest income consists of interest earned
on our cash, cash equivalents and investments. Interest expense consists of
interest paid on capital lease and debt obligations. Interest expense was
$15,000 for the quarter ended March 31, 1998 and $214,000 for the quarter ended
March 31, 1999. Interest income was $43,000 for the quarter ended March 31,
1998 and $151,000 for the quarter ended March 31, 1999.
Income Taxes. No income tax benefits have been recorded for either of the
periods presented.
Periods Ended December 31, 1996, 1997 and 1998
Revenue. We first recognized revenue in the second quarter of 1997. Our
revenue increased from $630,000 for the year ended December 31, 1997 to $8.0
million for the year ended December 31, 1998. This increase was mainly due to
an increase in the number of advertisers purchasing advertisements on the
Flycast Network.
Cost of Revenue. Cost of revenue was $556,000 for the year ended December 31,
1997 and $5.9 million for the year ended December 31, 1998. The increase in
cost of revenue was due to the related growth in advertising revenue and
associated amounts paid to Web sites, increased expenses from third-party
Internet service providers and increased depreciation expenses. These expenses
increased in absolute dollars but decreased as a percentage of revenue due to a
decrease in the average percentage of revenue paid to Web sites.
Sales and Marketing. For the period ended December 31, 1996, sales and
marketing expenses were $103,000. Sales and marketing expenses were $1.4
million, or 219.8% of revenue, for the year ended December 31, 1997, and $5.2
million, or 64.6% of revenue, for the year ended December 31, 1998. The
increase in absolute dollars was due primarily to the increase in sales
personnel and costs related to the continued development and implementation of
our marketing campaigns.
24
<PAGE>
Research and Development. For the period ended December 31, 1996, research
and development expenses were $201,000. Research and development expenses were
$1.4 million, or 218.4% of revenue, for the year ended December 31, 1997, and
$2.6 million, or 32.6% of revenue, for the year ended December 31, 1998. The
increase in absolute dollars was due primarily to increased personnel expenses.
General and Administrative. For the period ended December 31, 1996, general
and administrative expenses were $141,000. General and administrative expenses
were $725,000, or 115.1% of revenue, for the year ended December 31, 1997, and
$2.0 million, or 25.3% of revenue, for the year ended December 31, 1998. The
increase in absolute dollars was consistent with our growth.
Stock-Based Compensation. Stock-based compensation of $1.1 million was
amortized during the year ended December 31, 1998.
Interest Income (Expense), Net. Interest expense, net consists of interest
paid on capital lease and debt obligations, offset in part by interest earnings
on our cash, cash equivalents and investments. Interest expense was $98,000 in
1997 and $504,000 in 1998. Interest income was $92,000 in 1997 and $92,000 in
1998.
Income Taxes. No income tax benefits have been recorded for any of the
periods presented. At December 31, 1998, we had approximately $11.0 million of
federal net operating loss carryforwards available to offset future taxable
income; these carryforwards expire in various years through 2018. As a result
of various equity transactions during 1996, 1997 and 1998, we believe that we
may have undergone an "ownership change" as defined in section 382 of the
Internal Revenue Code. Accordingly, the utilization of a portion of the net
operating loss carryforwards may be limited. Due to the uncertainty regarding
the ultimate utilization of the net operating loss carryforwards, we have not
recorded any benefit for losses and a valuation allowance has been recorded for
the entire amount of the net deferred tax asset. In addition, sales of our
stock, including shares sold in this offering, may further restrict our ability
to utilize our net operating loss carryforwards.
25
<PAGE>
Quarterly Results of Operations
The following table sets forth unaudited quarterly statement of operations
data and these data as a percentage of revenue for the four quarters of 1998
and the first quarter of 1999. In the opinion of management, this information
has been prepared on the same basis as the audited financial statements
appearing elsewhere in this prospectus, and all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the unaudited quarterly results of
operations. The quarterly data should be read in conjunction with the audited
financial statements of Flycast and the notes to the financial statements
appearing elsewhere in this prospectus. The results of operations for any
quarter are not necessarily indicative of the results of operations for any
future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue.................... $ 603 $ 1,172 $ 2,116 $ 4,138 $ 4,656
Cost of revenue............ 483 879 1,570 3,013 3,378
------- ------- ------- ------- -------
Gross profit........... 120 293 546 1,125 1,278
Operating expenses:
Sales and marketing...... 697 805 1,460 2,218 3,149
Research and
development............. 414 505 655 1,047 1,311
General and
administrative.......... 422 493 501 615 1,030
Stock-based
compensation............ 82 248 407 410 321
------- ------- ------- ------- -------
Total operating
expenses.............. 1,615 2,051 3,023 4,290 5,811
------- ------- ------- ------- -------
Operating loss............. (1,495) (1,758) (2,477) (3,165) (4,533)
Interest income (expense)
net....................... 28 (18) (55) (367) (63)
------- ------- ------- ------- -------
Net loss................... $(1,467) $(1,776) $(2,532) $(3,532) $(4,596)
======= ======= ======= ======= =======
<CAPTION>
Three Months Ended
----------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
As a Percentage of Revenue:
Revenue.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue............ 80.1 75.0 74.2 72.8 72.6
------- ------- ------- ------- -------
Gross profit............. 19.9 25.0 25.8 27.2 27.4
Operating expenses:
Sales and marketing...... 115.6 68.7 69.0 53.6 67.6
Research and
development............. 68.7 43.1 31.0 25.3 28.2
General and
administrative.......... 70.0 42.0 23.7 14.9 22.1
Stock-based
compensation............ 13.6 21.2 19.2 9.9 6.9
------- ------- ------- ------- -------
Total operating
expenses.............. 267.9 175.0 142.9 103.7 124.8
------- ------- ------- ------- -------
Operating loss............. (248.0) (150.0) (117.1) (76.5) (97.4)
Interest income (expense)
net....................... 4.7 (1.5) (2.6) (8.9) (1.3)
------- ------- ------- ------- -------
Net loss................... (243.3)% (151.5)% (119.7)% (85.4)% (98.7)%
======= ======= ======= ======= =======
</TABLE>
Our revenue increased in each quarter presented due to an increase in the
number of advertisements delivered on the Flycast Network. Cost of revenue as a
percentage of revenue decreased each quarter due to a decrease in the average
percentage of revenue paid to Web sites. Operating expenses increased in
absolute dollars but decreased as a percentage of revenue in each
26
<PAGE>
quarter in 1998. In the first quarter of 1999, operating expenses increased as
a percentage of revenue. Sales and marketing expenses increased as a result of
increased sales personnel and commissions and increased advertising and
promotion. Research and development expenses increased as a result of continued
enhancement of our tools and technology. General and administrative expenses
increased due primarily to additional personnel and professional fees.
We believe that our revenue will be subject to seasonal fluctuations because
advertisers generally place fewer advertisements during the first and third
calendar quarters of each year. In addition, expenditures by advertisers tend
to be cyclical, reflecting overall economic conditions as well as budgeting and
buying patterns. In addition, our results of operations may fluctuate
significantly in the future as a result of a variety of factors, many of which
are beyond our control. See "Risk Factors--Our quarterly operating results are
subject to fluctuations and seasonality that make it difficult to predict our
financial performance."
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the
private placement of equity and convertible debt securities and borrowings from
a related party. As of March 31, 1999, we had raised approximately $26.2
million from the issuance of common and preferred stock. As of March 31, 1999,
we had $15.0 million of cash and cash equivalents and $185,000 in short-term
investments and had borrowed $5.5 million under credit and capital lease
facilities.
Net cash used in operating activities was $366,000 for the period ended
December 31, 1996, $3.2 million for the year ended December 31, 1997, $7.6
million for the year ended December 31, 1998 and $1.8 million for the quarter
ended March 31, 1999. Cash used in operating activities for the years ended
December 31, 1997 and 1998 and the quarter ended March 31, 1999 resulted from
net losses and increases in accounts receivable, which were partially offset by
increases in accounts payable and accrued liabilities.
Net cash used in investing activities was $218,000 for the period ended
December 31, 1996, $544,000 for the year ended December 31, 1997, $190,000 for
the year ended December 31, 1998 and $1.9 million for the quarter ended March
31, 1999. Cash used in investing activities was primarily related to purchases
of property and equipment in the first two periods and the quarter ended
March 31, 1999 and short-term investments for the year ended December 31, 1998.
Net cash provided by financing activities was $595,000 for the period ended
December 31, 1996, $7.3 million for the year ended December 31, 1997, $9.3
million for the year ended December 31, 1998 and $13.7 million for the quarter
ended March 31, 1999. Cash provided by financing activities in the first two
periods and the quarter ended March 31, 1999 resulted almost entirely from
sales of preferred stock. In the year ended December 31, 1998, net cash
provided by financing activities resulted primarily from $5.1 million of long-
term debt and the sale of $4.5 million of preferred stock.
While we do not have any material commitments for capital expenditures, we
anticipate that we will experience a substantial increase in our capital
expenditures consistent with our anticipated growth in operations,
infrastructure and personnel. We plan to incur approximately $4.0 million to
$6.0 million in capital expenditures during the remaining three quarters of
1999. We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future and that our
operating expenses will be a material use of our cash resources. We believe
that the net proceeds of this offering, together with our existing cash, cash
equivalents and short-term investments and available credit facilities, will be
sufficient to meet our anticipated cash needs for working capital, repayment of
debt and capital expenditures for at least the next twelve months.
27
<PAGE>
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
State of Readiness. We have made a preliminary assessment of the Year 2000
readiness of our information technology ("IT") systems, including the hardware
and software that enable us to provide and deliver our solutions, and our non-
IT systems. Our assessment plan consists of
. quality assurance testing of our internally developed proprietary soft-
ware incorporated in our solutions ("AdEx Technology");
. contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of our solutions to advertisers and the Web sites on the
Flycast Network;
. contacting third-party vendors who provide important business services
(non-IT systems);
. assessment of repair or replacement requirements;
. repair or replacement;
. implementation; and
. creation of contingency plans in the event of Year 2000 failures.
We plan to perform a Year 2000 simulation on our AdEx Technology during the
second quarter of 1999 to test system readiness. Based on the results of our
Year 2000 simulation test, we intend to revise the code of our AdEx Technology
as necessary to improve the Year 2000 compliance of our AdEx Technology. We
have not yet begun to contact our hardware and software component vendors.
However, we have been informed by many of our hardware and software component
vendors that the products we use are currently Year 2000 compliant. We have not
yet assessed the information provided to us, to date, to determine what
proportion of our hardware and software component vendors are Year 2000
compliant. We will require our material hardware and software component vendors
to provide assurance of their Year 2000 compliance. We will complete this
process during 1999.
We are currently assessing third party vendors that provide important
business services (non-IT systems) and will seek assurance of Year 2000
compliance from these providers. We have not yet begun to contact these third-
party vendors. Until this testing is complete and these vendors and providers
are contacted, we will not be able to completely evaluate whether our IT
systems or non-IT systems will need to be revised or replaced. This process
will also be completed during 1999.
Costs. To date, we have not incurred any material expenditures in connection
with identifying or evaluating Year 2000 compliance issues. Most of our
expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. At this time, we do not
possess the information necessary to estimate the potential costs of revisions
to our AdEx Technology should any revisions be required or the replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Although we do not anticipate that these expenses will be
material, these expenses, if higher than anticipated, could have a material
adverse effect on our business, results of operations and financial condition.
Risks. We are not currently aware of any Year 2000 compliance problems
relating to AdEx Technology or our IT or non-IT systems that would have a
material adverse effect on our business,
28
<PAGE>
results of operations or financial condition, without taking into account our
efforts to avoid or fix these problems. We may discover Year 2000 compliance
problems in our AdEx Technology that will require substantial revisions. In
addition, third-party software, hardware or services incorporated into our
material IT and non-IT systems may need to be revised or replaced, all of which
could be time consuming and expensive. If we fail to fix our AdEx Technology or
to fix or replace third-party software, hardware or services on a timely basis,
the result could be lost revenues, increased operating costs, the loss of
customers and other business interruptions, any of which could have a material
adverse effect on our business, results of operations and financial condition.
Moreover, the failure to adequately address Year 2000 compliance issues in our
AdEx Technology, and our IT and non-IT systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, there can no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and non-IT
systems providers outside Flycast's control will be Year 2000 compliant. The
failure by these entities to be Year 2000 compliant could result in a systemic
failure beyond the control of Flycast, including a prolonged Internet,
telecommunications or electrical failure, which could also prevent Flycast from
delivering its services to its customers, decrease the use of the Internet or
prevent users from accessing the Web sites in the Flycast Network, which could
have a material adverse effect on Flycast's business, results of operations and
financial condition.
Contingency Plan. As discussed above, Flycast is engaged in an ongoing Year
2000 assessment and has not yet developed any contingency plans. The results of
Flycast's Year 2000 simulation testing and the responses received from third-
party vendors and service providers will be taken into account in determining
the nature and extent of any contingency plans.
Recently Issued Accounting Principles
See Note 1 of Notes to Financial Statements for recently adopted and recently
issued accounting standards.
29
<PAGE>
BUSINESS
Overview
Our company, Flycast Communications Corporation, is a leading provider of
Web-based direct response advertising solutions to advertisers. We work closely
with advertisers to maximize the value of their advertising campaigns on the
Web. Other advertising solution companies seek to maximize the value for Web
sites by representing them in their sale of space to advertisers. Our
advertiser customers are primarily companies selling goods and services over
the Internet, direct marketing agencies, or other advertisers who are
interested in driving the Web user towards specific actions. Those actions
include things such as clicking on advertisements, registering their names or
other information, or buying products. We offer our customers direct response
solutions that include widespread placement of advertisements over the Web,
prices that minimize their cost per action and continuous improvement and
optimization of their campaign through the application of technology and
through the services of our trained staff.
Industry Background
Growth of the Internet and E-Commerce
The Internet and the Web continue to expand at a rapid pace as measured by
the number of businesses with a Web presence, the number of people using the
Internet, the volume of commerce transacted on the Internet, or e-commerce, and
the number of marketing dollars spent on the Web. Forrester Research, Inc.
estimates that in 1998 approximately 51 million people were using the Internet
in the U.S. and 86 million people were using the Internet worldwide. It further
estimates that by 2003 there will be approximately 100 million users in the
U.S. and 287 million worldwide.
Businesses have recognized the e-commerce opportunity and are increasingly
using the Internet to sell and distribute products and services to consumers.
Using the Web, they can cost-effectively reach worldwide audiences and easily
adjust their product offerings, strategies, tactics, advertising and pricing to
match the needs and responses of these audiences. According to Forrester
Research, Inc., revenue from Web sales to consumers will grow at a 69% compound
annual growth rate for the next five years, surpassing $108 billion in 2003.
Forrester also estimates that more than 40 million U.S. households will be
shopping online by 2003. As e-commerce and the number of Web users grow,
advertisers and direct marketers are increasingly using the Web to locate
customers, advertise products or services and facilitate transactions.
Forrester estimates that $1.5 billion was spent on Internet advertising
worldwide in 1998 and that this amount will grow to $15.1 billion in 2003.
The Web offers advertisers a number of advantages over other media. The Web
allows real-time interactions, promoting impulse purchases and facilitating
transactions through one-to-one relationships between advertisers and
consumers. Data regarding these transactions can be efficiently collected and
measured to generate for advertisers immediate, valuable feedback on
advertising effectiveness that is not readily available from other media. In
addition, Web advertisements can be produced for a fraction of the costs
associated with the production of TV commercials or print advertising, and
companies can adjust their advertising campaigns quickly and easily in response
to consumer reaction. The Web also gives advertisers the flexibility to target
broad, global audiences, precisely-defined consumer groups and even individual
consumers with custom-tailored advertisements. Web advertising is particularly
attractive to companies conducting local campaigns and to advertisers with
smaller advertising budgets because it allows them to tailor their advertising
campaigns, manage the size and scope of their target audiences and lower their
advertising production costs. Flycast believes that because of these
advantages, companies over time will allocate an increasing portion of their
advertising budgets to Web advertising.
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Brand Advertising Versus Response-Oriented Advertising
Within the advertising industry, there are two widely-recognized types of
advertising--brand advertising and response-oriented advertising. Brand
advertising is intended to generate awareness of and create a specific image
for a particular company, product or service, primarily through association
with specific types of content or delivery within a particular context. The
short-term return on investment from brand advertising campaigns is difficult
to measure and often thought unimportant. Media that are typically used for
brand advertising include prime-time television, magazines and outdoor
advertising, as well as sponsorships of major events and venues.
Response-oriented advertising, or direct marketing, is intended to generate a
specific response or action from a consumer after the consumer is exposed to an
advertisement. In contrast to the brand advertiser, the response-oriented
advertiser focuses on the short-term benefit from its advertising and attempts
to maximize the number of desired responses per advertising dollar. These
responses can range from simple replies to consumer registrations or actual
purchases. In order to measure the effectiveness of advertising campaigns,
response-oriented advertisers require systems and infrastructures for targeting
consumers and managing information. Traditional response-oriented advertising
mechanisms include direct mail and toll-free numbers delivered through print
media and late night television. According to the Direct Marketing Association,
direct marketing advertising expenditures exceeded $160 billion in 1998 or
approximately 57% of total U.S. advertising expenditures.
The Internet as an Effective Medium for Response-Oriented Advertising
Flycast believes that the Web is particularly well-suited for response-
oriented advertising. Reading and clicking on a Web advertisement is easier and
more convenient for consumers than using traditional direct response
advertising mechanisms, including calling toll-free numbers or returning a
business reply card. Web advertisements allow consumers to respond immediately
to the advertising and interact directly with the advertiser. Advertisers and
vendors of products and services can use this feedback to adjust their
advertising campaigns appropriately. The following table illustrates Web
advertising dollars allocated to direct marketing and brand advertising.
Internet Advertising Allocated to Direct Marketing
[Chart representing direct marketing and brand advertising spending.]
Response-oriented advertisers benefit from the large amount of advertising
space on the Internet. Paul Kagan Associates, Inc. estimates that on average
approximately 75% of the advertising inventory on the Web goes unsold. This
estimate is based on well-known, premium Web sites. Larger Web sites
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with in-house sales forces are usually unable to sell a portion of their
available advertising space each month. These Web sites are often deterred from
using media representative firms to sell their excess inventory at reduced
prices due to the conflict with their direct sales efforts. Smaller Web sites,
even those having attractive audience demographics, are often unable to sell
their advertising space because they lack the volume of page impressions to
justify a dedicated sales force and the associated sales infrastructure. In
addition, they often are too small or lack the brand name value to attract the
attention of media representative firms. The excess supply of advertising space
on the Web is attractive to direct response advertisers because it can be
acquired for lower prices than inventory on branded Web sites, while
potentially providing similar audiences.
For e-commerce companies, Flycast believes that the Web will be the
advertising medium of choice for generating traffic and customers. These
companies want the benefits of efficient and convenient transactions with
consumers and easily measurable return on investment. Using the Web, e-commerce
companies can create advertising that provides consumers with an easy means for
immediate interactions, including accessing the e-commerce site, registering on
the Web site or making an actual purchase. These companies can also collect and
measure feedback on advertising effectiveness on a real-time basis, enabling
them to tailor their advertising campaigns to maximize return on investment.
Challenges of Response-Oriented Advertising on the Internet
Response-oriented advertisers face a number of challenges in realizing the
full potential of the Web as an advertising medium. The fact that there are
millions of Web sites, only a fraction of which are of significant size,
creates numerous obstacles for advertisers. Interacting with a large number of
relatively small Web sites increases administrative costs for advertisers. In
addition, advertisers often lack the analytical tools necessary to define and
target Web audiences and comprehensively measure return on investment and
therefore are unable to monitor the effectiveness of their Web advertising
relative to other media choices. Small Web sites also have difficulty operating
and maintaining the sophisticated advertising servers, databases and reporting
tools that response-oriented advertisers need to monitor the cost-effectiveness
of their advertising campaigns. Finally, the excess Web advertising inventory
from both small Web sites and large, premium Web sites is often unavailable for
purchase on terms that are attractive to response-oriented advertisers.
To date, most Web advertising companies have failed to address completely the
challenges of response-oriented advertising. A number of companies have emerged
to act as advertising representatives for Web sites. These advertising
representatives typically focus on providing advertisers with a large network
of Web sites with high brand value, including premium Web sites. As the primary
sales channel for Web sites, media representatives seek to maximize advertising
rates for their client Web sites. These goals often conflict with those of
response-oriented advertisers that wish to maximize the effectiveness of their
advertising budget. Other Web advertising companies focus on technologies or
services that allow companies to track and manage their own advertising
campaigns or inventory. While these tools and services can be effective for
companies with extensive Web advertising experience, the majority of
advertisers and Web sites require additional services to assist them in the
planning, implementation and evaluation of their Web advertising strategies.
Flycast believes that a significant opportunity exists for a company that can
provide complete, cost-effective solutions to response-oriented advertisers. By
providing large, premium Web sites with the opportunity to sell advertising
inventory that would otherwise go unsold, small Web sites with a channel to
sell their advertising inventory and response-oriented advertisers with a means
of accessing cost-effective advertising space, a company can assume the
valuable role of market maker for response-oriented advertising inventory on
the Web.
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The Flycast Solution
Flycast delivers Web-based advertising solutions designed to maximize the
return on investment for response-oriented advertisers, direct marketers and e-
commerce companies. Flycast provides these solutions through a large network of
Web sites, proprietary technology and responsive customer service. By combining
unsold advertising inventory from over 850 Web sites, the Flycast Network
offers advertisers a large audience of Web users and high-quality advertising
space at favorable prices. These Web sites include both small Web sites and
large, premium Web sites. Additionally, by selling advertising space on an
unnamed basis, Flycast creates a supplemental and incremental revenue
opportunity for Web sites that does not conflict with their other sales
efforts, including large, premium Web Sites with direct sales forces. Flycast's
AdExchange (AdEx) system, a proprietary automated advertising management
platform, analyzes response rates across the network. Flycast's customer
service staff translates real-time feedback regarding advertising effectiveness
into further optimization for the advertiser.
Strategy
Flycast's objective is to be the leading provider of response-oriented
advertising solutions on the Web. Key elements of Flycast's strategy include:
Create Value for Web Sites and Advertisers. By combining its inventory
acquisition model with personalized optimization of advertising performance,
the Flycast Network offers advertisers advertising solutions designed to
maximize return on investment and attractive pricing levels, while at the same
time providing incremental advertising revenue for its Web site affiliates.
Flycast intends to continue to increase the number of advertising impressions
it acquires from its current Web sites and to expand the number and type of Web
sites in the Flycast Network.
Leverage Proprietary Technologies. Flycast seeks to increase the efficiency,
effectiveness and attractiveness of its service to advertisers through the use
of technology. AdEx facilitates the simultaneous processing and management of
millions of advertising transactions. AdEx allows Flycast to target advertising
to users based on a wide selection of Web site and user characteristics,
including geographical location, nature of content, type of browser and
operating system, originating Internet domain, Web usage patterns and prior
advertising exposure. It also enables advertisers to track their advertising
campaigns effectively and increase response rates. Flycast intends to continue
to invest aggressively in its AdEx platform and continue to improve the
performance and capability of this technology.
Expand Service Offerings. Flycast intends to continue to expand its products
and services. In July 1998, Flycast began to offer differentiated, geo-targeted
Internet advertising to local advertisers. To develop this market, Flycast has
initiated value added reseller relationships with BellSouth, SBC Communications
and U S WEST. Under these agreements, Flycast will deliver a wholesale supply
of local Web advertising that the BellSouth, SBC and U S WEST sales forces will
resell to local advertisers. Flycast also expects to develop relationships with
companies representing national advertisers seeking local advertising
solutions. Furthermore, Flycast intends to initiate foreign operations through
relationships with foreign partners, providing advertisers with the ability to
deliver their advertising in global markets.
Provide Superior Customer Service. Flycast believes that strong customer
service is vital to generating repeat business. Flycast intends to continue to
hire, train and support a staff of customer service representatives who work
with both advertisers and Web sites. Flycast also plans to continue enhancing
its service by providing on-demand customized online reports that allow
advertisers and Web sites to rapidly assess the efficiency and performance of
advertising campaigns.
Expand Sales and Marketing Efforts. Flycast believes that aggressive
marketing and sales programs are essential to selling Web advertising solutions
effectively. Flycast intends to increase the size of its direct sales force and
continue its public relations and marketing efforts with an aggressive
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marketing campaign that began in the first quarter of 1999. In addition,
Flycast intends to continue expanding all marketing and sales categories to
extend its presence in the marketplace, as well as to acquire new advertisers
and attract new Web sites.
Products and Services
The Flycast Network
The Flycast Network offers a comprehensive system for planning, buying,
selling, managing, evaluating and administering Web advertising. To fulfill the
needs of response-oriented advertisers, the Flycast Network aggregates
advertising inventory from Web sites that meet minimum size and quality
requirements, regardless of whether they are considered to be a premium Web
site or not. Many small and medium-size Web sites that are unable to support
their own sales forces list all of their inventory with Flycast. Other large,
premium Web sites that maintain either a direct or outsourced sales force, but
that are unable to sell all of their inventory, list the unsold portion on the
Flycast Network. When a Web site joins the Flycast Network, Flycast makes no
guarantees with respect to revenue, cost per thousand or impressions sold, and
Web sites are free to leave the Flycast Network at any time. Flycast pays each
Web site on the Flycast Network a percentage of the revenue generated by
delivering advertisements on their Web sites. The Flycast Network currently
consists of over 850 Web sites and in the quarter ended March 31, 1999, the
Flycast Network generated approximately 2.7 billion total advertising
impressions. The Flycast Network reached more than 22 million individual users
or 37% of Web users in the U.S. during the month of February 1999. By
comparison, according to Media Metrix, Inc., Yahoo.com had 30.7 million
individual users and MSN.com had 20.5 million individual users in the same
month. The following tables show the total advertising impressions and the
number of Web sites that we served during each quarter in 1998 and the first
quarter of 1999.
Graph entitled "Number of Ad Impressions Served (in millions)" representing
number of advertising impressions served in each quarter of 1998.
Graph entitled "Number of Flycast Network Sites" representing number of network
sites in each quarter of 1998.
Flycast designed its AdEx technology platform to deliver return on
investment-oriented advertising solutions to advertisers. AdEx receives orders
from advertisers and matches them with the appropriate advertising space
available on the network. Each time a Web user visits a Flycast Network Web
site, a signal is sent to the AdEx system. This signal contains information on
the type of advertising space represented. The system then selects the
appropriate advertisement and serves it to the Web site, concluding a process
that typically takes less than one second.
Through comprehensive performance reports generated by AdEx, advertisers can
track the progress of their advertising campaigns via online reports. These
reports contain detailed information such as the Web sites included in an
advertising campaign, the number of impressions served and the click-through
rates or other performance measurements. They provide the information that
advertisers need to actively manage their advertising campaigns to maximize
effectiveness. In addition, Flycast's
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Media Consultants monitor the progress of each advertising campaign relative to
the performance goals set by the advertiser. As each campaign progresses, Media
Consultants are able to adjust the advertiser's media plan in real time to
optimize the performance of the advertising campaign. Sites generating low
response rates are either rotated out of the campaign or their impression
allocations are reduced, while sites generating higher responses are allocated
increased impressions. Although this optimization process can be partially or
fully automated, most Flycast advertisers prefer to interact with Media
Consultants during the process.
Flycast maximizes value for advertisers by enabling them to calibrate a base
response of the effectiveness of advertisements placed across the Flycast
Network. Flycast's Media Consultants advise advertisers to purchase higher cost
per thousand advertising space only if it can be justified on the basis of
proportionately increased responses. For example, if an advertiser receives a
one percent response rate from advertisements with a $5 cost per thousand, then
that advertiser would need to attain a response rate of at least eight percent
in order to justify purchasing advertising space with a $40 cost per thousand.
Advertising space on the Flycast Network is sold directly to advertisers and
agencies as one of four media products--Run of Network, Run of Category,
Category Select or Site Select. Flycast sales representatives work with
advertisers to select the appropriate media product based on the advertisers'
requirements for the amount and timing of impressions, and desired response
rates. The following is a more detailed description of the four media products.
. Run of Network: Run of Network offers advertising placements across the
entire Flycast Network without specificity regarding individual Web
sites. As the lowest-cost per thousand option offered by Flycast, it
provides the greatest overall reach for advertisers. Flycast's current
rate card for Run of Network is $6 cost per thousand.
. Run of Category: Flycast Network sites are categorized into 25 affinity
categories based on nature of content, such as sports and outdoors,
entertainment, and news and information. Run of Category allows the
advertiser to select one or more specific content types within which to
run its advertising, but without specificity regarding individual Web
sites. Flycast's current rate card for Run of Category is $15 cost per
thousand.
. Category Select: Category Select allows an advertiser to define a set of
Web sites as a unique category in which its advertising is to be run,
without allocating a specific number of impressions to individual Web
sites. Flycast's rates for Category Select vary based on the number of
Web sites and impressions.
. Site Select: Flycast offers advertisers the ability to allocate the
number of impressions on specifically designated individual Web sites.
Pricing is in accordance with the Web site's current rate card, or by
agreement with the Web site directly. Flycast does not discount the
named individual Web site's advertising space or sell at rates that
conflict with those published by the Web site.
Substantially all advertisers purchase the Run of Network media product.
Actual base rates for each media product may vary depending on the length of
contract and number of impressions purchased. In addition to the base rates
charged for each media product, Flycast charges, on a cost per thousand basis,
for special targeting or advertising format requirements.
Flycast Local Market/Value Added Reseller Division
In addition to direct sales of advertising space, Flycast also packages and
sells impressions on a wholesale basis to value added resellers. To develop
this channel, Flycast recently initiated relationships with BellSouth
Corporation, SBC Communications Inc. and U S WEST. Under these
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agreements, Flycast will deliver local Web advertising inventory to the
BellSouth, SBC and U S WEST sales forces for resale to local advertisers.
Reseller arrangements allow Flycast to leverage the existing market presence,
customer relationships, sales forces and brand recognition of its channel
partners.
Flycast has developed a suite of tools and services to support value added
resellers with a turnkey offering. In addition to supplying geo-targeted
advertising inventory for resale in accordance with the value added reseller's
specifications, Flycast supplies customized, co-branded applications,
performance reporting, billing services and training and sales support.
Flycast intends to develop additional relationships with companies
representing national advertisers that are seeking local advertising solutions
and direct marketing service providers that resell advertising space to direct
marketing organizations interested in expanding their campaigns to the Web.
Technology and Operations
Flycast's proprietary AdEx technology platform is a complete suite of agent-
based solutions that enables real-time advertising delivery and management. The
key applications that utilize the AdEx platform are:
. AdAgent, a Java-based client interface that allows buyers to plan,
execute and manage advertising purchases.
. AdReporter, a Web-based tool that provides media buyers real-time
reports on their purchases.
. ValueTrak, a program that provides e-commerce advertisers the ability to
track viewers beyond a click to a transaction on an e-commerce Web site
to measure viewer responses, including registrations, units downloaded
or products purchased.
. SiteRegistry, a tool that allows affiliated Web sites to control the
pages they provide to Flycast and to create instant online information
packages about Flycast and its advertising opportunities that are then
made available to advertisers.
. SiteReporter, a tool that allows affiliated Web sites to monitor the
performance of advertising campaigns on their sites and to track the
revenue they have earned through the Flycast Network.
AdEx is designed to be scaleable through a segmented and redundant,
distributed processing architecture. Flycast's modular and open architecture
allows it to interface with third-party ad servers such as NetGravity,
Accipiter and MatchLogic, as well as providers of proprietary media formats,
including Narrative, Unicast, MacroMedia, The Thinking Media, Audiobase and
InterVU. Separate sub-systems that utilize Oracle databases support real-time,
agent-based tools, including media planning, media buying, tracking, reporting,
auditing and billing. These applications are based on a three-tiered
architecture that allows the rapid development of new applications and
interfaces.
All transaction information is backed up periodically and all billing and
reporting information is archived and kept in fireproof storage facilities.
Flycast's network management software utilizes SNMP and Optivity, and
constantly monitors each aspect of network performance. System engineers are
notified in the event performance falls outside of expected bounds. Flycast
leases space for its servers at three physically separate locations in the San
Francisco Bay Area.
Flycast intends to enhance its existing advertising solutions and to
introduce new solutions in order to meet changing consumer demands. These
enhancements may include the ability to deliver advertisements utilizing new
rich media formats and more precise consumer targeting techniques. In
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addition, Flycast expects increased availability of broadband Internet access
to enable the development of new products and services that take advantage of
this expansion in delivery capability. As of March 31, 1999, Flycast had 18
employees in research and development. For the periods ended December 31, 1996,
1997 and 1998, Flycast incurred approximately $201,000, $1.4 million and
$2.6 million in research and development expenses. For the quarter ended March
31, 1999, Flycast incurred $1.3 million in research and development expenses.
Sales, Marketing and Customer Service
Flycast sells its products and services primarily through its direct sales
force and also sells impressions on a wholesale basis to selected value added
reseller partners. Flycast's direct sales organization, which included 17
salespeople as of March 31, 1999, mainly targets larger advertisers and
agencies. These employees are located at Flycast's headquarters in San
Francisco and in Atlanta, Boston, Boulder, Chicago, Los Angeles, New York,
Philadelphia, Sarasota, Seattle and Virginia. Flycast has five employees in its
local sales organization. Flycast intends to increase its sales presence by
opening additional offices and expanding its direct sales force. To support its
direct sales force, Flycast has established a Media Consulting Group as well as
a Site Network Services Group to help increase the effectiveness and ease-of-
use of Flycast's services.
The Media Consulting Group's goals are to maintain advertiser relationships,
achieve optimal advertising results and maximize current and future media
revenue streams. Media Consultants assist clients in the planning and design of
their Web advertising campaigns. Once the campaign is underway, a Media
Consultant monitors the progress of each campaign according to the goals set by
the advertiser and can adjust the campaign in real time in order to optimize
the performance of the campaign. Media Consultants also review and analyze
media data to communicate campaign status to the client and provide technical
support. The Site Network Services Group reviews Web sites that apply to be
included in the Flycast Network, recruits new Web sites, maintains Web site
relationships and provides general Web site technical support. The Site Network
Services Group also defines and monitors the advertising categories on the
Flycast Network and analyzes existing inventory to identify categories that
require more advertising space.
To support its direct sales efforts and to promote the Flycast brand, Flycast
markets its products and services to clients via direct marketing, print
advertising, online advertising, Flycast's Web site, trade show participation
and other media events. In addition, Flycast actively pursues a public
relations program to promote the Flycast brand and Flycast's products and
services to potential advertising buyers and potential members of the Flycast
Network.
Flycast's ten largest customers accounted for 40% of its revenue for the year
ended December 31, 1998 and 45% of its revenue for the quarter ended March 31,
1999. One customer, BONZI Software, accounted for 13% of Flycast's revenue for
the quarter ended March 31, 1999.
Competition
The Internet advertising market is intensely competitive. Flycast expects
this competition to continue to increase because there are no substantial
barriers to entry. Competition may also increase as a result of industry
consolidation. Flycast believes that its ability to compete depends upon many
factors both within and beyond its control, including the following:
. the timing and market acceptance of new solutions and enhancements to
existing solutions developed either by Flycast or its competitors;
. customer service and support efforts;
. sales and marketing efforts;
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. Flycast's ability, relative to its competitors, to scale its technology
as customer needs grow; and
. the ease of use, performance, price and reliability of solutions
developed either by Flycast or its competitors.
Competition among current and future suppliers of Internet navigational and
informational services, high-traffic Web sites and Internet service providers,
as well as competition with other media for advertising placements, could
result in significant price competition and reductions in advertising revenues.
As Flycast expands the scope of its Web services, it may compete with a
greater number of Web sites and other media companies across a wide range of
different Web services, including in vertical markets where competitors may
have advantages in expertise, brand recognition and other factors. Several
companies offer competitive products or services through Web advertising
networks, including DoubleClick and 24/7 Media. Flycast's business may also
encounter competition from providers of advertising inventory management
products and related services, including NetGravity, Accipiter and AdForce. In
addition, Flycast may compete with a number of content aggregation companies,
advertising agencies and other companies that facilitate Web advertising such
as America Online (AOL.com), CNET (Snap!), Yahoo!, SmartAge, GeoCities, Digital
Equipment Corporation (AltaVista), Excite (including WebCrawler), Infoseek,
Inktomi, Lycos (including HotBot and Tripod), Microsoft (MSN and LinkExchange)
and Netscape Communications (Netcenter).
Many of Flycast's existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than it does. This may allow them to respond more quickly than
Flycast can to new or emerging technologies and changes in customer
requirements. It may also allow them to devote greater resources than Flycast
can to the development, promotion and sale of their products and services.
These competitors may also engage in more extensive research and development,
undertake more far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to existing and potential employees,
strategic partners, advertisers and Web sites. Flycast's competitors may
develop products or services that are equal or superior to Flycast's solutions
or that achieve greater market acceptance than its solutions. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of Flycast's prospective
advertisers, advertising agency customers and Web sites. As a result, it is
possible that new competitors may emerge and rapidly acquire significant market
share. Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share. Flycast may not be able to compete
successfully, and competitive pressures may materially and adversely affect its
business, results of operations and financial condition.
Intellectual Property Rights
Flycast's success and ability to compete are substantially dependent on its
internally-developed technologies, including AdEx, its advertising management
platform, and applications that use the AdEx platform, and its trademarks
AdAgent, AdEx, AdExchange, AdReporter, Category Select, Flycast, Run of
Category, Run of Network, SiteRegistry, SiteReporter and Site Select, which it
protects through a combination of patent, copyright, trade secret and trademark
law. Flycast has applied for patents and applied to register trademarks in the
United States and has registered the trademark Flycast. Flycast cannot
guarantee that any of its patent applications or trademark registrations will
be approved. Even if they are approved, these patents or trademarks might be
successfully challenged by others or invalidated. If Flycast's trademark
registrations are not approved because third parties own these trademarks, its
use of these trademarks will be restricted unless it enters into arrangements
with these third parties, which may be unavailable on commercially reasonable
terms.
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Flycast generally enters into confidentiality or license agreements with its
employees, consultants and corporate partners, and generally controls access to
and distribution of AdEx, tools and documentation and other information.
Despite these efforts, unauthorized parties may attempt to disclose, obtain or
use Flycast's solutions or technologies. Flycast's precautions may not prevent
misappropriation of its solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect Flycast's
rights as fully as in the United States.
Flycast's customized advertiser, affiliate and sales applications collect and
utilize data derived from user activity on the Flycast Network and the Web
sites of Web advertisers and sites using Flycast's solutions. This information
is used for targeting advertising and predicting advertising performance.
Although Flycast believes it has the right to use this information and the
compilation of this information in its database, trade secret, copyright or
other protection may not be available for this information. In addition, others
may claim rights to this information. Flycast has licensed, and may license in
the future, elements of its trademarks and similar intellectual property rights
to third parties. Although Flycast attempts to ensure that the quality of its
brand is maintained by these third parties, they may take actions that could
materially and adversely affect the value of Flycast's intellectual property
rights or its reputation.
Flycast cannot guarantee that any of its intellectual property rights will be
viable or valuable in the future since the validity, enforceability and scope
of protection of intellectual property rights in Internet-related industries is
uncertain and still evolving. Furthermore, third parties may assert
infringement claims against Flycast or the Web publishers with Web sites in the
Flycast Network. Any claims could subject Flycast to significant liability for
damages and could result in the invalidation of its intellectual property
rights. In addition, any claims could result in litigation, which would be
time-consuming and expensive to defend, and divert Flycast's time and
attention. Even if Flycast prevails, this litigation could materially and
adversely affect its business, results of operations and financial condition.
Any claims or litigation from third parties may also result in limitations on
Flycast's ability to use the intellectual property subject to these claims or
litigation unless Flycast enters into arrangements with the third parties
responsible for these claims or litigation, which may be unavailable on
commercially reasonable terms.
Employees
As of March 31, 1999, Flycast had 86 employees, including 22 in sales, 15 in
marketing, 21 in services and support, 17 in research and development and 11 in
general and administrative functions. Flycast is not subject to any collective
bargaining agreements and believes that its employee relations are good.
Flycast's future success depends on its ability to attract, retain and motivate
highly-skilled employees. Competition for employees in the industry is intense.
Please see "Risk Factors -- We depend on key personnel for our future success."
Legal Proceedings
From time to time, Flycast may be involved in litigation relating to claims
arising out of its ordinary course of business. Flycast presently is not
subject to any material legal proceedings.
Facilities
Flycast's principal executive offices are located in San Francisco,
California, where Flycast leases approximately 41,800 square feet under a lease
that expires in January 2005. Flycast also leases space in various geographic
locations for sales personnel and for its servers. Flycast believes that its
current facilities are adequate to meet its needs through the end of 2000, at
which time it may need to lease additional space.
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MANAGEMENT
Executive Officers and Directors
The names and ages of Flycast's executive officers and directors as of March
31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- ----------
<C> <C> <S>
George R. Garrick............ 46 Chairman of the Board, Chief Executive
Officer and President
Thomas L. Marcus............. 45 Executive Vice President of Finance,
Administration and Corporate Development
Ralph J. Harms............... 49 Chief Financial Officer and Assistant
Secretary
Lawrence G. Braitman......... 40 Vice President, Corporate Development and
New Ventures
Frederick J. Ciaramaglia..... 51 Vice President, Engineering
Scott W. Grafft.............. 47 Vice President, Direct Marketing
Jeff J. Lehman............... 42 Vice President, Media Sales
Peter T. Nicas............... 38 Vice President, Local Market/VAR Division
Lyn Chitow Oakes............. 37 Vice President, Marketing
Greg Stuart.................. 39 Vice President, Business Development
Richard L. Thompson.......... 44 Vice President, Client Services
John C. Yung................. 35 Vice President, Network Operations
David J. Cowan(2)............ 33 Director
Ted R. Dintersmith........... 46 Director
Howard C. Draft(1)........... 45 Director
Gary L. Prophitt(1).......... 55 Director
Michael D. Solomon(2)........ 47 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
George R. Garrick has served as Chief Executive Officer and President since
joining Flycast in May 1998, has been a member of the Board of Directors of
Flycast since June 1998 and has been Chairman of the Board since January 1999.
From September 1997 until May 1998, Mr. Garrick owned and operated his own
private venture and consulting company, G2 Ventures, Inc. From April 1997 until
September 1997, Mr. Garrick served as Chief Marketing Officer for PowerAgent,
Inc., an Internet media and marketing company. From March 1996 until April
1997, Mr. Garrick founded and operated NetROI LLC, an audience measurement
software company. From November 1993 until March 1996, Mr. Garrick served as
the President and Chief Executive Officer of Information Resources, Inc.-North
America, a marketing measurement company. Other than the period from July
through October 1993, when Mr. Garrick served as President and Chief Executive
Officer of Nielsen Marketing Research U.S.A., a unit of A.C. Nielsen Co., Mr.
Garrick served Information Resources, Inc., a market measurement company, in
various capacities from 1981 until his departure in March 1996. Mr. Garrick
holds B.S. degrees in Mathematics and Engineering and an M.S. degree in
Management from Purdue University.
Thomas L. Marcus joined Flycast in March 1999 as Executive Vice President of
Finance, Administration and Corporate Development. From May 1994 until July
1998, Mr. Marcus was Vice President of Business Development, General Counsel
and Secretary at Broderbund Software, Inc., a consumer software company. From
October 1986 until May 1994, Mr. Marcus served Broderbund as its Vice
President, General Counsel and Secretary. Mr. Marcus holds an A.B. degree in
political science from Yale University and a J.D. degree from the University of
California at Berkeley.
Ralph J. Harms has served as Chief Financial Officer and Assistant Secretary
since joining Flycast in January 1999. From September 1997 through December
1998, Mr. Harms was the Vice President and Chief Financial Officer of BayStone
Software, a customer relationship management software company.
40
<PAGE>
From September 1996 until September 1997, Mr. Harms served as Vice President
and Chief Financial Officer for dpiX, a Xerox Corporation spinout manufacturer
of flat-panel displays. Mr. Harms was Vice President and Chief Financial
Officer of ESS Technology, Inc., a developer of multimedia software and fabless
chip manufacturer, from February 1995 until September 1996, and Secretary of
ESS from August 1995 until September 1996. From 1983 until February 1995, Mr.
Harms held various financial positions at SEEQ Technology Incorporated, a
manufacturer of data communication semiconductor products, most recently as
Vice President, Chief Financial Officer and Secretary. Mr. Harms holds a
B.S.E.E. degree from Michigan State University and an M.B.A. degree from the
University of Michigan.
Lawrence G. Braitman co-founded Flycast and has served as Flycast's Vice
President, Corporate Development and New Ventures since March 1999 and its Vice
President, Business Development from March 1997 to March 1999. Previously, Mr.
Braitman served as Flycast's Vice President, Marketing from April 1996 until
March 1997. Mr. Braitman also founded and served as President of Cogent Network
Corporation, a provider of ad-supported vertical market-oriented services, from
its inception in January 1995 through June 1996. From January 1996 to June
1996, Mr. Braitman was also special counsel at Prickett, Jones, Elliott,
Kristol & Schnee, a law firm, and from October 1987 to December 1995, he was an
associate and later a partner in the business and tax departments at the
Philadelphia law firm of Saul, Ewing, Remick & Saul. Mr. Braitman holds a
B.A. degree in Psychology from Franklin and Marshall College and a J.D. degree
from Georgetown Law School.
Frederick J. Ciaramaglia has served as Vice President, Engineering since
joining Flycast in January 1999. Prior to joining Flycast, Mr. Ciaramaglia was
Vice President, Engineering for Eloquent, Inc., an Internet knowledge
deployment software and services company, from June 1998 to January 1999. From
March 1994 to March 1997, Mr. Ciaramaglia served as Vice President, Research
and Development for SQA, Inc., a developer of automated software quality
products, and from April 1997 to April 1998 as Vice President, Research and
Development for the SQA Division of Rational Software Corporation after
Rational acquired SQA. From June 1992 to February 1994, Mr. Ciaramaglia served
as Senior Vice President, Development at Clinical Information Advantages, a
computerized patient record software products company. Mr. Ciaramaglia was a
founder of Softbridge Microsystems, Inc., a software development company, and
served as its Senior Vice President, Technology from January 1983 to June 1992.
Mr. Ciaramaglia holds a B.S. degree in Computer Science from the Massachusetts
Institute of Technology.
Scott W. Grafft joined Flycast in March 1999 as Vice President, Direct
Marketing. From November 1998 to March 1999, Mr. Grafft was Executive Vice
President, Co-Director of FCB Direct at Foote, Cone and Belding, an advertising
agency. Mr. Grafft served Foote, Cone and Belding as Senior Vice President,
Director of Direct Marketing from October 1997 until November 1998. From August
1992 until October 1997, Mr. Grafft held various positions at DraftDirect
Worldwide, an advertising agency, serving as Senior Vice President, Custom
Marketing Group Manager from January 1997 to October 1997, Senior Vice
President, Group Account Director from March 1996 to January 1997, Vice
President, Group Account Director from February 1994 to March 1996, Vice
President, Account Supervisor from July 1993 to February 1994, and Account
Supervisor from August 1992 to July 1993.
Jeff J. Lehman has served as Vice President, Media Sales since joining
Flycast in January 1999. From October 1997 through January 1999, Mr. Lehman
served as Vice President of Advertising Sales for RealNetworks, Inc. From
November 1996 until October 1997, Mr. Lehman served as Vice President of Client
Site Development for Softbank, and from April 1996 until November 1996 he
served as Softbank's Vice President of Technology Sales. From September 1985
until April 1996, Mr. Lehman held various sales positions at Ziff-Davis
Publishing Company, where he most recently was Vice President of Sales and
Market Development of ZDNet, a division of Ziff-Davis, from July 1995 until
April 1996 and Director of the Ziff-Davis Magazine Network from May 1994 until
July 1995. Mr. Lehman holds a B.S.B.A. degree in Finance and Economics and an
M.B.A. degree, both from the University of Central Florida.
41
<PAGE>
Peter T. Nicas has served as Vice President, Local Market/VAR Division since
joining Flycast in September 1998. From April 1998 until September 1998, Mr.
Nicas served as Flycast's Director of Sales, Eastern U.S. Prior to joining
Flycast, Mr. Nicas served as a Regional Vice President of Sales, Southeastern
and Southcentral Regions, for Softbank Interactive Marketing from January 1997
until April 1998, and as Softbank's Southeastern Sales Director from June 1996
until January 1997. From September 1995 until May 1996, Mr. Nicas was a Vice
President and Publisher of both Multimedia Producer and AV/Video magazines for
Knowledge Industry Publications. Previously, Mr. Nicas worked for eight years
at Cahners Publishing Company, a division of Reed Elsevier, where he served as
Vice President and as a Publisher of Client/Server Today from January 1994
until September 1995, as Datamation's Regional Sales Manager for the
Southeastern territory from March 1991 until January 1994, and in various other
positions in sales, marketing and acquisitions from January 1987 until March
1991. Mr. Nicas holds a B.A. degree in Finance and Business Administration from
Lenoir-Rhyne College.
Lyn Chitow Oakes has served as Vice President, Marketing since joining
Flycast in July 1998. From May 1997 until March 1998, Ms. Oakes was Vice
President of Marketing for Electric Classifieds, Inc., a provider of online
classifieds solutions. From April 1990 until November 1996, Ms. Oakes held
various positions at America Online, Inc., where she was Vice President of
Internet and Community Services from January until November 1996, Vice
President of GNN and Internet Services from June 1995 until January 1996, Vice
President of Internet and Multimedia Services from January through June 1995,
Director of Multimedia and New Technology Services from June 1994 until January
1995, and Manager of Corporate Development and New Technology from January 1993
until June 1994. From 1983 until 1990, Ms. Oakes held various other positions
in the advertising industry. Ms. Oakes holds a B.S. degree in Elementary
Education from Keene State College in the University of New Hampshire system
and an M.B.A. degree from Bentley College.
Greg Stuart joined Flycast in March 1999 as Vice President, Business
Development. From April 1996 until March 1999, Mr. Stuart served as a Principal
for @webrite, inc., an independent consulting firm for Web-based businesses.
From August 1993 to April 1996, Mr. Stuart was Senior Vice President, Director
of Interactive Marketing Division at Wunderman Cato Johnson, a direct marketing
advertising agency. From March 1984 until August 1993, Mr. Stuart held various
positions in New York advertising agencies. Mr. Stuart holds a B.A. degree in
economics from the University of Washington.
Richard L. Thompson co-founded Flycast and has served as Flycast's Vice
President, Client Services since June 1998. From November 1998 until January
1999, he also served as Flycast's acting Vice President, Engineering.
Previously, Mr. Thompson served as Flycast's Chief Operating Officer and
Assistant Secretary from March 1997 through May 1998 and as Flycast's
President, Chief Executive Officer and Chief Financial Officer from April 1996
until March 1997. Mr. Thompson also served on Flycast's Board of Directors from
April 1996 until June 1998. From September 1994 until April 1996, Mr. Thompson
pursued an M.B.A. degree at The Wharton School of Business at the University of
Pennsylvania. From September 1982 through September 1994, Mr. Thompson held
various positions in engineering, sales and marketing for Octel Communications,
a telecommunications company, most recently as Manager of the Advanced
Technologies Group. Mr. Thompson holds an A.B. degree in Psychology from the
University of California, Santa Cruz and an M.B.A. degree from The Wharton
School of Business.
John C. Yung has served as Vice President, Network Operations since joining
Flycast in March 1999. From June 1995 to March 1999, Mr. Yung held various
positions at PointCast, Inc., a provider of Internet news services, serving as
Vice President of Networks and Operations from February 1999 to March 1999,
Senior Director of Networks and Operations from October 1998 to February 1999,
Director of Network Operations from June 1996 to October 1998, and Manager of
Network Operations from June 1995 to June 1996. Mr. Yung held the position of
Network Manager from August 1992 to
42
<PAGE>
June 1995 at C-Cube Microsystems, Inc., a semiconductor development company.
Mr. Yung holds a B.S. degree in Computer Science from National University.
David J. Cowan has been a director of Flycast since July 1997. Mr. Cowan has
been a Partner of Bessemer Venture Partners since August 1996. While employed
by Bessemer Venture Partners, Mr. Cowan also served as the Chief Financial
Officer of VeriSign, Inc., a provider of secure communication solutions for the
Internet and private networks, from January 1995 until December 1996, and as
Chief Executive Officer of Visto, a private Internet services company, from
August 1996 until April 1997. From July 1992 to August 1996, Mr. Cowan was an
Associate of Bessemer Venture Partners. Mr. Cowan is also a director of
VeriSign, Inc. and Worldtalk Corporation, an Internet software company. Mr.
Cowan holds an A.B. degree in Computer Science and Mathematics and an M.B.A.
degree, both from Harvard University.
Ted R. Dintersmith has been a director of Flycast since July 1997. Since
February 1996, he has been a General Partner of Charles River Partnership VIII.
Previously, from October 1987 to February 1996, he was a General Partner of
Aegis Venture Funds. Prior in his career, Mr. Dintersmith was an executive with
Analog Devices, Inc., where he served as General Manager of their Digital
Signal Processing Division. Mr. Dintersmith is also a director of several
internet software companies. Mr. Dintersmith holds a B.A. degree in Physics and
English from the College of William and Mary and a Ph.D. in Engineering from
Stanford University.
Howard C. Draft has been a director of Flycast since January 1999. Since
1988, he has served as the Chairman of the Board and Chief Executive Officer of
Draft Worldwide, a full service international marketing enterprise. Previously,
he served as Draft Worldwide's President from 1986 to 1988, and in other
positions for Draft Worldwide since 1978, when he became a member of the
original Chicago agency. Mr. Draft holds a B.A. degree in Philosophy and Art
History from Ripon College.
Gary L. Prophitt has been a director of Flycast since January 1999. Since
1994, he has been the President of Intelligent Media Ventures, Inc., the wholly
owned electronic publishing subsidiary of BellSouth Enterprises. Mr. Prophitt
has served BellSouth Corporation, the parent company of BellSouth Enterprises,
in various capacities since 1972, including eight years in business development
and corporate mergers and acquisitions. Mr. Prophitt holds a B.A. degree in
Industrial Management and an M.B.A degree, both from the University of South
Florida.
Michael D. Solomon has been a director of Flycast since April 1996. Mr.
Solomon has been the acting Chief Executive Officer of MachOne Communications
since September 1998. In addition, Mr. Solomon has been a Venture Partner of
Mohr Davidow Ventures since March 1996. Between 1994 and 1998, Mr. Solomon has
been a director of Collabra; e-sales, Ltd.; I.C. VERIFY, Inc.; and ShareData,
Inc., which were acquired by Netscape Communications Corporation, Microsoft
Corporation, CyberCash and E*Trade Securities, Inc., respectively. From July
1990 to July 1994, Mr. Solomon served as the President and Chief Executive
Officer of LightSource, Inc., a color measurement device company. From 1985 to
1989, Mr. Solomon served as the founding Vice President of Sales and Marketing
of Aldus Corporation, a desktop publishing software company later acquired by
Adobe Systems, Inc. Mr. Solomon holds a B.A. degree in Business Administration
from Kent State University.
Board Composition
Flycast currently has authorized seven directors. Each director is elected
for a period of one year at Flycast's annual meeting of stockholders and serves
until the next annual meeting or until his successor is duly elected and
qualified. The executive officers serve at the discretion of the Board. There
are no family relationships among any of the directors or executive officers of
Flycast.
43
<PAGE>
Board Committees
In January 1999, the Board established the Audit Committee and Compensation
Committee. The Audit Committee will review Flycast's annual audit and meet with
Flycast's independent auditors to review Flycast's internal controls and
financial management practices. The Audit Committee currently consists of
Howard C. Draft and Gary L. Prophitt. The Compensation Committee determines
compensation for Flycast's personnel and administers Flycast's stock plans. The
Compensation Committee currently consists of David J. Cowan and Michael D.
Solomon.
Board Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at Board meetings, the issuance of common stock and the grant of
stock options, directors are not compensated for their services as directors.
In July 1997, Michael D. Solomon purchased 90,000 shares of common stock at a
purchase price of $0.10 per share. Directors who are also employees are
eligible to participate in the 1997 Stock Option Plan and in the 1999 Stock
Option Plan and, following this offering, will be eligible to participate in
the 1999 Employee Stock Purchase Plan. In January 1998, Michael D. Solomon was
granted an option to purchase 50,000 shares of common stock under the 1997
Stock Option Plan at an exercise price of $0.13 per share. In January 1999,
Howard C. Draft was granted an option to purchase 20,000 shares of common stock
under the 1999 Stock Option Plan at an exercise price of $8.75 per share.
Directors who are not employees are eligible to participate in the 1999 Stock
Option Plan and 1999 Directors' Stock Option Plan. The above issuances of stock
and options are subject to vesting. See "--Stock Plans" and "Related Party
Transactions."
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Board are currently David J.
Cowan and Michael D. Solomon. Neither Mr. Cowan nor Mr. Solomon has at any time
been an officer or employee of Flycast.
44
<PAGE>
Executive Compensation
The following table provides summary information concerning the compensation
received for services rendered to Flycast during 1998 by Flycast's current and
former Chief Executive Officers, each of the other four most highly compensated
executive officers who were serving as executive officers at December 31, 1998
and a former executive officer who would have been among the four most highly
compensated executive officers had he continued to serve as an Executive
Officer through the end of 1998 (the "Named Officers"), each of whose total
compensation during Flycast's last fiscal year exceeded, or would have exceeded
on an annualized basis, $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------- -------------
Shares
Other Annual Underlying All Other
Name and Principal Position(1) Salary Bonus Compensation Options Compensation
- ------------------------------ -------- ------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
George R. Garrick....... $152,564(2) $30,417 $ 80,000(3) 880,000 $ 140(4)
Chairman of the Board,
Chief Executive Officer
and President
Miles Walsh............. 100,861(5) -- -- 35,000 90,099(6)
Former President and
Chief Executive Officer
Larry M. Levine......... 164,545(7) 25,000 -- 187,000 120(4)
Former Vice President,
Advertising Services
Peter T. Nicas.......... 137,500(8) 20,000 -- 120,000 210(4)
Vice President, Local
Market/VAR Division
Lawrence G. Braitman.... 127,536 25,000 -- -- 219(4)
Vice President,
Corporate Development
and New Ventures
Richard L. Thompson..... 127,536 25,000 -- -- 219(4)
Vice President, Client
Services
Edwin Videki............ 95,500(9) -- -- 160,000 43,465(10)
Former Chief Technology
Officer and former
Vice President,
Engineering
</TABLE>
- --------
(1) Thomas L. Marcus, Flycast's Executive Vice President of Finance,
Administration and Corporate Development, commenced employment with
Flycast on March 17, 1999. Mr. Marcus' salary on an annualized basis for
1999 is $175,000, which does not include a $25,000 bonus payable upon the
commencement of employment or a $50,000 bonus payable upon the
satisfaction of established performance goals. Frederick J. Ciaramaglia,
Flycast's Vice President, Engineering, commenced employment with Flycast
on January 27, 1999. Mr. Ciaramaglia's salary on an annualized basis for
1999 is $160,000, which does not include a $20,000 bonus payable upon the
commencement of employment or a $40,000 bonus payable upon the
satisfaction of established performance goals. Scott W. Grafft, Flycast's
Vice President, Direct Marketing, commenced employment with Flycast on
March 29, 1999. Mr. Grafft's salary on an annualized basis for 1999 is
$200,000, which does not include sales commissions, a $25,000 bonus
payable upon the commencement of employment or a $50,000 bonus payable
upon the satisfaction of established performance goals. Jeff J. Lehman,
Flycast's Vice President, Media Sales, commenced employment with Flycast
on January 28, 1999. Mr. Lehman's salary on an annualized basis for 1999
is $150,000, which does not include sales commissions or an estimated
bonus of $50,000 payable upon the satisfaction of established performance
goals.
(2) Represents the amount Mr. Garrick was paid in salary by Flycast during
1998. Mr. Garrick commenced employment with Flycast on May 21, 1998. His
salary on an annualized basis for 1998 was $250,000. See "Related Party
Transactions--Employment and Severance Agreements."
(3) Represents budgeted allowance for reimbursement of relocation expenses. In
1998, Mr. Garrick was reimbursed for $63,130 of this budgeted amount.
(4) Represents life insurance premiums paid by Flycast on behalf of the
officer during 1998.
(5) Represents the amount Mr. Walsh was paid in salary during 1998. Mr.
Walsh's employment as President and CEO of Flycast was terminated
effective May 20, 1998. Subsequently, Mr. Walsh was employed by Flycast
for a period of one month as Vice President, Business Planning. See
"Related Party Transactions--Employment and Severance Agreements."
(6) Consists of $90,000 paid in conjunction with Mr. Walsh's termination and
$99 in life insurance premiums. See "Related Party Transactions--
Employment and Severance Agreements."
45
<PAGE>
(7) Represents the total amount Mr. Levine was paid in salary and commissions
during 1998. Mr. Levine commenced employment with Flycast on June 15,
1998. Mr. Levine's employment with Flycast was terminated effective
January 20, 1999. Subsequent to his termination, Mr. Levine entered into a
consulting arrangement with Flycast. See "Related Party Transactions--
Employment and Severance Agreements."
(8) Represents the total amount Mr. Nicas was paid in salary and commissions
during 1998. Mr. Nicas commenced employment with Flycast on April 4, 1998.
(9) Represents the amount Mr. Videki was paid in salary during 1998. Mr.
Videki's salary on an annualized basis for the fiscal year ended December
31, 1998 was $130,000. Mr. Videki's employment with Flycast commenced on
March 12, 1998 and was terminated effective December 14, 1998.
(10) Consists of $43,332 paid in conjunction with Mr. Videki's termination and
$133 in life insurance premiums. See "Related Party Transactions--
Employment and Severance Agreements."
Option Grants
The following table provides information regarding stock options granted to
the Named Officers during the fiscal year ended December 31, 1998. The
individual grants consist of options granted pursuant to Flycast's 1997 Stock
Option Plan. For purposes of calculating the percent of total options granted
to employees in fiscal year, Flycast granted options to purchase
2,547,250 shares of common stock to employees and consultants. The exercise
price per share of each option was equal to the fair market value of common
stock on the date of grant as determined by the Board. In determining the fair
market value of the common stock on each grant date, the Board considered,
among other things, Flycast's absolute and relative levels of revenues and
operating results, the state of Flycast's technology development, increases in
operating expenses, the absence of a public trading market for Flycast's
securities, the intensely competitive nature of Flycast's market and the
appreciation of stock values of a number of generally comparable Web
advertising companies. The potential realizable value is based on the
assumption that the common stock of Flycast appreciates at the annual rate
shown, compounded annually, from the date of grant until the expiration of the
ten-year term. These numbers are calculated based on Securities and Exchange
Commission requirements and do not reflect Flycast's projection or estimate of
future stock price growth. Potential realizable values are computed by:
. multiplying the number of shares of common stock subject to a given op-
tion by the exercise price;
. assuming that the total stock value derived from that calculation com-
pounds at the annual 5% or 10% rate shown in the table for the entire
ten-year term of the option; and
. subtracting from that result the total option exercise price.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Shares Total Options Price Appreciation
Underlying Granted to for Option Term
Options Employees in Exercise Price Expiration ---------------------
Name(1) Granted Fiscal Year ($/Share) Date 5% 10%
- ------- ---------- ------------- -------------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
George R. Garrick(2).... 880,000 34.5% $ 1.25 6/29/08 $ 691,784 $ 1,753,117
Miles Walsh(3).......... 35,000 1.4 0.13 1/28/08 2,861 7,252
Larry M. Levine(4)...... 187,000 7.3 1.25 6/29/08 147,004 372,537
Peter T. Nicas(5)....... 50,000 2.0 .13 3/24/08 4,088 10,359
20,000 .8 1.40 9/08/08 17,609 44,625
50,000 2.0 1.75 10/27/08 55,028 139,452
Lawrence G.
Braitman(6)............ -- -- -- -- -- --
Richard L. Thompson(7).. -- -- -- -- -- --
Edwin Videki(8)......... 140,000 5.5 0.13 3/24/08 11,446 29,006
20,000 .8 1.40 9/08/08 17,609 44,625
</TABLE>
46
<PAGE>
- --------
(1) . Mr. Marcus was granted an option to purchase 200,000 shares of common
stock on March 30, 1999 pursuant to Flycast's 1999 Stock Option Plan.
The exercise price per share of the option is $12.00; the expiration
date of the option is March 29, 2009 and the potential realizable values
at assumed rates of stock appreciation for the option term are
$1,509,347 at 5% and $3,824,982 at 10%.
. Mr. Ciaramaglia was granted an option to purchase 185,000 shares of
common stock on January 28, 1999 pursuant to Flycast's 1999 Stock Option
Plan. The exercise price per share of the option is $8.75; the
expiration date of the option is January 27, 2009 and the potential
realizable values at assumed rates of stock appreciation for the option
term are $1,018,023 at 5% and $2,579,871 at 10%.
. Mr. Grafft was granted an option to purchase 175,000 shares of common
stock on March 30, 1999 pursuant to Flycast's 1999 Stock Option Plan.
The exercise price per share of the option is $12.00; the expiration
date of the option is March 29, 2009 and the potential realizable values
at assumed rates of stock appreciation for the option term are
$1,320,679 at 5% and $3,346,859 at 10%.
. Mr. Lehman was granted an option to purchase 175,000 shares of common
stock on January 28, 1999 pursuant to Flycast's 1999 Stock Option Plan.
The exercise price per share of the option is $8.75; the expiration date
of the option is January 27, 2009 and the potential realizable values at
assumed rates of stock appreciation for the option term are $962,995 at
5% and $2,440,418 at 10%.
(2) Mr. Garrick was granted an option to purchase an additional 100,000
shares of common stock on January 28, 1999 pursuant to Flycast's 1999
Stock Option Plan. The exercise price per share of the option is $8.75;
the expiration date of the option is January 27, 2009 and the potential
realizable values at assumed rates of stock appreciation for the option
term are $550,283 at 5% and $1,394,525 at 10%.
(3) Mr. Walsh's employment as President and Chief Executive Officer of
Flycast terminated in May 1998 and his employment as Vice President of
Business Planning terminated in June 1998.
(4) Mr. Levine's employment with Flycast terminated in January 1999.
(5) Mr. Nicas was granted an option to purchase an additional 55,000 shares
of common stock on January 28, 1999 pursuant to Flycast's 1999 Stock
Option Plan. The exercise price per share of the option is $8.75; the
expiration date of the option is January 27, 2009 and the potential
realizable values at assumed rates of stock appreciation for the option
term are $302,656 at 5% and $766,989 at 10%.
(6) Mr. Braitman was granted an option to purchase 60,000 shares of common
stock on January 28, 1999 pursuant to Flycast's 1999 Stock Option Plan.
The exercise price per share of the option is $8.75; the expiration date
of the option is January 27, 2009 and the potential realizable values at
assumed rates of stock appreciation for the option term are $330,170 at
5% and $836,715 at 10%.
(7) Mr. Thompson was granted an option to purchase 60,000 shares of common
stock on January 28, 1999 pursuant to Flycast's 1999 Stock Option Plan.
The exercise price per share of the option is $8.75; the expiration date
of the option is January 27, 2009 and the potential realizable values at
assumed rates of stock appreciation for the option term are $330,170 at
5% and $836,715 at 10%.
(8) Mr. Videki was initially granted 140,000 shares at an option exercise
price of $0.13 per share ("March Option") and 20,000 shares at an option
exercise price of $1.40 per share ("September Option"). Upon termination
of Mr. Videki's employment with Flycast in December 1998, 23,333 shares
of the March Option had vested and 1,667 shares of the September Option
were deemed to have vested. The remaining shares subject to these options
were canceled. The potential realizable values of the remaining shares
subject to the March Option at assumed rates of stock appreciation for
the option term are $1,908 and $4,834 respectively. The potential
realizable values of the remaining shares subject to the September Option
at assumed rates of stock appreciation for the option term are $1,468 and
$3,719 respectively.
47
<PAGE>
Option Exercises and Holdings
The following table provides information concerning option exercises during
1998 and the shares of common stock represented by outstanding stock options
held by each of the Named Officers as of December 31, 1998. Since there was no
public trading market for Flycast's common stock as of December 31, 1998, the
values of unexercised options at December 31, 1998 are based on a fair market
value of common stock of $8.50 per share as determined by the Board on January
4, 1999. Therefore, these values are calculated based on the $8.50 per share
value, less the applicable exercise price per share, multiplied by the number
of shares underlying these options.
Option Exercises During Last Fiscal Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1998 December 31, 1998
Acquired Value ------------------------- -------------------------
Name(1) on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George R. Garrick....... 170,000 $ 0 470,000 240,000 $ 3,407,500 $ 1,740,000
Miles Walsh(2).......... 35,000 0 -- -- -- --
Larry M. Levine(3)...... 187,000 0 -- -- -- --
Peter T. Nicas.......... 50,000 63,500 70,000 -- 479,500 --
Lawrence G. Braitman.... -- -- -- -- -- --
Richard L. Thompson..... -- -- -- -- -- --
Edwin Videki(4)......... -- -- 25,000 -- 207,132 --
</TABLE>
- --------
(1) Since their employment with Flycast commenced in 1999, none of Mr. Marcus,
Mr. Ciaramaglia, Mr. Grafft or Mr. Lehman acquired or exercised any options
during 1998.
(2) Mr. Walsh's employment as President and Chief Executive Officer of Flycast
terminated in May 1998 and his employment as Vice President of Business
Planning terminated in June 1998. All of the shares acquired on exercise of
options granted to Mr. Walsh during 1998 were deemed to have vested at the
time of grant in January 1998. See "Related Party Transactions--Employment
and Severance Agreements."
(3) Mr. Levine's employment with Flycast terminated in January 1999. Subsequent
to his termination, Mr. Levine entered into a consulting relationship with
Flycast. Flycast expects to repurchase any unvested shares at the
termination of the consulting arrangement. See "Related Party
Transactions--Employment and Severance Agreements".
(4) Mr. Videki's employment with Flycast terminated in December 1998.
Stock Plans
1999 Stock Option Plan. Flycast's 1999 Stock Option Plan was adopted by the
Board in January 1999 and was approved by the stockholders in January 1999. The
1999 Option Plan became effective on January 4, 1999, the date it was adopted
by the Board. A total of 2,000,000 shares of common stock was initially
reserved for issuance under the 1999 Option Plan, plus an automatic annual
increase on the first day of Flycast's fiscal years beginning in 2000, 2001,
2002, 2003 and 2004 equal to the lesser of 500,000 shares, 3% of Flycast's
outstanding common stock on the last day of the immediately preceding fiscal
year or a lesser number of shares as determined by the Board. On March 30,
1999, the Board adopted an amendment to the 1999 Stock Option Plan that
increased the number of shares of common stock reserved for issuance to
3,500,000 and changed the automatic annual increase to the lesser of 1,000,000
shares or 3% of Flycast's outstanding common stock. As of March 31, 1999,
options to purchase 30,251 shares of common stock with a weighted average
exercise price of $9.00 had been exercised, all of which shares were
outstanding, options to purchase 1,853,740 shares of common stock at a weighted
average exercise price of $10.34 per share were outstanding and 1,616,009
shares remained available for future option grants.
The purposes of the 1999 Option Plan are to attract and retain the best
available personnel, to provide additional incentives to Flycast's employees
and consultants and to promote the success of
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Flycast's business. The 1999 Option Plan provides for the granting to
employees, including officers and directors, of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
and for the granting to employees and consultants, including nonemployee
directors, of nonstatutory stock options. To the extent an optionee would have
the right in any calendar year to exercise for the first time one or more
incentive stock options for shares having a total fair market value in excess
of $100,000, any excess options shall be treated as nonstatutory stock options.
The calculation is made taking into account shares under all of Flycast's plans
and is determined for each share as of the date the option to purchase the
shares was granted. Unless terminated earlier, the 1999 Option Plan will
terminate in January 2009.
The 1999 Option Plan may be administered by the Board or a committee of the
Board. The 1999 Option Plan is currently administered by the compensation
committee. The administrator determines the terms of options granted under the
1999 Option Plan, including the number of shares subject to an option and its
exercise price, term and exercisability. In no event, however, may an
individual employee receive option grants under the 1999 Option Plan during any
one fiscal year of Flycast that would allow him or her to purchase more than
1,000,000 shares. The exercise price of all incentive stock options granted
under the 1999 Option Plan must be at least equal to the fair market value of
the common stock of Flycast on the date of grant. The exercise price of any
incentive stock option granted to an optionee who owns stock representing more
than 10% of the total combined voting power of all classes of outstanding
capital stock of Flycast or any parent or subsidiary corporation of Flycast
must equal at least 110% of the fair market value of the common stock on the
date of grant. After the effective date of this offering, the exercise price of
nonstatutory stock options granted under the 1999 Option Plan will be the price
determined by the administrator; provided, however, that the exercise price of
any nonstatutory stock option granted to Flycast's Chief Executive Officer or
its four other most highly compensated officers will generally equal at least
100% of the fair market value of the common stock on the date of grant. Payment
of the option exercise price may be made in cash or other consideration as
determined by the administrator.
The administrator determines the term of options, which may not exceed ten
years, or five years in the case of an incentive stock option granted to a 10%
stockholder. No option may be transferred by the optionee other than by will or
the laws of descent or distribution, with the proviso that the administrator
may grant nonstatutory stock options after the effective date of the offering
with limited transferability rights. Generally, each option may be exercised
during the lifetime of the optionee only by the optionee. The administrator
determines when options vest and become exercisable. Flycast expects that
options granted under the 1999 Option Plan generally will vest at the rate of
1/8th of the total number of shares subject to the options six months after the
date of grant, and 1/48th of the total number of shares subject to the options
each month thereafter.
In the event of the sale of all or substantially all of the assets of
Flycast, or the merger or consolidation of Flycast with or into another
corporation, the administrator shall either:
. provide that outstanding options shall be assumed or equivalent options
substituted by the successor corporation;
. provide notice to optionees that all options, to the extent then
exercisable or to be exercisable as a result of the transaction, must be
exercised on or before a specified date after which the options
terminate; or
. terminate each option in its entirety in exchange for a payment equal to
the excess of the fair market value of the portion of the optioned stock
that is vested and exercisable immediately prior to the closing of the
transaction over the total exercise price.
The Board has the authority to amend or terminate the 1999 Option Plan as
long as this action does not materially and adversely affect any outstanding
option and provided that stockholder
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approval for any amendments to the 1999 Option Plan must be obtained to the
extent required by applicable law.
1997 Stock Option Plan. Flycast's 1997 Stock Option Plan was adopted by the
Board and approved by Flycast's stockholders in March 1997. A total of
2,800,000 shares of common stock has been reserved for issuance under the 1997
Option Plan. As of March 31, 1999, options to purchase 867,331 shares of common
stock with a weighted average exercise price of $0.71 had been exercised, of
which 724,893 shares were outstanding, options to purchase a total of 1,865,914
shares at a weighted average exercise price of $2.08 per share were outstanding
and 66,755 shares remained available for future option grants. Unless
terminated earlier, the 1997 Option Plan will terminate in March 2007.
The terms of options issued under the 1997 Option Plan are generally the same
as those that may be issued under the 1999 Option Plan, except with respect to
the following features. The 1997 Option Plan does not impose an annual
limitation on the number of shares subject to options that may be issued to any
individual employee. In addition, nonstatutory stock options granted under the
1997 Option Plan are nontransferable in all cases and must be granted with an
exercise price equal to at least 85% of the fair market value of the common
stock on the date of grant, unless granted to a 10% stockholder, in which case
the exercise price must be at least 110% of the fair market value on the date
of grant.
Options granted under the 1997 Option Plan generally may be exercised
immediately after the grant date, but to the extent the shares subject to the
options are not vested as of the date of exercise, Flycast retains a right to
repurchase any shares that remain unvested at the time of the optionee's
termination of employment by paying an amount equal to the exercise price times
the number of unvested shares. Options granted under the 1997 Option Plan
generally vest at the rate of 1/8th of the total number of shares subject to
the options six months after the date of grant, and 1/48th of the total number
of shares subject to the options each month thereafter.
In addition, upon a sale of all or substantially all of Flycast's assets, or
a merger or consolidation of Flycast with or into another corporation, all
options outstanding under the 1997 Option Plan will be assumed or equivalent
options substituted by the successor corporation, unless the successor
corporation does not agree to this assumption or substitution, in which case
the options terminate upon the closing of the transaction.
1999 Directors' Stock Option Plan. The 1999 Directors' Stock Option Plan was
adopted by the Board in January 1999 and was approved by the stockholders in
March 1999. A total of 200,000 shares of common stock has been reserved for
issuance under the Directors' Plan. The Directors' Plan becomes effective upon
the effective date of the Registration Statement for this offering. As of the
date of this prospectus, no options to purchase shares of common stock have
been issued under the Directors' Plan. The Directors' Plan provides for the
grant of nonstatutory stock options to nonemployee directors. The Directors'
Plan is designed to work automatically without administration; however, to the
extent administration is necessary, it will be performed by the Board. To the
extent they arise, it is expected that conflicts of interest will be addressed
by abstention of any interested director from both deliberations and voting
regarding matters in which the director has a personal interest. Unless
terminated earlier, the Directors' Plan will terminate in January 2009.
The Directors' Plan provides that each person who becomes a nonemployee
director after the date of this prospectus will be granted a nonstatutory stock
option to purchase 20,000 shares of common stock on the date on which the
optionee first becomes a nonemployee director of Flycast. This option will
become exercisable as to 25% of the total number of shares underlying the
option on each of the first, second, third and fourth anniversaries of the date
of grant. In addition, on the date of
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Flycast's Annual Stockholders Meeting each year, each nonemployee director will
be granted an additional option to purchase 5,000 shares of common stock if, on
that date, he or she has served on the Board for at least six months. The
subsequent option will become exercisable as to 100% of the shares underlying
the option on the day before the fourth anniversary of the date of grant. All
options granted under the Directors' Plan shall have an exercise price equal to
100% of the fair market value of the common stock as of the date of grant.
The Directors' Plan sets neither a maximum nor a minimum number of shares for
which options may be granted to any one nonemployee director, but does specify
the number of shares that may be included in any grant and the method of making
a grant. No option granted under the Directors' Plan is transferable by the
optionee other than by will or the laws of descent or distribution or pursuant
to a qualified domestic relations order, and each option is exercisable, during
the lifetime of the optionee, only by the optionee. If a nonemployee director
ceases to serve as a director for any reason other than death or disability, he
or she may, but only within 90 days after the date he or she ceases to be a
director of Flycast, exercise options granted under the Directors' Plan to the
extent that he or she was entitled to exercise those options at the date of
termination. To the extent that he or she was not entitled to exercise an
option at the date of termination, or if he or she does not exercise an option
that he or she was entitled to exercise within the 90 day period, the option
will terminate. If a director's service on the Board terminates as a result of
his or her disability, he or she may, but only within 12 months from the date
of his or her termination, exercise options granted under the Directors' Plan
to the extent that he or she was entitled to exercise the options on the date
of termination. If a director's service on the Board terminates as a result of
his or her death, for a period of 12 months following the date of death, the
director's estate will have the right to exercise any option granted under the
Directors' Plan as to all shares which would have vested if the deceased
director had continued in his or her position on the Board for an additional
six months following the date of death. If a director dies within three months
after termination of service on the Board, then for a period of 12 months
following the date of death, the director's estate may exercise the options
granted under the Directors' Plan to the extent that the director was entitled
to exercise these options on the date of termination. Options granted under the
Directors' Plan have a term of ten years.
In the event of a dissolution or liquidation of Flycast, a sale of all or
substantially all of Flycast's assets, or a merger, consolidation or other
capital reorganization of Flycast with or into another corporation, each option
outstanding under the Directors' Plan will be assumed or equivalent options
substituted by the successor corporation, unless the successor corporation does
not agree to this assumption or substitution, in which case the options will
terminate upon the closing of the transaction; provided, however, that upon a
sale of all or substantially all of Flycast's assets or a merger or
consolidation of Flycast with or into another corporation in which more than
50% of the shares entitled to vote are exchanged, each director holding options
under the Directors' Plan will have the right to exercise his or her options
immediately prior to the closing of the transaction as to all of the shares of
stock underlying these options, including shares that the director would not
otherwise be entitled to purchase.
The Board may amend or terminate the Directors' Plan at any time; provided,
however, that no action may adversely affect any outstanding option and
provided that stockholder approval for any amendments to the Directors' Plan
must be obtained to the extent required by applicable law.
1999 Employee Stock Purchase Plan. Flycast's 1999 Employee Stock Purchase
Plan was adopted by the Board in January 1999 and was approved by the
stockholders in March 1999. A total of 350,000 shares of common stock has been
reserved for issuance under the Purchase Plan, plus an automatic annual
increase on the first day of each of Flycast's fiscal years beginning in 2000,
2001, 2002, 2003 and 2004 equal to the lesser of 75,000 shares, 1/2% of
Flycast's outstanding common stock on the last
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day of the immediately preceding fiscal year, or a lesser number of shares
determined by the Board. The Purchase Plan becomes effective upon the effective
date of the Registration Statement for this offering. Unless terminated earlier
by the Board, the Purchase Plan will terminate in January 2019.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of 24
months' duration, with new offering periods commencing on May 1 and November 1
of each year, other than the first offering period. Except for the first
offering period, each offering period will consist of four consecutive purchase
periods of six months' duration, at the end of which six month period an
automatic purchase will be made for participants. The initial offering period
is expected to commence on the date of this offering and end on April 30, 2001;
the initial purchase period is expected to begin on the date of this offering
and end on October 31, 1999. The Purchase Plan will be administered by the
Board or by a committee appointed by the Board. Employees, including officers
and employee directors of Flycast, or of any majority-owned subsidiary
designated by the Board, are eligible to participate in the Purchase Plan if
they are employed by Flycast or any subsidiary for at least 20 hours per week
and more than five months per year. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions, which in any
event may not exceed 10% of an employee's compensation, at a price equal to the
lower of 85% of the fair market value of the common stock at the beginning of
the offering period or at the end of the purchase period. The Board will have
the discretion to increase, prior to the beginning of an offering period, the
percentage of participants' compensation that may be withheld through the
Purchase Plan, provided that this percentage may not exceed 20%. Employees may
end their participation in the Purchase Plan at any time during an offering
period, and participation ends automatically on termination of employment.
No employee will be granted an option under the Purchase Plan if immediately
after the grant the employee would own stock or hold outstanding options to
purchase stock equaling 5% or more of the total voting power or value of all
classes of stock of Flycast or its subsidiaries, or if this option would permit
an employee's rights to purchase stock under all employee stock purchase plans
of Flycast and its subsidiaries to accrue at a rate that exceeds $25,000 of
fair market value of the stock for each calendar year in which the option is
outstanding at any time. In addition, no employee may purchase more than 2,000
shares of common stock under the Purchase Plan in any one purchase period. If
the fair market value of the common stock on a purchase date is less than the
fair market value at the beginning of the offering period, each participant in
the Purchase Plan will automatically be withdrawn from the offering period as
of the end of the purchase date and re-enrolled in the new 24 month offering
period beginning on the first business day following the purchase date.
The Purchase Plan provides that, in the event of a merger or consolidation of
Flycast with or into another corporation or a sale of all or substantially all
of Flycast's assets, each right to purchase stock under the Purchase Plan will
be assumed or an equivalent right substituted by the successor corporation. If
the successor corporation does not agree to assume or substitute stock purchase
rights, the offering period then in progress would be shortened and a new
exercise date occurring prior to consummation of the acquisition would be set.
The Board has the power to amend or terminate the Purchase Plan and to change
or terminate offering periods as long as this action does not adversely affect
any outstanding rights to purchase stock thereunder, provided, however, that
the Board may amend or terminate the Purchase Plan or an offering period even
if it would adversely affect outstanding options in order to avoid Flycast's
incurring adverse accounting charges.
401(k) Retirement Plan
Effective in October 1997, Flycast established a 401(k) defined contribution
retirement plan covering all full-time employees as of their date of hire. The
401(k) Plan provides for voluntary employee contributions from 1% to 25% of
annual compensation, subject to the maximum limit
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allowed by Internal Revenue Service guidelines, which is $10,000 for 1999.
Flycast may contribute to the accounts of participants in the 401(k) Plan in
amounts determined by the Board. However, to date, Flycast has not made any
contributions to the accounts of 401(k) Plan participants.
Limitation of Liability and Indemnification Matters
To the extent permitted by the Delaware General Corporation Law, Flycast has
included in its Amended and Restated Certificate of Incorporation a provision
to eliminate the personal liability of its directors for monetary damages for
breach or alleged breach of their fiduciary duties as directors, subject to
exceptions. In addition, Flycast's Bylaws provide that it is required to
indemnify its officers and directors under specific conditions, including those
circumstances in which indemnification would otherwise be discretionary, and is
required to advance expenses to its officers and directors as incurred in
connection with proceedings against them for which they may be indemnified.
Flycast has entered into indemnification agreements with its officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in Delaware law. The
indemnification agreements require Flycast, among other things, to indemnify
its officers and directors against liabilities that may arise by reason of
their status or service as officers and directors, other than liabilities
arising from willful misconduct of a culpable nature, to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms. Flycast is in the process of obtaining directors' and
officers' liability insurance.
At present, Flycast is not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. Flycast is not aware of any
threatened litigation or proceeding that might result in a claim for
indemnification. Flycast believes that its charter provisions and
indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.
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RELATED PARTY TRANSACTIONS
Since January 1, 1996, there has not been any transaction or series of
similar transactions to which Flycast was or is a party in which the amount
involved exceeded or exceeds $60,000 and in which any director or executive
officer of Flycast, any holder of more than 5% of any class of Flycast's voting
securities or any member of the immediate family of any of the foregoing
persons had or will have a direct or indirect material interest, other than the
transactions described below.
Equity and Convertible Debt Financings
In March 1994, Peter D. Olson, Flycast's then-current President, purchased
1,000 shares of Flycast's common stock for $1,000 in cash. Subsequently, Mr.
Olson transferred property totaling $610,295 to Flycast as a capital
contribution. His investment of $611,295 was converted into 611,295 shares of
Series A Preferred Stock in connection with the stock recapitalization and
Series A Preferred Stock financing described below.
In April 1996, Mr. Olson loaned $25,000 to Flycast, which was repaid in full
by Flycast in January 1997.
In June 1996, in connection with a Convertible Note Purchase Agreement,
Flycast issued promissory notes bearing no interest to Richard L. Thompson,
Flycast's Vice President, Client Services in the amount of $110,000, Richard L.
Thompson (through his individual retirement account), in the amount of $80,000,
Lawrence G. Braitman (through his individual retirement account), Flycast's
Vice President, Corporate Development and New Ventures, in the amount of
$60,000. The principal amounts of these notes were converted into 250,000
shares of Series A Preferred Stock at a conversion price of $1.00 per share in
July 1997.
In February 1997, Flycast entered into a Convertible Note and Warrant
Purchase Agreement with several investors including Mr. Olson and Ruth Dorward,
Mr. Thompson's mother. In connection with this agreement and in exchange for
convertible promissory notes bearing interest at 8% per annum, the principal
amount of which was convertible into shares of Series B Preferred Stock and
warrants exercisable to purchase an additional number of shares of Series B
Preferred Stock equal in value to 20% of the notes' principal amount, Mr. Olson
loaned to Flycast $41,633 in February 1997, Peter D. Olson (through his
individual retirement account) loaned to Flycast $130,000 in March 1997 and Ms.
Dorward loaned to Flycast $75,000 in February 1997. In July and August 1997,
the interest due under the notes was paid in cash and the notes were converted
into shares of Series B Preferred Stock and warrants exercisable to purchase
Series B Preferred Stock as described below.
In June 1997, Flycast issued a promissory note in the principal amount of
$400,000 and a warrant to purchase 33,333 shares of common stock at an exercise
price per share of $0.01 to Bessemer Venture Partners IV, L.P., a greater than
5% stockholder and an entity with which David J. Cowan, a director of Flycast,
is affiliated. The principal amount of the note was converted into shares of
Series B Preferred Stock.
In July 1997, in connection with restricted stock purchase agreements,
Flycast issued and sold 840,000 shares of common stock to Richard L. Thompson,
546,000 shares of common stock to Lawrence G. Braitman, 330,000 shares to David
Roth, a co-founder of Flycast, 349,011 shares of common stock to Miles Walsh,
the then-current President and Chief Executive Officer, 120,000 shares of
common stock to Mr. Olson and 90,000 shares of common stock to Michael D.
Solomon, a director of
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Flycast, each at a purchase price $0.10 per share. Flycast's restricted stock
purchase agreements with Messrs. Thompson, Braitman, Walsh, Olson and Solomon
provide for full acceleration of vesting, subject to conditions, in the event
that the individual's relationship with Flycast is terminated within 12 months
following an acquisition or merger that results in the transfer of more than
50% of Flycast's equity ownership. In addition, Flycast's restricted stock
purchase agreements with Messrs. Thompson, Braitman, Walsh, Olson and Solomon
provide for payment to Flycast for this stock in the form of promissory notes,
bearing interest at 6.65% per annum, compounded annually, with principal and
interest due upon the earliest of:
. nine months after the closing of an initial public offering of Flycast's
common stock;
. July 2002; or
. the termination of his service provider relationship with Flycast.
As of March 31, 1999, the following amounts are owed to Flycast under the
promissory notes:
. Mr. Thompson is indebted to Flycast in the amount of $93,813 including
interest;
. Mr. Braitman is indebted to Flycast in the amount of $60,979 including
interest;
. Mr. Olson is indebted to Flycast in the amount of $13,402, including
interest; and
. Mr. Solomon is indebted to Flycast in the amount of $10,051 including
interest.
In July 1997, Flycast issued and sold shares of Series A Preferred Stock at a
purchase price per share of $1.00 in a private placement transaction. As part
of this private placement Mr. Olson received 611,295 shares of Series A
Preferred Stock in connection with his previous capital contributions and a
stock recapitalization pursuant to which the shares of common stock held by him
were exchanged for 611,295 shares of Series A Preferred Stock.
In July and August 1997, Flycast issued and sold 5,324,532 shares of Series B
Preferred Stock at a purchase price per share of $1.33 and warrants to purchase
77,688 shares of Series B Preferred Stock at an exercise price per share of
$1.33 in a private placement transaction. In exchange for the promissory notes
described above, the following transactions occurred:
. Mr. Olson converted his note in the principal amount of $41,633 into
31,303 shares of Series B Preferred Stock and a warrant to purchase
6,260 shares of Series B Preferred Stock;
. Peter D. Olson converted his note (held in the name of his individual
retirement account) in the principal amount of $130,000 into 97,744
shares of Series B Preferred Stock and a warrant to purchase
19,549 shares of Series B Preferred Stock; and
. Ms. Dorward converted her note in the principal amount of $75,000 into
56,390 shares of Series B Preferred Stock and a warrant to purchase
11,278 shares of Series B Preferred Stock.
Other purchasers of shares of Series B Preferred Stock included the
following:
. entities and individuals affiliated with Bessemer Venture Partners,
which purchased 1,879,699 shares of Series B Preferred Stock, including
300,751 shares issued upon conversion of the above described note in the
principal amount of $400,000 and including 15,000 shares of Series B
Preferred Stock purchased by David J. Cowan, a director of Flycast;
. entities affiliated with Charles River Partnership, which purchased
1,879,699 shares of Series B Preferred Stock, and with which Ted R.
Dintersmith, a director of Flycast, is affiliated; and
. entities affiliated with St. Paul Venture Capital, which purchased
1,127,820 shares of Series B Preferred Stock.
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In January 1998, Flycast granted a nonstatutory stock option to purchase
50,000 shares of common stock to Michael D. Solomon, a director of Flycast,
with an exercise price of $0.13 per share. The shares under this option vest
over a four-year period. The vesting under this option accelerates on the same
terms as the common stock held by him.
In September 1998, in connection with Larry M. Levine's early exercise of his
option to purchase shares of common stock at $1.25 per share, Mr. Levine,
Flycast's former Vice President, Sales entered into a restricted stock purchase
agreement that provided for the issuance of 187,000 shares of common stock to
Mr. Levine. The restricted stock purchase agreement provides for payment to
Flycast in the form of a full recourse promissory note bearing interest at
5.54% per annum, compounded annually, with principal and interest due upon the
earlier of termination of Mr. Levine's employment or consulting relationship,
nine months after the closing of an initial public offering of Flycast's common
stock or in September 2003. Mr. Levine's employment with Flycast terminated
effective January 20, 1998. In March 1999, Flycast canceled $175,312.50 of
indebtedness due from Mr. Levine in connection with its repurchase of 140,250
shares of common stock from Mr. Levine and Mr. Levine concurrently repaid the
remaining $64,930.11, including interest, due under the promissory note. See
"--Employment and Severance Agreements."
In September 1998, in connection with George R. Garrick's early exercise of
his nonstatutory option to purchase shares of common stock at $1.25 per share,
Mr. Garrick, Flycast's Chairman of the Board, Chief Executive Officer and
President, entered into a restricted stock purchase agreement that provided for
the issuance of 170,000 shares of common stock to Mr. Garrick. The restricted
stock purchase agreement provides for payment to Flycast in the form of a
promissory note bearing interest at 5.54% per annum, compounded annually, with
principal and interest due upon the earliest of:
. nine months after the closing of an initial public offering of Flycast's
common stock;
. in September 2003; or
. the termination of Mr.Garrick's service provider relationship with
Flycast. Seventy-five percent of the principal amount of the promissory
note is non-recourse and the remaining 25% of the principal amount and
any accrued interest are full recourse. The amount currently outstanding
under the promissory note is $212,500, plus accrued interest at March 31,
1999.
In December 1998, Flycast issued promissory notes that bear interest at 14%
per annum, compounded semi-annually to Bessemer Venture Partners IV LP in the
principal amount of $1,555,136, Charles River Partnership VIII, A Limited
Partnership, in the principal amount of $1,528,040, St. Paul Venture Capital in
the amount of $916,819 and Comdisco in the amount of $500,000. These notes were
converted into shares of Series C Preferred Stock and warrants to purchase
Series C Preferred Stock.
In December 1998, January 1999 and February 1999, Flycast issued and sold
1,996,344 shares of Series C Preferred Stock at a purchase price of $9.04 per
share and warrants to purchase 132,840 shares of Series C Preferred Stock at an
exercise price of $9.04 per share in private placement transactions with
various entities and individuals. The purchasers of these shares included,
among others:
. entities affiliated with Bessemer Venture Partners, which converted
$1,555,136 of outstanding debt into 172,028 shares of Series C Preferred
Stock and received warrants to purchase 45,908 shares of Series C Pre-
ferred Stock, including 3,236 shares and warrants to purchase 863 shares
purchased by David J. Cowan;
. Charles River Partnership VIII, A Limited Partnership, which converted
$1,528,040 of outstanding debt into 169,030 shares of Series C Preferred
Stock and received warrants to purchase 45,108 shares of Series C Pre-
ferred Stock; and
. entities affiliated with St. Paul Venture Capital, which converted
$916,819 outstanding debt into 101,418 shares of Series C Preferred Stock
and received warrants to purchase 27,064 shares of
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Series C Preferred Stock. In January 1999, Flycast issued and sold
442,477 shares of Series C Preferred Stock at a purchase price of $9.04
per share in a private placement transaction with Intelligent Media
Ventures, Inc., an entity in which Gary L. Prophitt, a director of
Flycast, is an executive officer.
In January 1999, Flycast granted nonstatutory stock options to purchase
20,000 shares of common stock to Howard C. Draft, a director of Flycast, with
an exercise price of $8.75 per share. This option vests over a four-year
period. DF LLC, an entity in which Mr. Draft is managing partner, also
purchased 5,531 shares of Series C Preferred Stock at a purchase price of
$9.04 per share in January 1999.
In January 1999, Flycast granted nonstatutory stock options to purchase
100,000 shares of common stock to George R. Garrick, with an exercise price of
$8.75 per share.
For additional information regarding the grant of stock options to executive
officers and directors, see "Management" and "Principal Stockholders."
Registration Rights Agreement
Some holders of common stock, preferred stock and warrants have registration
rights with respect to their shares of common stock, including common stock
issuable upon exercise of their warrants and conversion of their preferred
stock. See "Description of Capital Stock--Registration Rights."
Employment and Severance Agreements
In May 1998, Flycast entered into a letter agreement with George R. Garrick,
the Company's President and Chief Executive Officer, which entitles Mr. Garrick
to continued salary and benefits in the event of his termination without cause
by Flycast or its successor for a period that is the greater of (1) six months
or (2) the time between the date of termination and the first anniversary of
Mr. Garrick's initial date of employment. In addition, the agreement also
provides that, in the event that Flycast enters into a change of control
transaction, 70% of the "unvested" shares acquired or acquirable from the
exercise of options granted to Mr. Garrick on June 30, 1998 will accelerate and
become immediately vested upon the closing of a change of control transaction,
unless this acceleration would prevent "pooling of interests" accounting
treatment of the change of control transaction.
In connection with the termination of the employment of David Roth, a co-
founder of Flycast, in February 1998, Flycast reached an oral agreement with
Mr. Roth that he would receive a severance payment and three months accelerated
vesting of his stock in consideration for the execution of a Settlement
Agreement and Mutual Release. Following this agreement, Flycast attempted on
numerous occasions to contact Mr. Roth to arrange for the execution and
exchange of the appropriate documents. Mr. Roth either rejected or ignored all
attempts to consummate the agreement. Mr. Roth, under the terms of a common
stock purchase agreement dated July 8, 1997, had purchased 330,000 shares of
common stock at a price per share of $0.10 by means of a Promissory Note dated
July 7, 1997 in the principal amount of $33,000. Under the agreement reached
with Mr. Roth, he would have been vested in 226,875 of these shares. After Mr.
Roth's failure to execute the agreement, Flycast foreclosed on 264,560 shares
of common stock previously issued to Mr. Roth in satisfaction of Mr. Roth's
obligations to Flycast under the note using a fair market value of $0.13 per
share, which was the fair market value as of the date of his termination of
employment. In connection with this foreclosure, Flycast issued to Mr. Roth a
certificate for his remaining 65,440 shares of common stock.
Flycast and Miles Walsh entered into an Employment Agreement on October 1997
under which Flycast agreed to pay Mr. Walsh $180,000 on an annualized basis in
exchange for Mr. Walsh's agreement to serve as Flycast's Chief Executive
Officer. In connection with the termination of Mr. Walsh's employment as Chief
Executive Officer in May 1998, Flycast entered into a Separation Agreement and
Mutual Release that provided for a severance payment equal to six months'
salary ($90,000) and for the employment of Mr. Walsh as Flycast's Vice
President of Business Planning at a salary of $25,000 for the period of one
month. At the time of Mr. Walsh's termination, he was vested
57
<PAGE>
as to 188,317 shares of common stock out of 349,011 shares of common stock he
purchased in July 1997 at a price of $0.10 per share under a common stock
purchase agreement. The remaining 160,694 shares of common stock were
repurchased by Flycast. In addition, Mr. Walsh retained 35,000 shares of
Flycast's common stock that he purchased at an exercise price of $0.13 per
share in May 1998 from his exercise of an option that was immediately
exercisable and fully vested when granted in January 1998. In January 1999, Mr.
Walsh was granted an additional nonstatutory stock option to purchase 5,000
shares at an exercise price of $8.75 per share that was fully vested. See
"Management--Executive Compensation".
In connection with the termination of Edwin Videki's employment with Flycast
in December 1998, Flycast and Mr. Videki entered into a Severance Agreement and
Mutual Release. In consideration for the release of any and all claims, Flycast
agreed to pay Mr. Videki a severance payment equal to four months salary
($43,332) and provide standard employee-related benefits for four months from
Mr. Videki's date of termination. At the time of the termination of Mr.
Videki's employment, he was vested as to 23,333 shares under an option with an
exercise price of $0.13. In addition, Flycast accelerated vesting for a portion
of the unvested shares subject to an option with an exercise price of $1.40
held by Mr. Videki such that, at the time of his termination, he was deemed
vested in 1,667 of these shares. The remaining shares subject to options held
by Mr. Videki were canceled. See "Management--Executive Compensation" and "--
Option Grants".
In June 1998, Flycast entered into a letter agreement with Larry M. Levine
that entitled Mr. Levine to continued salary and medical benefits in the event
of his termination without cause by Flycast or its successor for a period of
six months. In addition, the agreement provided that, in the event Flycast
enters into a change of control transaction prior to the 12-month anniversary
of Mr. Levine's date of commencement of employment, 25% of the "unvested"
shares acquired or acquirable by Mr. Levine at the time of the closing of the
transaction would accelerate and become immediately vested, unless acceleration
would prevent "pooling of interests" accounting treatment for the transaction.
The agreement also provided that 50% of the "unvested" shares would accelerate
in the event that a change of control transaction occurred after Mr. Levine's
first full year of employment, unless acceleration would prevent "pooling of
interests" accounting treatment for the transaction.
Subsequent to the termination of Mr. Levine's employment with Flycast in
January 1999, Flycast and Mr. Levine entered into a Severance and Consulting
Agreement with Flycast. Under the terms of this agreement, the 187,000 shares
purchased by Mr. Levine pursuant to his early exercise of the option granted to
him continue to vest at the rate of 1/48th per month until the termination of
the consulting relationship. Flycast also paid to Mr. Levine $87,500 as
consideration for these consulting services. Mr. Levine is prohibited from
working for a competitor during the term of the consulting relationship. In
March 1999, Flycast repurchased 140,250 shares held by Mr. Levine which were
subject to a repurchase option. See "Management--Executive Compensation" and
"--Option Grants."
In March 1999, Flycast entered into a letter agreement with Greg Stuart, the
Company's Vice President, Business Development, which entitles Mr. Stuart to
continued salary and benefits in the event of his termination without cause by
Flycast or its successor.
In March 1999, Flycast entered into a letter agreement with Scott W. Grafft,
the Company's Vice President, Direct Marketing, which entitles Mr. Grafft to
continued salary and benefits for six months following the date of termination
in the event of his termination without cause by Flycast or its successor. In
addition, the agreement provides that, in the event that Flycast enters into a
change of control transaction, 25% of the "unvested" shares acquired or
acquirable from the exercise of options initially granted to Mr. Grafft will
accelerate and become immediately vested upon the closing of this transaction,
unless this acceleration would prevent "pooling of interests" accounting
treatment for the transaction.
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<PAGE>
In March 1999, Flycast entered into a letter agreement with John Yung, the
Company's Vice President, Network Operations, which entitles Mr. Yung to
continued salary and benefits for six months following the date of termination
in the event of his termination without cause by Flycast or its successor.
In March 1999, Flycast entered into a letter agreement with Thomas L. Marcus,
the Company's Executive Vice President, Finance, Administration and Corporate
Development, which entitles Mr. Marcus to continued salary and benefits in the
event of his termination without cause by Flycast or its successor. In
addition, the agreement provides that, in the event that Flycast enters into a
change of control transaction, 25% of the "unvested" shares acquired or
acquirable from the exercise of options initially granted to Mr. Marcus will
accelerate and become immediately vested upon the closing of this transaction,
unless this acceleration would prevent "pooling of interests" accounting
treatment for the transaction.
Other Agreements
Flycast has entered into or will enter into Indemnification Agreements with
each of its officers and directors containing provisions that may require
Flycast, among other things, to indemnify its officers and directors against
liabilities that may arise by reason of their status or service as officers or
directors, other than liabilities arising from willful misconduct of a culpable
nature, and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. See "Management--Limitation
of Liability and Indemnification Matters."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership
of Flycast's common stock as of March 31, 1999 and as adjusted to reflect the
sale of the common stock offered by Flycast under this prospectus by:
. each of Flycast's directors and Named Officers;
. all directors and executive officers as a group; and
. each person who is known by Flycast to own beneficially more than 5% of
its common stock.
Except as otherwise noted, the address of each person listed in the table is
c/o Flycast Communications Corporation, 181 Fremont Street, San Francisco, CA
94105. The table includes all shares of common stock issuable within 60 days of
March 31, 1999 upon the exercise of options and other rights beneficially owned
by the indicated stockholders on that date. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to shares. To the knowledge
of Flycast, except under applicable community property laws or as otherwise
indicated, the persons named in the table have sole voting and sole investment
control with respect to all shares beneficially owned. The applicable
percentage of ownership for each stockholder is based on 11,106,795 shares of
common stock outstanding as of March 31, 1999, together with applicable options
for that stockholder. Shares of common stock issuable upon exercise of options
and other rights beneficially owned are deemed outstanding for the purpose of
computing the percentage ownership of the person holding those options and
other rights, but are not deemed outstanding for computing the percentage
ownership of any other person.
<TABLE>
<CAPTION>
Percentage of
Shares
Number of Outstanding
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
David J. Cowan
Entities affiliated with Bessemer Venture
Partners(1).................................. 2,130,968 19.2% 15.1%
1400 Old Country Rd., Suite 407
Westbury, NY 11590
Ted R. Dintersmith
Entities affiliated with Charles River
Partnership(2)............................... 2,093,837 18.9 14.8
1000 Winter Street, Suite 3300
Waltham, MA 02154
Entities affiliated with St. Paul Venture
Capital(3).................................... 1,256,302 11.3 8.9
8500 Normandale Lake Blvd., Suite 1940
Bloomington, MN 55437
Richard L. Thompson(4)......................... 1,030,000 9.3 7.3
George R. Garrick(5)........................... 720,000 6.5 5.1
Lawrence G. Braitman(6)........................ 606,000 5.5 4.3
Peter D. Olson(7).............................. 599,872 5.4 4.3
992 South DeAnza Boulevard
San Jose, CA 95129
Gary L. Prophitt(8)............................ 442,477 4.0 3.1
Miles Walsh(9)................................. 223,317 2.0 1.7
Michael D. Solomon............................. 140,000 1.3 1.0
Peter T. Nicas(10)............................. 120,000 1.1 *
Larry M. Levine(11)............................ 46,750 * *
Edwin Videki................................... 25,000 * *
Howard C. Draft(12)............................ 5,531 * *
All current directors and officers as a group
(17 persons)(13).............................. 7,413,813 66.8 52.6
</TABLE>
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<PAGE>
- --------
* Less than one percent of the outstanding shares of common stock.
(1) Represents:
. 746,713 shares of outstanding common stock and 15,142 shares of common
stock that the stockholder has the right to acquire pursuant to
warrants exercisable within 60 days of March 31, 1999 held by Bessec
Ventures IV, L.P.;
. 205,171 shares of outstanding common stock and 4,591 shares of common
stock that the stockholder has the right to acquire pursuant to
warrants exercisable within 60 days of March 31, 1999 held by Bessemer
Venture Investors, L.P.;
. 746,711 shares of outstanding common stock and 15,141 shares of common
stock that the stockholder has the right to acquire pursuant to
warrants exercisable within 60 days of March 31, 1999 held by Bessemer
Venture Partners IV, L.P.;
. 70,060 shares of outstanding common stock and 1,824 shares of common
stock that the stockholder has the right to acquire pursuant to
warrants exercisable within 60 days of March 31, 1999 held by BVP IV
Special Situations, L.P.; and
. 316,405 shares of outstanding common stock and 9,210 shares of common
stock stockholders have the right to acquire pursuant to warrants
exercisable within 60 days of March 31, 1999 held by various other
individuals or entities, including 18,236 shares of outstanding common
stock held by David J. Cowan and 863 shares of common stock that David
J. Cowan has the right to acquire pursuant to a warrant exercisable
within 60 days of March 31, 1999, that are either managers or former
members of Deer IV & Co. LLC or employees of Deer II & Co. LLC or
individuals or entities associated with Bessemer Securities
Corporation.
Mr. Cowan, a director of Flycast and a manager of Deer IV & Co., LLC, which
is the general partner of each of these partnerships, shares voting and
dispositive power with respect to the shares held by each this entity, and
disclaims beneficial ownership of those shares in which he has no pecuniary
interest.
(2) Represents:
. 2,011,637 shares of outstanding common stock and 44,291 shares of
common stock that the stockholder has the right to acquire pursuant
to a warrant exercisable within 60 days of March 31, 1999 held by
Charles River Partnership VIII, A Limited Partnership; and
. 37,092 shares of outstanding common stock and 817 shares of common
stock that the stockholder has the right to acquire pursuant to a
warrant exercisable within 60 days of March 31, 1999 held by Charles
River VIII-A, LLC.
Mr. Dintersmith, a director of Flycast, is a General Partner of Charles
River Partnership VIII, A Limited Partnership and disclaims beneficial
ownership of the shares in which he has no pecuniary interest.
(3) Represents 33,804 shares of outstanding common stock and 744 shares of
common stock that the stockholder has the right to acquire pursuant to a
warrant exercisable within 60 days of March 31, 1999 held by St. Paul
Venture Capital Affiliates Fund I, LLC and 1,195,434 shares of outstanding
common stock and 26,320 shares of common stock that the stockholder has
the right to acquire pursuant to a warrant exercisable within 60 days of
March 31, 1999 held by St. Paul Venture Capital IV, LLC.
(4) Represents:
. 80,000 shares of outstanding common stock held by Richard L. Thompson
(in the name of his individual retirement account); and
. 950,000 shares of outstanding common stock held by Mr. Thompson.
(5) Includes 160,000 shares of common stock issuable within 60 days of March
31, 1999 upon the exercise of an incentive stock option, all of which will
have vested, and 390,000 shares of
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<PAGE>
common stock issuable upon the exercise of nonstatutory stock options
within 60 days of March 31, 1999, none of which will have vested.
(6) Represents:
. 60,000 shares of common stock held by Lawrence G. Braitman (in the
name of his individual retirement account) and
. 546,000 shares of common stock held by Mr. Braitman.
(7) Includes 3,994 shares of outstanding common stock and 19,549 shares of
common stock that the stockholder has the right to acquire pursuant to a
warrant exercisable within 60 days of March 31, 1999 held by Peter D.
Olson (in the name of his individual retirement account). Also includes
570,069 shares of outstanding common stock and 6,260 shares of common
stock that Mr. Olson has the right to acquire pursuant to a warrant
exercisable within 60 days of March 31, 1999.
(8) Represents 442,477 shares of common stock held by Intelligent Media
Ventures, Inc., an entity of which Mr. Prophitt is an executive officer.
Mr. Prophitt disclaims beneficial ownership of these shares except to the
extent he has pecuniary interest in these shares.
(9) Represents 218,317 shares of common stock held by the Walsh/Emerson Family
Trust and 5,000 shares of common stock issuable to Mr. Walsh within 60
days of March 31, 1999 upon the exercise of stock options, all of which
would have vested.
(10) Includes 70,000 shares of common stock issuable within 60 days of March
31, 1999 upon the exercise of stock options, 10,625 shares of which will
have vested.
(11) Flycast may repurchase a portion of these shares of common stock upon
termination of Mr. Levine's consulting relationship with Flycast.
(12) Represents 5,531 shares of common stock held in the name of DF LLC, an
Illinois limited liability company in which Mr. Draft is a managing
partner.
(13) Represents shares listed as to all current directors and executive
officers, notwithstanding the fact that some directors or executive
officers may disclaim beneficial ownership of these shares, and includes
745,000 shares of common stock issuable within 60 days of March 31, 1999
upon the exercise of outstanding options and 91,016 shares of common stock
issuable within 60 days of March 31, 1999 upon the exercise of outstanding
warrants. See "Management--Executive Compensation."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, Flycast will be authorized to issue
50,000,000 shares of common stock, $0.0001 par value per share, and 2,000,000
shares of undesignated preferred stock, $0.0001 par value per share. All
currently outstanding shares of preferred stock will be converted into common
stock upon the closing of this offering.
Common Stock
As of March 31, 1999, there were 11,106,795 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
into common stock and the exercise of warrants to purchase 165,792 shares of
common stock and preferred stock that terminate on the effective date of this
offering, held of record by 123 stockholders. Options to purchase 3,719,654
shares of common stock were also outstanding. There will be 14,106,795 shares
of common stock outstanding, assuming no exercise of the underwriters' over-
allotment option or exercise of outstanding options under Flycast's stock
option plans after March 31, 1999, after giving effect to the sale of the
shares offered hereby.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably any dividends as may be
declared by the Board out of funds legally available for that purpose. See
"Dividend Policy." In the event of liquidation, dissolution or winding up of
Flycast, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to the prior
distribution rights of any outstanding preferred stock. The common stock has no
preemptive or conversion rights or other subscription rights. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into 8,250,216 shares of common stock and automatically
retired. Thereafter, the Board will have the authority, without further action
by the stockholders, to issue up to 2,000,000 shares of preferred stock,
$0.0001 par value, in one or more series. The Board will also have the
authority to designate the rights, preferences, privileges and restrictions of
each series, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series.
The issuance of preferred stock might have the effect of delaying, deferring
or preventing a change in control of Flycast without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
might also adversely affect the voting power of the holders of common stock. An
issuance of preferred stock could have the effect of decreasing the market
price of the common stock. As of the closing of this offering, no shares of
preferred stock will be outstanding. Flycast currently has no plans to issue
any shares of preferred stock.
Warrants
At March 31, 1999, there were warrants outstanding to purchase 165,792 shares
of common and preferred stock which will expire upon the consummation of this
offering, 7,500 shares of Series A Preferred Stock that will expire in June
2002, 33,834 shares of Series B Preferred Stock that will expire in April 2002
and 127,733 shares of Series C Preferred Stock that will expire two years from
the effective date of this offering. The warrants to purchase shares of
preferred stock that survive the
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<PAGE>
closing of this offering will convert into warrants to purchase shares of
common stock on the closing of this offering on a one-to-one basis. Generally,
each warrant contains provisions for the adjustment of the exercise price and
the number of shares issuable upon the exercise of the warrant upon the
occurrence of events such as stock dividends, stock splits, reorganizations,
reclassifications, consolidations and dilutive issuances of securities at
prices below the then existing warrant exercise price.
Registration Rights
The holders of 10,081,928 shares of common stock and warrants to purchase
169,067 shares of common stock or their transferees are entitled to rights with
respect to the registration of these shares under the Securities Act. These
rights are provided under the terms of an agreement between Flycast and the
holders of these securities. Subject to limitations in the agreement, the
holders of at least 20% of these securities then outstanding may require, on
two occasions beginning at least six months after the date of this prospectus,
that Flycast use its best efforts to register their shares of common stock for
public resale if Form S-3 is not available. If Flycast registers any of its
common stock either for its own account or for the account of other security
holders, the holders of these securities are entitled to include their shares
of common stock in that registration, subject to the ability of the
underwriters to limit the number of shares included in the offering. The
holders of at least 20% of the described securities entitled to registration
rights then outstanding may also require Flycast, not more than twice in any 12
month period, to register all or a portion of their securities entitled to
registration rights on Form S-3 when use of this form becomes available to
Flycast, provided, among other limitations, that the proposed selling price,
net of any underwriters' discounts or commissions, is at least $1,000,000.
Flycast will be responsible for paying all registration expenses, and the
holders selling their shares will be responsible for paying all selling
expenses.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
Provisions of Delaware law and Flycast's charter documents could make the
acquisition of Flycast and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of Flycast to negotiate with it first. Flycast believes that
the benefits of increased protection of its potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to acquire or
restructure Flycast outweigh the disadvantages of discouraging these proposals
because, among other things, negotiation of these proposals could result in an
improvement of their terms.
Flycast is subject to the provisions of Section 203 of the Delaware law. In
general, the statute prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless, subject to exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior, did
own, 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change in control of Flycast
without further action by the stockholders.
Flycast's Amended and Restated Certificate of Incorporation provides that
stockholder action can be taken only at an annual or special meeting of
stockholders and may not be taken by written consent. The Amended and Restated
Certificate of Incorporation also provides that directors of Flycast will be
elected without the application of cumulative voting. The Bylaws provide that
special meetings
64
<PAGE>
of stockholders can be called only by the Board, the Chairman of the Board, if
any, the President and holders of 50% of the votes entitled to be cast at a
meeting. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the business brought before the meeting
by the Board, the Chairman of the Board, if any, the President or any 50%
holder. The Bylaws set forth an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board, of candidates for
election as directors and with regard to business to be brought before a
meeting of stockholders.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is U.S. Stock Transfer
Corporation. The Transfer Agent's address is 1745 Gardena Avenue, Glendale, CA
91204 and its phone number at this location is (818) 502-1404.
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for Flycast common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Furthermore, since only a limited
number of shares will be available for sale shortly after this offering because
of contractual and legal restrictions on resale, sales of substantial amounts
of Flycast common stock in the public market after the restrictions lapse could
adversely affect the prevailing market price and Flycast's ability to raise
equity capital in the future.
Upon completion of this offering, Flycast will have outstanding 14,106,795
shares of common stock. Of these shares, the 3,000,000 shares sold in the
offering, plus any shares issued upon exercise of the underwriters' over-
allotment option, will be freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of Flycast, which generally
includes officers, directors or 10% stockholders as that term is defined in
Rule 144 under the Securities Act.
The remaining 11,106,795 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under
the Securities Act, which are summarized below. Sales of the Restricted Shares
in the public market, or the availability of these shares for sale, could
adversely affect the market price of the common stock.
The stockholders of Flycast have entered into lock-up agreements generally
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of Flycast common stock or any securities
exercisable for or convertible into Flycast common stock owned by them for a
period of 180 days after the effective date of the registration statement filed
in connection with this offering without the prior written consent of BT Alex.
Brown. As a result of these contractual restrictions, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701,
shares subject to lock-up agreements will not be salable until these agreements
expire or are waived by the designated underwriters' representative. Taking
into account the lock-up agreements, and assuming BT Alex. Brown does not
release stockholders from these agreements, the following shares will be
eligible for sale in the public market at the following times:
. Beginning on the effective date of the offering, only the shares sold in
the offering will be immediately available for sale in the public
market.
. Beginning 180 days after the effective date of the offering,
approximately 8,843,281 shares will be eligible for sale pursuant to
Rules 144, 144(k) and 701.
. An additional 2,263,514 shares will become eligible for sale pursuant to
Rule 144 beginning on December 30, 1999. Shares eligible to be sold by
affiliates pursuant to Rule 144 are subject to volume restrictions as
described below.
In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements, which is 180 days after the effective
date of the registration statement, a person, or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of: (1) one percent of the number of shares of
common stock then outstanding, which will equal approximately 141,068 shares
immediately after the offering; or (2) the average weekly trading volume of the
common stock during the four calendar weeks preceding the sale. Sales under
Rule 144 are also subject to manner of sale provisions and notice requirements
and to the availability of current public information about Flycast. Under Rule
144(k), a person who is not deemed to have been an affiliate of Flycast at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell
these shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
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<PAGE>
The holders of approximately 10,081,928 shares of common stock and warrants
to purchase 169,067 shares of common stock or their transferees are also
entitled to certain rights with respect to registration of their shares of
common stock for offer or sale to the public. If the holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, the sales could have a material adverse effect on
the market price for Flycast's common stock.
As a result of the lock-up agreements, persons holding stock options may not
sell shares acquired upon exercise until 180 days after the effective date of
the offering. Beginning 180 days after the effective date, any employee,
officer or director of or consultant to Flycast who purchased shares pursuant
to a written compensatory plan or contract may be entitled to rely on the
resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule
701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may
sell shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
In addition, Flycast intends to file registration statements under the
Securities Act on or as promptly as possible after the effective date to
register shares to be issued pursuant to Flycast's employee benefit plans. As a
result, any options exercised under the 1997 Option Plan, 1999 Option Plan or
any other benefit plan after the effectiveness of any registration statement
will also be freely tradable in the public market, except that shares held by
affiliates will still be subject to the volume limitation, manner of sale,
notice and public information requirements of Rule 144 unless otherwise
resalable under Rule 701. As of March 31, 1999, there were outstanding options
under the 1997 Stock Option Plan and 1999 Stock Option Plan for the purchase of
3,719,654 shares. No shares have been issued to date under Flycast's Purchase
Plan or Directors' Plan. In addition, as of March 31, 1999, there are warrants
to purchase 169,067 shares of common stock that are exercisable following this
offering. See "Risk Factors--Virtually all of our shares will be eligible for
sale shortly after the offering, and that could result in a decline in our
stock price," "Management--Stock Plans" and "Description of Capital Stock--
Registration Rights."
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated the
date hereof, the Underwriters named below, through their representatives BT
Alex. Brown Incorporated, Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, and Hambrecht & Quist LLC have severally agreed to purchase from
Flycast the following respective numbers of shares of common stock at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this prospectus.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
BT Alex. Brown Incorporated........................................
Dain Rauscher Wessels..............................................
Hambrecht & Quist LLC..............................................
Wit Capital Corporation............................................
---------
Total............................................................ 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
Underwriters to purchase the shares of common stock offered hereby are subject
to conditions. The Underwriters are obligated to purchase all of the shares of
common stock offered hereby, other than those covered by the over-allotment
option described below, if any of these shares are purchased.
The Underwriters propose to offer the shares of common stock to the public at
the public offering price set forth on the cover page of this prospectus and to
dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and these
dealers may re-allow, a concession not in excess of $ per share to other
dealers. After the initial public offering, the offering price and other
selling terms may be changed by the representatives of the Underwriters.
A prospectus in electronic format is being made available on a Web site
maintained by Wit Capital.
Flycast has granted to the Underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 450,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
Underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered hereby. To the extent that
the Underwriters exercise the option, each of the Underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of common stock as the number of shares of common stock to
be purchased by it in the above table bears to 3,000,000. Flycast will be
obligated, pursuant to the option, to sell these shares to the Underwriters to
the extent the option is exercised. If any additional shares of common stock
are purchased, the Underwriters will offer additional shares on the same terms
as those on which the 3,000,000 shares are being offered.
Flycast has agreed to indemnify the Underwriters against some specified types
of liabilities, including liabilities under the Securities Act.
Each of Flycast's officers, directors and stockholders has agreed not to
offer, sell, contract to sell or otherwise dispose of, or enter into any
transaction that is designed to, or could be expected to, result in the
disposition of any portion of, any common stock for a period of 180 days after
the
68
<PAGE>
effective date of the registration statement of which this prospectus is a part
without the prior written consent of BT Alex. Brown Incorporated. This consent
may be given at any time without public notice. Flycast has entered into a
similar agreement.
The representatives of the Underwriters have advised Flycast that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
An investment partnership and four individuals affiliated with BT Alex. Brown
are the beneficial owners of a total of 104,977 shares of Flycast common stock.
Pursuant to the rules of the National Association of Securities Dealers, Inc.,
their interest in these shares is presumed to be underwriting compensation.
Accordingly, these shares cannot be sold, transferred, assigned, pledged or
hypothecated by any person for a period of one year after the effective date of
this offering, except to officers or partners of the Underwriters and members
of the selling group and their officers or partners.
In order to facilitate the offering of the common stock, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the common stock. Specifically, the Underwriters may over-allot shares
of the common stock in connection with this offering, thus creating a short
position in the common stock for their own account. Additionally, to cover
these over-allotments or to stabilize the market price of the common stock, the
Underwriters may bid for, and purchase, shares of the common stock in the open
market. Finally, the representatives, on behalf of the Underwriters, also may
reclaim selling concessions allowed to an Underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that Underwriter or
dealer. Any of these activities may maintain the market price of the common
stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At the request of Flycast, the Underwriters have reserved for sale, at the
initial public offering price, up to 312,000 shares for Flycast's vendors,
employees, family members of employees and other third parties. The number of
shares of common stock available for sale to the general public will be reduced
to the extent these reserved shares are purchased. Any reserved shares that are
not purchased will be offered by the Underwriters to the general public on the
same basis as the other shares offered by this prospectus.
Pricing of this Offering
Prior to this offering, there has been no public market for Flycast's common
stock. Consequently, the initial public offering price for Flycast's common
stock will be determined by negotiation among Flycast and the representatives
of the Underwriters. Among the factors to be considered in determining the
public offering price will be:
. prevailing market conditions;
. Flycast's results of operations in recent periods;
. the present stage of Flycast's development;
. the market capitalizations and stages of development of other companies
that Flycast and the representatives of the Underwriters believe to be
comparable to Flycast; and
. estimates of Flycast's business potential.
69
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Flycast by Venture Law Group, A Professional Corporation, Menlo Park,
California. Jeffrey Y. Suto, a director of Venture Law Group, is the Secretary
of Flycast. Legal matters in connection with this offering will be passed upon
for the underwriters by Fenwick & West LLP, Palo Alto, California. As of the
date of this prospectus, a director of Venture Law Group owns 7,518 shares of
Flycast's Series B Preferred Stock, which shares will convert into 7,518 shares
of Flycast's common stock upon the completion of this offering, and an
investment partnership associated with Venture Law Group owns 11,278 shares of
Flycast's Series B Preferred Stock, which shares will convert into 11,278
shares of Flycast's common stock upon the completion of this offering.
EXPERTS
The financial statements as of December 31, 1997 and December 31, 1998, and
for the period from April 14, 1996 (inception) to December 31, 1996 and for
each of the years in the two year period ended December 31, 1998 included in
the prospectus and the related financial statement schedule included elsewhere
in the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
CHANGE IN ACCOUNTANTS
On December 29, 1998, Flycast dismissed KPMG LLP and subsequently appointed
Deloitte & Touche LLP as its principal accountants. There were no disagreements
with the former accountants during the period from inception to December 31,
1998 or during any subsequent interim period preceding their replacement on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements, if not resolved to the
former accountants' satisfaction, would have caused them to make reference to
the subject matter of the disagreement in connection with their reports. The
former accountants issued an unqualified opinion on the financial statements as
of and for the year ended March 31, 1998 and the period from inception to March
31, 1997. Flycast did not consult with Deloitte & Touche LLP on any accounting
or financial reporting matters in the periods prior to their appointment. The
change in accountants was approved by the Board.
70
<PAGE>
ADDITIONAL INFORMATION
Flycast has filed with the Securities and Exchange Commission ("SEC") a
Registration Statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedule. For further information with respect to Flycast and the common stock
offered hereby, reference is made to the Registration Statement and to the
exhibits and schedule. Statements made in this prospectus concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement and the exhibits and schedule may be
inspected without charge at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the SEC located at Seven World Trade Center, 13th Floor, New York,
New York 10048, and the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any part of the
Registration Statement may be obtained from the SEC's offices upon payment of
fees prescribed by the SEC. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
71
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Common Stockholders' Equity (Deficit)........................ F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Flycast Communications Corporation:
We have audited the accompanying balance sheets of Flycast Communications
Corporation (the "Company") as of December 31, 1997 and 1998, and the related
statements of operations, common stockholders' equity (deficit) and cash flows
for the period from April 14, 1996 (inception) to December 31, 1996 and for
each of the two years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Flycast Communications Corporation as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from April 14, 1996 (inception) to December 31, 1996 and
for each of the two years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 3, 1999
(March 30, 1999 as to the last paragraph of Note 8)
F-2
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Pro Forma
December 31, March 31,
----------------- March 31, 1999
1997 1998 1999 (Note 1)
------- -------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 3,560 $ 5,010 $15,032 $ 16,277
Investments........................... 183 185 185
Accounts receivable, net of allowance
for doubtful accounts of $12, $178,
$323 and $323, respectively.......... 397 3,449 4,225 4,225
Prepaid expenses and other assets..... 39 256 1,267 1,267
------- -------- ------- --------
Total current assets................. 3,996 8,898 20,709 21,954
PROPERTY AND EQUIPMENT, NET............. 661 1,785 4,192 4,192
OTHER ASSETS............................ 18 108 148 148
------- -------- ------- --------
TOTAL ASSETS............................ $ 4,675 $ 10,791 $25,049 $ 26,294
======= ======== ======= ========
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable...................... $ 326 $ 2,521 $ 4,644 $ 4,644
Accrued liabilities................... 78 369 1,819 1,819
Accrued compensation and benefits..... 63 460 776 776
Short-term capital lease obligations.. 31 477 672 672
Short-term debt....................... 983 1,330 1,330
------- -------- ------- --------
Total current liabilities............ 498 4,810 9,241 9,241
LONG-TERM CAPITAL LEASE OBLIGATIONS..... 40 1,022 1,511 1,511
LONG-TERM DEBT.......................... 3,682 3,211 3,211
------- -------- ------- --------
Total liabilities.................... 538 9,514 13,963 13,963
------- -------- ------- --------
MANDATORILY REDEEMABLE PREFERRED STOCK:
Mandatorily redeemable convertible
preferred stock, $0.0001 par value,
9,904,000 shares authorized:
Series A, 920,000 shares designated,
911,295 shares issued and outstanding
in 1997, 1998 and 1999 (aggregate
liquidation preference $911)......... 951 1,027 1,047
Series B, 5,500,000 shares designated,
5,324,532 shares issued and
outstanding in 1997 and 1998 and
5,342,577 issued and outstanding in
1999 (none pro forma) (aggregate
liquidation preference $7,082 in 1997
and 1998 and $7,105 in 1999.)........ 7,244 7,824 8,011
Series C, 3,484,000 shares designated,
497,785 shares issued and outstanding
in 1998, 1,996,344 shares issued and
outstanding at March 31, 1999 (none
pro forma) (aggregate liquidation
preference $4,500 and $18,047
(unaudited), respectively)........... 5,004 18,842
------- -------- ------- --------
Total mandatorily redeemable pre-
ferred stock........................ 8,195 13,855 27,900
------- -------- ------- --------
COMMON STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.0001 par value,
20,000,000 shares authorized,
2,352,031, 2,656,635, 2,690,787 and
11,106,795 shares issued and
outstanding in 1997, 1998, 1999 and
pro forma, respectively.............. 237 912 1,204 30,349
Common stock options.................. 2,837 2,837 2,837
Deferred stock compensation........... (1,690) (1,369) (1,369)
Notes receivable from stockholders.... (227) (606) (394) (394)
Accumulated deficit................... (4,068) (14,031) (19,092) (19,092)
------- -------- ------- --------
Total common stockholders' equity
(deficit)........................... (4,058) (12,578) (16,814) 12,331
------- -------- ------- --------
TOTAL LIABILITIES, MANDATORILY
REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)......... $ 4,675 $ 10,791 $25,049 $ 26,294
======= ======== ======= ========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Period from Years Ended Quarters Ended
April 14, 1996 December 31, March 31,
(Inception) to ---------------- ----------------
December 31, 1996 1997 1998 1998 1999
----------------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE.................. $ $ 630 $ 8,029 $ 603 $ 4,656
COST OF REVENUE.......... 556 5,945 483 3,378
-------- ------- ------- ------- -------
GROSS PROFIT............. 74 2,084 120 1,278
-------- ------- ------- ------- -------
OPERATING EXPENSES:
Sales and marketing.... 103 1,384 5,180 697 3,149
Research and
development........... 201 1,376 2,621 414 1,311
General and
administrative........ 141 725 2,031 422 1,030
Stock-based
compensation.......... 1,147 82 321
-------- ------- ------- ------- -------
Total operating
expenses............ 445 3,485 10,979 1,615 5,811
-------- ------- ------- ------- -------
OPERATING LOSS........... (445) (3,411) (8,895) (1,495) (4,533)
INTEREST INCOME.......... 92 92 43 151
INTEREST EXPENSE......... (98) (504) (15) (214)
-------- ------- ------- ------- -------
NET LOSS................. $ (445) $(3,417) $(9,307) $(1,467) $(4,596)
-------- ------- ------- ------- -------
ACCRETION OF MANDATORILY
REDEEMABLE PREFERRED
STOCK................... 206 656 162 465
-------- ------- ------- ------- -------
LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS..... $ (445) $(3,623) $(9,963) $(1,629) $(5,061)
======== ======= ======= ======= =======
BASIC AND DILUTED LOSS
PER COMMON SHARE........ $(445.00) $(31.80) $(11.93) $ (3.26) $ (4.04)
======== ======= ======= ======= =======
SHARES USED IN BASIC AND
DILUTED LOSS PER COMMON
SHARE................... 1 114 835 500 1,252
======== ======= ======= ======= =======
PRO FORMA BASIC AND
DILUTED LOSS PER COMMON
SHARE (Note 1).......... $ (1.40) $ (.24) $ (.53)
======= ======= =======
SHARES USED IN PRO FORMA
BASIC AND DILUTED LOSS
PER COMMON SHARE (Note
1)...................... 7,113 6,778 9,502
======= ======= =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(In Thousands)
<TABLE>
<CAPTION>
Common Stock Common Deferred
-------------- Stock Stock Notes Accumulated
Shares Amount Options Compensation Receivable Deficit Total
------ ------ ------- ------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK
FOR CASH AND NOTES
RECEIVABLE............. 1 $ 611 $ $ $ (16) $ $ 595
NET LOSS................ (445) (445)
----- ------ ------ ------- ----- -------- --------
BALANCE, DECEMBER 31,
1996................... 1 611 (16) (445) 150
CONVERSION OF COMMON
STOCK TO SERIES A
PREFERRED STOCK........ (1) (611) 16 (595)
ISSUANCE OF COMMON STOCK
FOR CASH AND NOTES
RECEIVABLE............. 2,284 228 (227) 1
EXERCISE OF COMMON STOCK
OPTIONS................ 68 7 7
ISSUANCE OF COMMON
WARRANTS IN CONNECTION
WITH ISSUANCE OF DEBT.. 2 2
ACCRETION OF MANDATORILY
REDEEMABLE PREFERRED
STOCK.................. (206) (206)
NET LOSS................ (3,417) (3,417)
----- ------ ------ ------- ----- -------- --------
BALANCE, DECEMBER 31,
1997................... 2,352 237 (227) (4,068) (4,058)
EXERCISE OF COMMON STOCK
OPTIONS................ 686 492 (446) 46
REPURCHASE OF COMMON
STOCK.................. (425) (42) 42
PAYMENT ON NOTES
RECEIVABLE............. 25 25
ISSUANCE OF COMMON STOCK
FOR SERVICES........... 44 47 47
COMPENSATORY STOCK
ARRANGEMENTS........... 2,837 (2,837)
AMORTIZATION OF DEFERRED
STOCK COMPENSATION..... 1,147 1,147
ISSUANCE OF COMMON STOCK
OPTIONS AND WARRANTS
FOR SERVICES........... 178 178
ACCRETION OF MANDATORILY
REDEEMABLE PREFERRED
STOCK.................. (656) (656)
NET LOSS................ (9,307) (9,307)
----- ------ ------ ------- ----- -------- --------
BALANCE, DECEMBER 31,
1998................... 2,657 912 2,837 (1,690) (606) (14,031) (12,578)
EXERCISE OF COMMON STOCK
OPTIONS AND WARRANTS*.. 174 328 (21) 307
REPURCHASE OF COMMON
STOCK*................. (140) (175) 175
PAYMENT ON NOTES
RECEIVABLE*............ 58 58
ISSUANCE OF COMMON STOCK
OPTIONS FOR SERVICES*.. 139 139
AMORTIZATION OF DEFERRED
STOCK COMPENSATION*.... 321 321
ACCRETION OF MANDATORILY
REDEEMABLE PREFERRED
STOCK*................. (465) (465)
NET LOSS*............... (4,596) (4,596)
----- ------ ------ ------- ----- -------- --------
BALANCE, MARCH 31,
1999*.................. 2,691 $1,204 $2,837 $(1,369) $(394) $(19,092) $(16,814)
===== ====== ====== ======= ===== ======== ========
</TABLE>
*Unaudited
See notes to financial statements.
F-5
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Period from
April 14, 1996 Years Ended Quarters Ended
(Inception) to December 31, March 31,
December 31, -------------------- ----------------
1996 1997 1998 1998 1999
-------------- ------- ----------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS USED IN
OPERATING ACTIVITIES:
Net loss.............. $(445) $(3,417) $(9,307) $(1,467) $(4,596)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization....... 18 184 531 72 266
Provision for
doubtful accounts.. 12 236 7 153
Loss on sale of
property and
equipment.......... 5 5
Stock and warrants
issued for
services........... 225 47 139
Noncash interest
expense............ 71 248
Stock-based
compensation
expense............ 1,147 82 321
Changes in operating
assets and
liabilities:
Accounts
receivable....... (409) (3,288) (236) (929)
Prepaid expenses
and other
assets........... (3) (54) (307) (56) (1,051)
Accounts payable.. 40 286 2,195 156 2,123
Accrued
liabilities...... 24 116 688 41 1,766
----- ------- ------- ------- -------
Net cash used in
operating
activities..... (366) (3,211) (7,627) (1,349) (1,808)
----- ------- ------- ------- -------
CASH FLOWS USED IN
INVESTING ACTIVITIES:
Purchases of property
and equipment........ (218) (544) (11) (13) (1,859)
Proceeds from sale of
property and
equipment............ 4 4
Purchases of short-
term investments..... (183) (180) (2)
----- ------- ------- ------- -------
Net cash used in
investing
activities..... (218) (544) (190) (189) (1,861)
----- ------- ------- ------- -------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES:
Proceeds from long-
term debt............ 5,100 562
Payments on long-term
debt................. (179) (124)
Borrowings under
capital lease........
Payments on capital
leases............... (28) (225) (8) (130)
Proceeds from payment
of notes receivable
from stockholders.... 16 25 58
Proceeds from issuance
of common stock...... 595 8 46 1 307
Payment for repurchase
of common stock......
Proceeds from issuance
of preferred stock... 7,308 4,500 13,580
----- ------- ------- ------- -------
Net cash
provided by
financing
activities..... 595 7,304 9,267 555 13,691
----- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 11 3,549 1,450 (983) 10,022
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 11 3,560 3,560 5,010
----- ------- ------- ------- -------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 11 $ 3,560 $ 5,010 $ 2,577 $15,032
===== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash paid for
interest............. $ 27 $ 256 $ 15 $ 214
======= ======= ======= =======
Noncash financing and
investing activities:
Purchase of
equipment under
capital leases..... $ 100 $ 1,653 $ 814
======= ======= =======
Issuance of common
stock for notes
receivable......... $ 16 $ 228 $ 446 $ 21
===== ======= ======= =======
Repurchase of common
stock for
extinguishment of
debt............... $ 42 $ 175
======= =======
Conversion of common
stock to preferred
stock.............. $ 611
=======
</TABLE>
See notes to financial statements.
F-6
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--Flycast Communications Corporation (the "Company"), a
California corporation, commenced operations on April 14, 1996 (inception). The
Company is a provider of Web-based advertising solutions designed to maximize
the return on investment for direct response advertisers and e-commerce
companies. The Company is headquartered in San Francisco.
Unaudited Interim Financial Information--The interim financial information as
of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is
unaudited and has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the interim information. Operating results for the three
months ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The Company
performs ongoing credit evaluations of its customers' respective financial
conditions, and, generally, requires no collateral from its customers. The
Company maintains an allowance for uncollectible accounts receivable based on
the expected collectibility of accounts receivable.
Cash equivalents consist of money market funds and certificates of deposit
with original maturities of three months or less at the time of acquisition.
Investments consist of certificates of deposit with an original maturity date
of greater than three months at the time of acquisition. Such investments are
considered available for sale and have carrying values which approximate fair
value.
Property and Equipment--Property and equipment are stated at cost. Equipment
held under capital leases is stated at the present value of minimum lease
payments. Depreciation on property and equipment is calculated on the straight-
line method over the estimated useful lives of the assets. Equipment held under
capital leases is amortized on the straight-line method over the shorter of the
lease term or the estimated useful life of the asset.
Revenue Recognition--Revenue is derived primarily from the delivery of
advertising impressions through third-party Web sites comprising the Flycast
Network. Revenue is recognized in the period the advertising impressions are
delivered provided collection of the resulting receivable is probable. Amounts
payable to third-party Web sites for advertisements displayed on such sites are
recorded as cost of revenue in the period the advertising impressions are
delivered.
Advertising Expenses are charged to operations as incurred. Advertising
expenses were not significant in 1996 or 1997 and were $634,000 in 1998.
F-7
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
Research and development expenses are charged to operations as incurred.
Income Taxes--Deferred tax liabilities are recognized for future taxable
amounts, and deferred tax assets are recognized for future deductions, net of a
valuation allowance to reduce net deferred tax assets to amounts that are more
likely than not to be realized.
Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentration of credit risk consist of trade receivables. The
Company's credit risk is mitigated by the Company's credit evaluation process
and the reasonably short collection terms. The Company does not require
collateral or other security to support accounts receivable and maintains
reserves for potential credit losses.
Financial Instruments--The Company's financial instruments include cash and
cash equivalents, short-term investments, notes receivable from stockholders
and long-term debt. At December 31, 1997 and 1998, the fair values of these
instruments approximated their financial statement carrying amounts.
Stock-Based Compensation--The Company accounts for its employee stock option
plan in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no
accounting recognition is given to stock options granted to employees
(including directors) at fair market value until they are exercised. Upon
exercise, the net proceeds are credited to stockholders' equity (deficit). The
Company accounts for stock options issued to non-employees in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" and Emerging Issues Task Force Issue
No. 96-18 under the fair value based method.
Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of--The
Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Loss per Common Share--Basic loss per common share excludes dilution and is
computed by dividing loss attributable to common stockholders by the weighted-
average number of common shares outstanding for the period (excluding shares
subject to repurchase). Diluted loss per common share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. Common share equivalents
are excluded from the computation in loss periods as their effect would be
antidilutive.
Pro Forma Net Loss per Common Share--Pro forma basic and diluted loss per
common share is computed by dividing loss attributable to common stockholders
by the weighted average number of common shares outstanding for the period
(excluding shares subject to repurchase) and the weighted average number of
common shares resulting from the assumed conversion of outstanding shares of
mandatorily redeemable preferred stock.
F-8
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
Unaudited Pro Forma Information--The unaudited pro forma balance sheet
presents the Company's balance sheet as if the following had occurred at March
31, 1999: (i) the exercise of warrants to acquire 25,809 shares of Series B
preferred stock, 132,840 shares of Series C preferred stock, and 7,143 shares
of common stock, which must be exercised or expire upon the closing of the
initial public offering contemplated by the Company and (ii) the conversion
upon the closing of such initial public offering of each share of preferred
stock to one share of common stock. Estimated proceeds from the common shares
to be issued as a result of such initial public offering are excluded.
Recently Issued Accounting Standards--In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires an enterprise to report, by major components and as a single
total, the change in its net assets during the period from nonowner sources;
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," which establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic areas and major customers. The Company had no
comprehensive income items to report for the period from April 14, 1996
(inception) to December 31, 1996, or for either of the two years in the period
ended December 31, 1998. The Company currently operates one reportable segment
under SFAS No. 131. Adoption of these statements in 1998 did not impact the
Company's financial position, results of operations or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedge accounting
when certain conditions are met. SFAS No. 133 is effective for the Company in
fiscal 2000. Although the Company has not fully assessed the implications of
SFAS No. 133, the Company does not believe that adoption of this statement will
have a material impact on the Company's financial position or results of
operations.
2. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 and 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Computer equipment and purchased software.................... $736 $ 746
Computer equipment held under capital lease.................. 100 1,752
Furniture and office equipment............................... 26 13
---- ------
Total...................................................... 862 2,511
Less accumulated depreciation................................ (201) (726)
---- ------
Net.......................................................... $661 $1,785
==== ======
</TABLE>
The accumulated depreciation associated with computer equipment held under
capital lease was $24,000 and $302,000 at December 31, 1997 and 1998,
respectively.
F-9
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
3. DEBT
In 1998, the Company borrowed $600,000 from a lending institution at an 8%
interest rate. Principal and interest payments are due in monthly installments
through July 2001. As of December 31, 1998, the outstanding obligation was
$445,000.
In 1998, the Company obtained a $175,000 letter of credit as a security
deposit on office space leased. The letter of credit is collateralized by all
assets of the Company.
In 1998, the Company entered into a financing agreement with a preferred
stockholder and lender for $2,500,000, due in April 2002 with interest at 11%
per annum, and for an additional $5,000,000, due in August 2001 with interest
at 14%. The Company granted this lender Series C preferred stock warrants to
purchase 55,409 shares at $4.51 per share, and 72,324 shares at $4.42 per
share. The estimated fair value allocated to the warrants of $304,000 is being
accreted over the life of the financing agreements. As of December 31, 1998,
the recorded obligation totaled $4,220,000, and $3,000,000 is available for
future borrowing.
Debt outstanding excluding capital lease obligations (Note 7) as of December
31, 1998 will be due in annual principal payments of $983,000, $1,876,000,
$1,646,000 and $160,000 in 1999, 2000, 2001 and 2002, respectively.
4. INCOME TAXES
The Company's deferred income tax assets as of December 31, 1997 and 1998
are comprised of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $1,368 $4,239
Reserves and accruals not currently deductible......... 28 807
Research and development tax credit.................... 40 135
Other.................................................. 23 28
------ ------
Total gross deferred tax assets before valuation
allowance........................................... 1,459 5,209
Valuation allowance.................................... (1,452) (4,945)
------ ------
7 264
Deferred tax liabilities:
Accrual to cash adjustments............................ (264)
Other.................................................. (7)
------ ------
Total gross deferred liabilities..................... (7) (264)
------ ------
Net deferred tax assets................................ $ -- $ --
====== ======
</TABLE>
The Company established a 100% valuation allowance at December 31, 1996, 1997
and 1998 due to the uncertainty of realizing future tax benefits from its net
operating loss carryforwards and other deferred tax assets.
F-10
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
At December 31, 1998, the Company had net operating loss ("NOL")
carryforwards of approximately $11,000,000 for federal and state income tax
purposes. These carryforwards begin to expire in 2004 for state and 2011 for
federal purposes. The Company also has available federal and state research and
development tax credit carryforwards of $77,000 and $58,000, respectively,
which had no expiration date as of December 31, 1998.
Internal Revenue Code Section 382 and similar California rules place a
limitation on the amount of taxable income which can be offset by NOL
carryforwards after a change in control (generally greater than 50% change in
ownership). Due to these provisions, utilization of the NOL and tax credit
carryforwards may be limited.
5. STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Reserved For Future Issuance
At December 31, 1998, the Company has reserved the following shares of common
stock for issuance in connection with:
<TABLE>
<S> <C>
Conversion of Series A preferred stock............................. 911,295
Conversion of Series B preferred stock............................. 5,324,532
Conversion of Series C preferred stock............................. 497,785
Common stock warrants issued and outstanding....................... 40,476
Preferred stock warrants issued and outstanding.................... 345,761
Options issued and outstanding..................................... 1,934,199
Options available under the 1997 Stock Option Plan................. 111,705
---------
Total.............................................................. 9,165,753
=========
</TABLE>
Mandatorily Redeemable Preferred Stock
In July 1997, the Company issued 611,295 shares of Series A preferred stock
in exchange for all 1,000 shares of outstanding common stock. Additionally, in
July 1997, 300,000 shares of Series A preferred stock were issued upon
conversion of $300,000 of convertible notes. In July, August and December 1997,
the Company issued 5,324,532 shares of Series B preferred stock for $1.33 per
share. In December 1998, the Company issued 497,785 shares of Series C
preferred stock for $9.04 per share.
Significant terms of the Series A, B and C preferred stock are as follows
(see Note 8):
. At the option of the holder, each share of preferred stock is
convertible at any time into one share of common stock, subject to
adjustment for certain dilutive issuances. As of December 31, 1998, no
such adjustments had occurred. Shares automatically convert into common
stock upon the earlier of (a) completion of an initial public offering
with aggregate proceeds greater than $15,000,000 at not less than $8.00
per share or (b) upon the consent of more than 50% of the holders of the
preferred stock, voting together as a single class.
. Series A, B and C preferred stock are entitled to annual noncumulative
cash dividends of $0.08, $0.106 and $0.723 per share, respectively, when
and if declared by the Board of Directors.
F-11
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
. In the event of any liquidation of the Company (which includes the
acquisition of the Company by another entity), the holders of Series B
and Series C preferred stock have a liquidation preference over common
stock and Series A preferred stock of $1.33 per share and $9.04 per
share, respectively, plus all declared but unpaid dividends. After such
payment, the holders of Series A preferred stock have a liquidation
preference of $1.00 per share plus any declared but unpaid dividends.
Upon payment of all preferred stock liquidation preferences, any
remaining proceeds will be allocated to the common stockholders.
. Any time after May 31, 2002, upon the vote of at least two-thirds of the
then outstanding preferred stock, the Company will be required to redeem
all of the preferred stock at the liquidation preference plus an amount
equal to $0.08, $0.106 and $0.723 per share per year compounded annually
for Series A, B and C preferred stock, respectively, less any cash
dividends paid. As a result, the Company has recorded an increase to the
carrying values by the accretion of the mandatorily redeemable preferred
stock of $206,000 in 1997 and $656,000 in 1998.
. Holders of preferred stock have the same voting rights as the holders of
common stock.
Preferred Stock Warrants
In 1997, in connection with certain loan arrangements, the Company issued
five year warrants to purchase 33,834 shares of Series B preferred stock at
$1.33 per share and 7,500 shares of Series A preferred stock at $1.00 per share
to a bank. The warrants expire in 2002. The fair value of these warrants of
$33,000 was recognized as interest expense in 1997.
Also in 1997, in connection with a bridge loan arrangement, the Company
issued a five year warrant to purchase 43,854 shares of Series B preferred
stock at $1.33 per share. The warrant expires in 2002 or upon closing of an
underwritten public offering. The fair value of these warrants of $36,000 was
recognized as interest expense in 1997.
As discussed in Note 3, in 1998, the Company granted a lender Series C
preferred stock warrants to purchase 55,409 shares at $4.51 per share, and
72,324 shares at $4.42 per share. The warrants expire upon the earlier of five
years from the grant date or two years from closing of an underwritten public
offering. The fair value of the warrants of $304,000 is being accreted to
interest expense over the life of the financing agreements.
In 1998, in connection with certain bridge loan arrangements, the Company
issued warrants to purchase 132,840 shares of Series C preferred stock at $9.04
per share to various lenders. The warrants expire in 2003 or upon closing of an
underwritten public offering. The fair value of these warrants of $200,000 was
recognized as interest expense in 1998.
Notes Receivable from Stockholders
In July 1997, the Company issued an aggregate of 2,275,011 shares of common
stock to officers and members of the Board of Directors. In connection with
such issuance, the Company's board members paid for the stock by issuing notes
payable (secured by the shares of the Company's common stock purchased) to the
Company. The secured notes payable bear interest at 6.65% per annum with the
entire principal balance of the notes, together with all accrued and unpaid
interest,
F-12
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
due and payable on the earlier of (a) nine months after the closing of an
initial public offering of the Company's common stock, (b) July 2002 or (c)
termination of employment. The shares vest over a four year period. Any
unvested shares purchased are subject to repurchase rights by the Company upon
occurrence of certain events or conditions, such as employment termination, at
the original purchase price. Of such shares, there were 1,990,635 and 997,500
shares subject to repurchase at December 31, 1997 and 1998, respectively.
Additionally, in September 1998, two officers of the Company exercised options
to purchase 357,000 shares with an exercise price of $1.25 by issuing notes
payable (secured by the shares of the Company's common stock purchased). The
secured notes payable bear interest at 5.54% per annum with the entire
principal balances of the notes, together with all accrued and unpaid interest,
due and payable on the earlier of (a) nine months after the closing of an
underwritten public offering, (b) September 2003 or (c) termination of
employment.
Stock Option Plan
The Company's 1997 Stock Option Plan (the "Plan") provides for the grant of
up to 2,800,000 incentive or nonstatutory options to employees, directors and
consultants of the Company at the fair market value of the common stock on the
date of grant as determined by the Board of Directors. Options granted under
the Plan generally vest ratably over a period of four years and expire ten
years from the date of grant. The Plan also provides for early exercise of
options prior to full vesting. Any unvested shares purchased are subject to
repurchase by the Company upon occurrence of certain events or conditions, such
as employment termination, at the original purchase price. There were 528,289
shares subject to repurchase at December 31, 1998.
Options and Warrants Granted to Nonemployees
In 1998, the Company granted options and warrants for common stock to
nonemployees for services performed and to be performed through 2002. In
connection with these awards, the Company recognized $178,000 in stock-based
compensation expense related to such options which vested during 1998. At
December 31, 1998, unvested options granted to nonemployees totaled 24,479
shares.
Stock-Based Compensation
During 1998, the Company issued common stock options at less than the fair
value of its common stock. The fair value of the common stock, weighted based
on options granted in 1998, was $2.73 per share. Accordingly, the Company
recorded $2,837,000 as the value of such options in 1998. Stock-based
compensation of $1,147,000 was amortized to expense in 1998 and at December 31,
1998 the Company had $1,690,000 in deferred stock compensation related to such
options, which will be amortized to expense through 2002.
During 1997, the Company issued common stock options at exercise prices equal
to the fair value of its common stock. Accordingly, no stock-based compensation
was recorded for that period.
F-13
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
Stock Option Activity
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
Weighted
Average
Outstanding Exercise
Options Price
----------- --------
<S> <C> <C>
Balance, January 1, 1997.................................
Granted................................................ 497,125 $ 0.11
Exercised.............................................. (68,020) 0.10
Canceled............................................... (27,605) 0.10
---------
Balance, December 31, 1997 (68,503 shares vested at a
weighted average exercise price of $0.11)............... 401,500 0.11
Granted................................................ 2,547,250 1.61
Exercised.............................................. (686,076) 0.73
Canceled............................................... (331,246) 0.24
---------
Balance, December 31, 1998............................... 1,931,428 1.85
Granted................................................ 1,931,712 10.24
Exercised.............................................. (143,486) 2.76
---------
Balance at March 31, 1999................................ 3,719,654 $ 5.22
=========
Available for grant at December 31, 1998................. 111,705
=========
Available for grant at March 31, 1999.................... 1,682,764
=========
</TABLE>
The following table summarizes information about currently outstanding and
vested stock options at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
---------------------------------------------- ---------------------------
Weighted
Outstanding at Average Weighted Vested at Weighted
Range of December 31, Remaining Average December 31, Average
Exercise Price 1998 Contractual Life Exercise Price 1998 Exercise Price
-------------- -------------- ---------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$0.10 to $0.13 416,799 8.76 $0.12 333,348 $0.12
1.25 866,500 9.46 1.25 176,135 1.25
1.40 270,400 9.67 1.40 24,871 1.40
1.75 156,050 9.75 1.75 9,753 1.75
8.00 224,450 9.92 8.00 4,676 8.00
--------- ----- ------- -----
1,934,199 $1.85 548,783 $ .64
========= ===== ======= =====
</TABLE>
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees," and its related
interpretations.
F-14
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income (loss) and earnings (loss) per share had the
Company adopted the fair value method since the Company's inception. Under SFAS
No. 123, the fair value of stock-based awards to employees is calculated
through the use of option pricing models, even though such models were
developed to estimate the fair value of freely tradeable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards.
The Company's calculations for employee grants were made using the minimum
value option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Dividend yield............................................... None None
Risk free interest rate...................................... 6.1% 5.3%
Expected term, in years...................................... 2.5 2.5
</TABLE>
The weighted average minimum value per option as of the date of grant for
options granted during 1997 and 1998 was $0.02 and $1.31, respectively.
If the computed minimum values of the Company's stock-based awards to
employees had been amortized to expense over the vesting period of the awards
as specified under SFAS No. 123, loss attributable to common stockholders and
basic and diluted loss per share on a pro forma basis (as compared to such
items as reported) would have been:
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Loss attributable to common stockholders (in
thousands):
As reported.......................................... $(3,623) $ (9,963)
Pro forma............................................ $(3,625) $(10,086)
Basic and diluted net loss per share:
As reported.......................................... $(31.80) $ (11.93)
Pro forma............................................ $(31.83) $ (12.08)
</TABLE>
6. NET LOSS PER SHARE
The following is a reconciliation of the denominators used in computing basic
and diluted net loss per share.
<TABLE>
<CAPTION>
Quarters Ended March
Years Ended December 31, 31,
---------------------------- ----------------------
1996 1997 1998 1998 1999
----- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Shares (denominator):
Weighted average com-
mon shares outstand-
ing................. 1,000 1,168,469 2,359,397 2,398,917 2,705,137
Weighted average com-
mon shares outstand-
ing subject to re-
purchase............ -- (1,054,562) (1,524,202) (1,899,072) (1,453,280)
----- ---------- ---------- ---------- ----------
Shares used in
computation, basic and
diluted............... 1,000 113,907 835,195 499,846 1,251,857
----- ---------- ---------- ---------- ----------
</TABLE>
F-15
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
For the period from April 14, 1996 (inception) to December 31, 1996 and for
1997 and 1998, the Company had securities outstanding which could potentially
dilute basic earnings per share in the future, but were excluded in the
computation of diluted net loss per share in the periods presented, as their
effect would have been antidilutive. Such outstanding securities consist of the
following at December 31, 1998: 6,733,612 shares of preferred stock, warrants
to purchase 345,761 shares of preferred stock, and options and warrants to
purchase 1,974,675 shares of common stock. There were 1,990,635 and 1,525,789
shares subject to repurchase by the Company at December 31, 1997 and 1998,
respectively.
7. COMMITMENTS AND CONTINGENCIES
Leases
Future minimum net lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Year ending December 31:
1999.................................................. $ 583 $ 324
2000.................................................. 546 324
2001.................................................. 458 324
2002.................................................. 34 322
2003.................................................. 319
Thereafter............................................ 346
------ ------
Total............................................... 1,621 $1,959
======
Less amount representing interest....................... (122)
------
Present value of net minimum capital lease payments..... 1,499
Less current installments of obligations under capital
leases................................................. (477)
------
Obligations under capital leases, excluding current
installments........................................... $1,022
======
</TABLE>
Total rent expense under operating leases for the period from April 14, 1996
(inception) to December 31, 1996 and for the years ended 1997 and 1998 was
$14,000, $119,000 and $377,000, respectively.
Legal Matters
In connection with the termination of employment of an officer, the Company
foreclosed on 264,560 shares of the Company's common stock securing a
promissory note from that officer. If that officer should elect to legally
contest the number of shares issued to him, and if additional shares are
ultimately issued, the Company could incur a charge equal to the fair market
value of such shares. The ultimate outcome of this matter cannot be determined
at this time.
Additionally, the Company is involved in various other claims and legal
actions. Management does not expect that the outcome of these other claims and
actions will have a material effect on the Company's financial position or
results of operations.
F-16
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998, and
the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)
8. SUBSEQUENT EVENTS
In January 1999, the Company sold 1,496,347 shares of Series C preferred
stock at $9.04 per share for proceeds of $13,527,000.
Additionally, on January 28, 1999, the Board of Directors adopted, subject to
stockholder approval, the 1999 Employee Stock Purchase Plan (the "Purchase
Plan"). Under the Purchase Plan, eligible employees are allowed to have salary
withholdings of up to 10% of their base compensation to purchase shares of
common stock at a price equal to 85% of the lower of the market value of the
stock at the beginning or end of defined purchase periods. The initial purchase
period commences upon the effective date for the initial public offering of the
Company's common stock. The Company has initially reserved 350,000 shares of
common stock for issuance under this plan, and the number of shares reserved
will increase for each of the next five years by the lesser of 75,000 shares or
0.5% of the shares of common stock outstanding at the beginning of the year.
On January 28, 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Directors' Stock Option Plan (the "Directors' Plan"). Under
the Directors' Plan, each person who becomes a nonemployee director after the
effective date of the Directors' Plan may be granted nonstatutory stock
options. A total of 200,000 shares of common stock have initially been reserved
for issuance under the Directors' Plan.
On January 28, 1999, the Board of Directors approved, subject to stockholder
approval, the reincorporation of the Company in the State of Delaware and the
associated exchange of one share of common stock or preferred stock of the
Company for every share of common stock or preferred stock, as the case may be,
of the Company's California predecessor. Such reincorporation and stock
exchange will become effective prior to the effective date of the initial
public offering contemplated by the Company.
On January 4, 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Stock Option Plan (the "1999 Stock Plan"). The 1999 Stock
Plan will serve as the successor equity incentive program to the Company's
existing 1997 Stock Option Plan. A total of 2,000,000 shares of common stock
were initially reserved for issuance under the 1999 Stock Plan. On March 30,
1999, the Board of Directors adopted an amendment to the 1999 Stock Plan that
increased the shares of common stock reserved for issuance to 3,500,000. The
number of shares reserved will increase for each of the next five years by the
lesser of 1,000,000 shares or 3% of the number of shares of common stock
outstanding at the beginning of the year.
F-17
<PAGE>
Title: Advertising partners
Subtitle: Flycast maintains marketing relationships with leading advertisers
and agencies such as...
Series of rectangular Web banner advertisements under heading "Advertiser",
including:
* Text reading "30 Minutes Free Calling Per Month" and "10 cents a Minute
AnyTime.'' In lower right corner: "Sprint Sense AnyTime(TM) click here!"
Sprint Logo. Agency: Agency.com.
* GOTO.com logo on left. Text reading: ...and you'll GoTo It!" above rectangular
box. Find It! circle on right. Text reading: "Idealab." Agency: In-House.
* Picture of smiling woman on left. Text reading: "Search more than 4,000 Mutual
Funds." E*Trade logo. Agency: In-House
* Text reading: "Click here to bid for coins." eBay logo on right. Agency:
In-House.
* Insweb logo on left. Text reading: "The one stop shop for free
auto insurance quotes" above rectangular box. Agency: Bozell Worldwide.
* Text reading: Shop@Toyota. Picture of car on right. Agency: Saatchi & Saatchi.
-----------
* Text reading: "Get the latest browser, email and address book all in one.
Free." "New Netscape Communicator 4.5 -- Click Here" and "Install Now."
Netscape logo on right. Agency: iBalls.
* Scroll bar on left. Text reading: "Shop @Online.com." Agency: Interactive
Agency.
* Smiling woman on left. Text reading: "SWF seeking music club without
commitment" and "Get 12 CDs when you buy 1." Agency: In-House.
* Picture of star with Macy's logo on left. Text reading: "Click here to shop
online." Macys.com logo. Picture balloon. Agency: Left Field.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in the
prospectus. Neither the delivery of this prospectus nor sale of common stock
means that information contained in this prospectus is correct after the date
of this prospectus. This prospectus is not an offer to sell or solicitation of
an offer to buy these shares in any circumstances under which the offer or so-
licitation is unlawful.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
The Company.............................................................. 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 30
Management............................................................... 40
Related Party Transactions............................................... 54
Principal Stockholders................................................... 60
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 66
Underwriting............................................................. 68
Legal Matters............................................................ 70
Experts.................................................................. 70
Change in Accountants.................................................... 70
Additional Information................................................... 71
Index to Financial Statements............................................ F-1
</TABLE>
----------
Until , 1999 (25 days after the date of this prospectus), all deal-
ers that buy, sell or trade in these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. Deal-
ers are also obligated to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 Shares
[LOGO OF FLYCAST NETWORK]
Common Stock
------------
PROSPECTUS
------------
BT Alex. Brown
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Hambrecht & Quist
Wit Capital Corporation
as e-Manager(TM)
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee............................................. $ 16,305
NASD filing fee.................................................. 6,365
Nasdaq National Market listing fee............................... 83,500
Printing and engraving expenses.................................. 200,000
Legal fees and expenses.......................................... 325,000
Accounting fees and expenses..................................... 200,000
NASD and Blue Sky qualification fees and expenses................ 1,000
Transfer Agent and Registrar fees................................ 5,000
Miscellaneous fees and expenses.................................. 162,830
----------
Total......................................................... $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's board of directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit
indemnification under specific circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). The Registrant's Bylaws (Exhibit 3.5 hereto)
provide for indemnification of the Registrant's directors, officers, employees
and other agents to the maximum extent permitted by Delaware Law. In addition,
the Registrant will enter into Indemnification Agreements (Exhibit 10.1 hereto)
with its officers and directors. The Underwriting Agreement (Exhibit 1.1) also
provides for cross-indemnification among the Registrant and the Underwriters.
Item 15. Recent Sales of Unregistered Securities
Since January 1996, the Registrant has sold and issued the following
securities:
(1) In June 1996, the Registrant issued promissory notes in the total principal
amount of $300,000 to a total of five investors. In July 1997, the
principal amounts of these notes were converted into 300,000 shares of
Series A Preferred Stock at a conversion price of $1.00 per share in
connection with the Series A Preferred Stock financing discussed in item
(7).
(2) In February 1997, the Registrant issued to four investors promissory notes
in the total principal amount of $291,633 that were convertible into shares
of Series B Preferred Stock and warrants exercisable to purchase an
additional number of shares of Series B Preferred Stock equal in value to
20% of the notes' total principal amount. In July and August 1997, the
principal amounts of these notes were converted into shares of Series B
Preferred Stock at a conversion
II-1
<PAGE>
price of $1.33 per share and warrants exercisable at $1.33 per share to
purchase shares of Series B Preferred Stock in connection with the Series B
Preferred Stock financing discussed in item (8).
(3) In April 1997, the Registrant issued a promissory note to a bank in the
amount of $300,000 and a warrant to purchase shares of the Registrant's
stock, the class and exercise price of which was contingent upon the value
and timing of the Registrant's next financing. In July 1997, it was
determined that the warrant would be exercisable to purchase 33,834 shares
of Series B Preferred Stock at an exercise price of $1.33 per share.
(4) In June 1997, the Registrant issued a promissory note in the principal
amount of $400,000 and a warrant to purchase 33,333 shares of common stock
at an exercise price per share of $0.01 to an investor.
(5) In June 1997, the Registrant issued a warrant to purchase 7,500 shares of
Series A Preferred Stock at an exercise price per share of $1.00 to an
investor in connection with the investor's agreement to extend the terms of
the note described in item (3) above.
(6) In July 1997, the Registrant issued and sold a total of 2,284,011 shares of
common stock to a total of nine individuals, including five officers and
directors and one consultant, at a purchase price of $0.10 per share. Sales
to officers and directors of the Registrant were made pursuant to
restricted stock purchase agreements which provided for payment to the
Registrant for this stock in the form of promissory notes, with interest,
due upon the earlier of nine months after the closing of an initial public
offering of the Registrant's common stock, July 2002 or termination of the
purchaser's service provider relationship with the Registrant.
(7) In July 1997, the Registrant issued 611,295 shares of Series A Preferred
Stock to one director in connection with a stock recapitalization pursuant
to which all shares of common stock held by this individual were exchanged
for 611,295 shares of Series A Preferred Stock.
(8) In July and August 1997, the Registrant issued and sold 5,324,532 shares of
Series B Preferred Stock to 44 investors, including those investors who
converted their notes as described in item (2) above, at a total purchase
price of $7,081,628, of which $291,633 represented conversion of debt and
the remainder was paid in cash. In conjunction with this financing and in
connection with loan arrangements, the Registrant also issued warrants,
including the warrant described in item (3) above, to purchase a total of
77,688 shares of Series B Preferred Stock at an exercise price of $1.33 per
share to six investors.
(9) In April 1998, the Registrant entered into a financing agreement with a
preferred stock shareholder and lender for $2,500,000 due in April 2002
with interest at 11% per annum. In May 1998, the Registrant, in connection
with this financing, issued warrants to purchase 55,409 shares of Series C
Preferred Stock at $4.51 per share. In August 1998, the Registrant entered
into a financing agreement with the same preferred stock shareholder and
lender for $5,000,000, due in August 2001 with interest at 14% per annum.
In September 1998, the Registrant, in connection with this financing,
issued warrants to purchase 72,324 shares of Series C Preferred Stock at
$4.42 per share. As of December 31, 1998, $3,000,000 was available for
future borrowing.
(10) In September 1998, the Registrant issued warrants to purchase a total of
7,143 shares of common stock at an exercise price per share of $1.40 to
three entities and individuals in connection with an executive search
agreement.
(11) In December 1998, January 1999 and February 1999, the Registrant issued
and sold a total of 1,996,344 shares of Series C Preferred Stock at a
purchase price of $9.04 per share to a total of 45 investors for a total
purchase price of $18,046,950, of which $4,499,995 represented conversion
of debt and the remainder was paid in cash. In conjunction with this
financing and the issuance of the convertible debt, the Registrant also
issued warrants to purchase a total of 132,840 shares of Series C
Preferred Stock at an exercise price of $9.04 per share to thirty-five
investors.
(12) In January and February 1999, 18,045 shares of Series B Preferred Stock
were issued pursuant to the exercise of warrants by three investors.
II-2
<PAGE>
(13) In March 1999, 33,333 shares of common stock were issued pursuant to the
exercise of a warrant by one investor.
(14) From March 1997, when the 1997 Stock Option Plan was adopted, to March 31,
1999, 869,531 shares of common stock have been issued pursuant to
exercises of options by forty-one employees and consultants at a weighted
average exercise price of $0.71 by cash and promissory notes.
(15) From January 1999, when the 1999 Stock Option Plan was adopted, to March
31, 1999, 30,251 shares of common stock have been issued pursuant to
exercises of options by twelve consultants at a weighted average exercise
price of $9.00.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) or Regulation
D of the Securities Act as transactions by an issuer not involving any public
offering. In addition, issuances described in Items 6 and 12 were deemed exempt
from registration under the Securities Act in reliance upon Rule 701
promulgated under the Securities Act. The recipients of securities in each
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in these transactions. All recipients had
adequate access, through their relationships with the Registrant, to
information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger between the Registrant and Flycast
Communications Corporation, a California corporation.
3.1* Fourth Amended and Restated Articles of Incorporation of Flycast
Communications Corporation, a California corporation, as currently in
effect.
3.2* Certificate of Incorporation of Flycast Communications Corporation, a
Delaware corporation, as currently in effect.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and become effective prior to the effective
date of the offering.
3.4 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and become effective upon completion of the
offering.
3.5* Bylaws of the Registrant.
4.1* Specimen Stock Certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1* Form of Indemnification Agreement between the Registrant and each of
its officers and directors.
10.2* 1997 Stock Option Plan and form of option agreements.
10.3* 1999 Stock Option Plan, as amended, and form of option agreement.
10.4* 1999 Employee Stock Purchase Plan, as amended, and form of subscription
agreement.
10.5* 1999 Directors' Stock Option Plan.
10.7* Amended and Restated Investors' Rights Agreement dated December 30,
1998 between the Registrant and certain holders of the Registrant's
securities.
10.11* Standard Office Lease dated February 1, 1998 between the Registrant and
Ray Corporation.
10.12* Master Lease Agreement dated December 30, 1997, as amended, between the
Registrant and Comdisco, Inc.
10.13* Subordinated Loan and Security Agreement dated May 22, 1998, as
amended, between the Registrant and Comdisco, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------------------------------------------------------------------
<C> <S>
10.14* Warrant Agreement to Purchase Shares of the Series C Preferred Stock of
Flycast Communications Corporation between the Registrant and
Comdisco, Inc. dated May 22, 1998.
10.15* Warrant Agreement to Purchase Shares of the Series C Preferred Stock of
Flycast Communications Corporation between the Registrant and
Comdisco, Inc. dated September 29, 1998.
16.1* Letter re Change in Certifying Accountant.
23.1 Independent Auditors' Consent.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* Represents exhibits previously filed.
(b) Financial Statement Schedules
(i) Schedule II. Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes to the financial statements.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in
denominations as required by the underwriters and registered in names as
required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. In the event that a claim for indemnification
against liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by a director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of this issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of these securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San
Francisco, State of California on April 29, 1999.
FLYCAST COMMUNICATIONS CORPORATION
By: /s/ George R. Garrick
__________________________________
George R. Garrick
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ George R. Garrick Chairman of the April 29, 1999
- ------------------------------------ Board, Chief
George R. Garrick Executive Officer
and President
(Principal
Executive Officer)
* Chief Financial April 29, 1999
- ------------------------------------ Officer and
Ralph J. Harms Assistant
Secretary
(Principal
Financial and
Accounting
Officer)
* Director April 29, 1999
- ------------------------------------
David J. Cowan
* Director April 29, 1999
- ------------------------------------
Ted R. Dintersmith
* Director April 29, 1999
- ------------------------------------
Howard Draft
* Director April 29, 1999
- ------------------------------------
Gary Prophitt
* Director April 29, 1999
- ------------------------------------
Michael D. Solomon
*By: /s/ George R. Garrick April 29, 1999
________________________________
George R. Garrick
Attorney-in-fact
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Flycast Communications Corporation
Our audits of the financial statements of Flycast Communications Corporation
for the period from April 14, 1996 (inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 also include the financial statement
schedule of Flycast Communications Corporation, listed in Item 16 (b). The
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 3, 1999
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Charged
Balance at to cost Balance at
Beginning and Deductions/ end of
of period expenses write-offs period
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Period from April 14, 1996 (incep-
tion) to December 31, 1996
Allowance for doubtful accounts.. $ -- $ -- $ -- $ --
Year ended December 31, 1997
Allowance for doubtful accounts.. $ -- $ 12,000 $ -- $ 12,000
Year ended December 31, 1998
Allowance for doubtful accounts.. $12,000 $236,000 $70,000 $178,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger between the Registrant and Flycast
Communications Corporation, a California corporation.
3.1* Fourth Amended and Restated Articles of Incorporation of Flycast
Communications Corporation, a California corporation, as currently in
effect.
3.2* Certificate of Incorporation of Flycast Communications Corporation, a
Delaware corporation, as currently in effect.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and become effective prior to the effective
date of the offering.
3.4 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and become effective upon completion of the
offering.
3.5* Bylaws of the Registrant.
4.1* Specimen Stock Certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1* Form of Indemnification Agreement between the Registrant and each of
its officers and directors.
10.2* 1997 Stock Option Plan and form of option agreements.
10.3* 1999 Stock Option Plan, as amended, and form of option agreement.
10.4* 1999 Employee Stock Purchase Plan, as amended, and form of subscription
agreement.
10.5* 1999 Directors' Stock Option Plan.
10.7* Amended and Restated Investors' Rights Agreement dated December 30,
1998 between the Registrant and certain holders of the Registrant's
securities.
10.11* Standard Office Lease dated February 1, 1998 between the Registrant and
Ray Corporation.
10.12* Master Lease Agreement dated December 30, 1997, as amended, between the
Registrant and Comdisco, Inc.
10.13* Subordinated Loan and Security Agreement dated May 22, 1998, as
amended, between the Registrant and Comdisco, Inc.
10.14* Warrant Agreement to Purchase Shares of the Series C Preferred Stock of
Flycast Communications Corporation between the Registrant and
Comdisco, Inc. dated May 22, 1998.
10.15* Warrant Agreement to Purchase Shares of the Series C Preferred Stock of
Flycast Communications Corporation between the Registrant and
Comdisco, Inc. dated September 29, 1998.
16.1* Letter re Change in Certifying Accountant.
23.1 Independent Auditors' Consent.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* Represents exhibits previously filed.
<PAGE>
EXHIBIT 1.1
3,000,000 Shares
Flycast Communications Corporation
Common Stock
($0.0001 Par Value)
EQUITY UNDERWRITING AGREEMENT
-----------------------------
_______________, 1999
BT Alex. Brown Incorporated
Hambrecht & Quist LLC
Dain Rauscher Wessels
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Flycast Communications Corporation, a Delaware corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of 3,000,000 shares of the Company's Common
Stock, $0.0001 par value (the "Firm Shares"). The respective amounts of the
Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto. The Company also proposes to sell at
the Underwriters' option an aggregate of up to 450,000 additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters.
<PAGE>
The Firm Shares and the Option Shares (to the extent the aforementioned option
is exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to each of the Underwriters as
follows:
(a) A registration statement on Form S-1 (File No. 333-71909) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462 (b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to any
Prospectus, shall be deemed to include any supplements or amendments thereto,
filed with the Commission after the date of filing of the Prospectus under Rules
424(b) or 430A, and prior to the termination of the offering of the Shares by
the Underwriters.
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company does not own
any equity interest, directly or indirectly, in any corporation, partnership,
joint venture or other entity and has no subsidiaries. The Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification.
(c) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
Shares to be issued and sold by the Company have been duly authorized and when
issued and paid for as contemplated herein will be validly issued, fully paid
and non-assessable; and no preemptive rights of stockholders exist with respect
to any of the Shares or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any shares of Common Stock.
2
<PAGE>
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the jurisdiction of
the Company's incorporation.
(e) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(f) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement, present fairly
the financial position and the results of operations and cash flows of the
Company at the indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the periods
involved, except as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Registration Statement presents fairly the
information shown therein and such data has been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
company.
(g) Deloitte & Touche LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise which if determined adversely to the Company
might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
3
<PAGE>
(i) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) hereinabove described, in each case free from any
lien, mortgage, pledge, charge or encumbrance of any kind which would materially
affect the value thereof or materially interfere with the use made or to be made
thereof by it, except those reflected in such financial statements (or as
described in the Registration Statement). The Company occupies its leased
properties under valid and binding leases conforming in all material respects to
the description thereof set forth in the Registration Statement. The Company's
assets are adequate for the conduct of the Company's business as described in
the Registration Statement.
(j) The Company has filed all Federal, State, local and foreign tax
returns or extensions thereto which have been required to be filed and has paid
all taxes indicated by said returns and all assessments received by it to the
extent that such taxes have become due and are not being contested in good faith
and for which an adequate reserve for accrual has been established in accordance
with generally accepted accounting principles. All tax liabilities have been
adequately provided for in the financial statements of the Company, and the
Company does not know of any actual or proposed additional material tax
assessments.
(k) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change, nor any development involving a prospective
material adverse change, in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise), or prospects of
the Company, whether or not occurring in the ordinary course of business, and
there has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company, other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company has no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(l) The Company is not and with the giving of notice or lapse of time
or both, will not be, in violation of or in default under its Certificate of
Incorporation or By-Laws or under any agreement, lease, contract, indenture or
other instrument or obligation to which it is a party or by which it, or any of
its properties, is bound and which default is of material significance in
respect of the business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company. The execution
and delivery of this Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust or other agreement or instrument
to which the Company is a party, or of the Certificate of Incorporation or By-
Laws of the Company or any order, rule or regulation applicable to the Company
of any court or of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the
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transactions herein contemplated (except such additional steps as may be
required by the Commission, the National Association of Securities Dealers, Inc.
(the "NASD") or such additional steps as may be necessary to qualify the Shares
for public offering by the Underwriters under state securities or Blue Sky laws)
has been obtained or made and is in full force and effect.
(n) The Company holds all material licenses, certificates and permits
from governmental authorities which are necessary to the conduct of its
business. Other than as set forth in the Prospectus, the Company has sufficient
interests in all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights or processes ("Intellectual
Property") necessary for its business and for the products and services under
development, in each case without any conflict with or infringement of the
interests of others, and has taken all reasonable steps necessary to secure
interests in such Intellectual Property from its contractors; except as set
forth in the Prospectus, the Company is not aware of outstanding options,
licenses or agreements of any kind relating to the Intellectual Property of the
Company that are required to be described in the Prospectus, and, except as set
forth in the Prospectus, the Company is not a party to or bound by any options,
licenses or agreements with respect to the Intellectual Property of any other
person or entity that are required to be set forth in the Prospectus; none of
the technology employed by the Company has been obtained or is being used by the
Company in violation of any contractual obligation binding on the Company or any
of its officers, directors, employees or otherwise in violation of the rights of
any persons; except as disclosed in the Prospectus, the Company has not received
any written or oral communications alleging that the Company has violated,
infringed or conflicted with, or, by conducting its business as set forth in the
Prospectus, would violate, infringe or conflict with any of the Intellectual
Property of any other person or entity; the Company has not infringed any
Intellectual Property rights, which infringement is material to the business of
the Company. The Company knows of no material infringement by others of
Intellectual Property owned by or licensed to the Company.
(o) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action designed
to cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares.
(p) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940 (as amended, the "1940 Act"),
and the rules and regulations of the Commission thereunder.
(q) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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(r) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of its business and the
value of its properties and as is customary for companies engaged in similar
industries.
(s) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(t) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.
(u) The execution and delivery of the Agreement and Plan of Merger
dated as of _______, 1999 (the "Merger Agreement") between Flycast
Communications Corporation, a California corporation (the "California
Corporation"), and the Company, effecting the reincorporation of the California
Corporation under the laws of the Sate of Delaware, was duly authorized by all
necessary corporate action on the part of each of the California Corporation and
the Company. Each of the California Corporation and the Company had all
corporate power and authority to execute and deliver the Merger Agreement, to
file the Merger Agreement with the Secretary of State of California and the
Secretary of State of Delaware and to consummate the reincorporation
contemplated by the Merger Agreement, and the Merger Agreement at the time of
execution and filing constituted a valid and binding obligation of each of the
California Corporation and the Company.
(v) Except as disclosed in the Prospectus, no material labor dispute
with employees of the Company exists or to the knowledge of the Company is
threatened and the Company is not aware of any existing, threatened or imminent
labor disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could result in any material adverse change in
the condition, financial or otherwise of the Company or the business,
management, properties, assets, rights, operations or prospects of the Company.
2. Purchase, Sale and Delivery of the Firm Shares.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the
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number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds against delivery of certificates therefor to the
Representatives for the several accounts of the Underwriters. Such payment and
delivery are to be made through the facilities of the Depository Trust Company,
New York, New York at 10:00 a.m., New York time, on the third business day after
the date of this Agreement or at such other time and date not later than five
business days thereafter as you and the Company shall agree upon, such time and
date being herein referred to as the "Closing Date." (As used herein, "business
day" means a day on which the New York Stock Exchange is open for trading and on
which banks in New York are open for business and are not permitted by law or
executive order to be closed.)
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three
or more days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of Option Shares being purchased as the number of Firm Shares being
purchased by such Underwriter bears to the total number of Firm Shares, adjusted
by you in such manner as to avoid fractional shares. The option with respect to
the Option Shares granted hereunder may be exercised only to cover over-
allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice of such cancellation to the
Company. To the extent, if any, that the option is exercised, payment for the
Option Shares shall be made on the Option Closing Date in Federal (same day)
funds through the facilities of the Depository Trust Company in New York, New
York drawn to the order of the Company.
3. Offering by the Underwriters.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
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terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company.
------------------------
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date, four signed copies
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of the Registration Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Representatives such number of copies
of the Registration Statement (including such number of copies of the exhibits
filed therewith that may reasonably be requested), and of all amendments
thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(g) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of BT Alex. Brown Incorporated,
except (i) the Company's issuance of Common Stock upon the exercise of warrants
and stock options that are presently outstanding and described as such in the
Prospectus, or any other issuance of options or Common Stock hereafter under the
option or equity incentive plans described in the Prospectus, provided that no
such issuance of Common Stock results from any acceleration of vesting of any
such security and (ii) the Company's issuance of Common Stock under the employee
stock purchase plan described in the Prospectus.
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(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on The NASDAQ Stock Market.
(j) The Company will cause each officer and director of the Company,
each beneficial owner of 1% or more of the issued and outstanding share capital
of the Company, each stockholder of the Company that has registration rights and
the specific other stockholders and optionholders of the Company that are
designated by you, to furnish to you, on or prior to the date of this agreement,
a letter or letters, in form and substance satisfactory to the Underwriters,
pursuant to which each such person will agree not to offer, sell, sell short or
otherwise dispose of any shares of Common Stock of the Company or other capital
stock of the Company, or any other securities convertible, exchangeable or
exercisable for Common Shares or derivative of Common Shares owned by such
person or request the registration for the offer or sale of any of the foregoing
(or as to which such person has the right to direct the disposition of) for a
period of 180 days after the date of this Agreement, directly or indirectly,
except with the prior written consent of BT Alex. Brown Incorporated ("Lockup
Agreements"). The Company agrees that it will not release any of its officers,
directors, stockholders or optionholders from any similar lockup agreements
currently existing or hereafter effected without the prior written consent of BT
Alex. Brown Incorporated.
(k) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the 1940 Act.
(m) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
5. Costs and Expenses.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company; the
cost of printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements) incident to securing any
required review by the National Association of Securities Dealers, Inc. (the
"NASD")
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of the terms of the sale of the Shares; the Listing Fee of the Nasdaq Stock
Market; and the expenses, including the fees and disbursements of counsel for
the Underwriters, incurred in connection with the qualification of the Shares
under State securities or Blue Sky laws. The Company agrees to pay all costs and
expenses of the Underwriters, including the fees and disbursements of counsel
for the Underwriters, incident to the offer and sale of directed shares of the
Common Stock by the Underwriters to employees and persons having business
relationships with the Company and its Subsidiaries. Notwithstanding the
foregoing, the Company shall not, however, be required to pay for any of the
Underwriters expenses (other than those related to qualification under NASD
regulation and State securities or Blue Sky laws) except that, if this Agreement
shall not be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the Representatives
pursuant to Section 11 hereof, or by reason of any failure, refusal or inability
on the part of the Company to perform any undertaking or satisfy any condition
of this Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. Conditions of Obligations of the Underwriters.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
contained herein, and to the performance by the Company of its covenants and
obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinions of Venture Law Group,
A Professional Corporation, counsel for the Company, dated the Closing Date or
the Option Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the effect
that:
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(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement and the Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification and in which the failure to qualify would
have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus as of the date and
based on the assumptions stated therein; the authorized shares of the Company's
Common Stock have been duly authorized; the outstanding shares of the Company's
Common Stock have been duly authorized and validly issued and are non-assessable
and, to such counsel's knowledge, fully paid; all of the Shares conform in all
material respects to the description thereof contained in the Prospectus; the
certificates for the Shares, assuming they are in the form filed with the
Commission, are in due and proper form in all material respects; the shares of
Common Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement, have been duly authorized and will be validly
issued, fully paid and non-assessable when issued and paid for as contemplated
by this Agreement; and, to such counsel's knowledge, no preemptive rights of
stockholders exist with respect to any of the Shares or the issue or sale
thereof.
(iii) Except as described in or contemplated by the Prospectus, to
the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and, except as
described in or contemplated by the Prospectus, to such counsel's knowledge,
there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(iv) Based solely upon oral advice of the Staff of the Commission,
the Registration Statement has become effective under the Act and, to the
knowledge of such counsel, no stop order proceedings with respect thereto have
been instituted or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as
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to the financial statements, the related notes and related schedules thereto or
the other financial and statistical data in the Prospectus.
(vi) The statements under the captions "Business--The Flycast
Reseller Network," "Management," "Related Party Transactions," "Description of
Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar
as such statements constitute a summary of documents referred to therein or
matters of law, fairly summarize in all material respects the information called
for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are no so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company except as set forth in the
Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and, as of the
Closing Date, will not conflict with or result in a breach of any of the terms
or provisions of, or constitute a default under, the Certificate of
Incorporation or By-Laws of the Company, or any agreement or instrument known to
such counsel to which the Company is a party or by which the Company may be
bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
In rendering such opinion Venture Law Group, A Professional
Corporation, may rely as to matters governed by the laws of states other than
California or Delaware or Federal laws on local counsel in such jurisdictions,
provided that in each case Venture Law Group, A Professional Corporation, shall
state that they believe that they and the Underwriters are justified in
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relying on such other counsel. In addition to the matters set forth above, such
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel which leads them to believe that (i) the
Registration Statement, at the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (except that such counsel may exclude from the
scope of its statement the financial statements, the notes and schedules thereto
and the other financial and statistical information in the Prospectus), and (ii)
the Prospectus, or any supplement thereto, on the date it was filed pursuant to
the Rules and Regulations and as of the Closing Date or the Option Closing Date,
as the case may be, contained an untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Venture Law
Group, A Professional Corporation, may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(c) The Representatives shall have received from Fenwick & West LLP,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (ii), (iii), (iv) and (ix) of Paragraph (b) of this Section 6, and
that the Company is a duly organized and validly existing corporation under the
laws of the State of Delaware. In rendering such opinion Fenwick & West LLP may
rely as to all matters governed other than by the laws of the State of
California, the General Corporation Law of the State of Delaware or the Federal
securities laws on the opinion of counsel referred to in Paragraph (b) of this
Section 6. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact, necessary in
order to make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein). With
respect to such statement, Fenwick & West LLP may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Fenwick & West LLP a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the
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Shares under the State securities or Blue Sky laws of such jurisdictions as the
Representatives may reasonably have designated to the Company.
(e) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of Deloitte & Touche LLP confirming that they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registrations
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business, management, properties, assets,
15
<PAGE>
rights, operations, condition (financial or otherwise) or prospects of the
Company, whether or not arising in the ordinary course of business.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the NASDAQ Stock Market.
(i) The Lockup Agreements described in Section 4 (j) are in full
force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Fenwick & West LLP,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. Conditions of the Obligations of the Company.
--------------------------------------------
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
---------------
(a) The Company agrees:
(1) to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of the Act, against
any losses, claims, damages or liabilities to which such Underwriter or any
such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, (ii) the omission or alleged
omission to state therein a material fact
16
<PAGE>
required to be stated therein or necessary to make the statements therein
not misleading any act or failure to act, or (iii) any alleged act or
failure to act by any Underwriter in connection with, or relating in any
manner to, the Shares or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon matters covered by clause (i) or (ii)
above (provided, that the Company shall not be liable under this clause
(iii) to the extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or
willful misconduct); provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for
use in the preparation thereof; and provided further that the foregoing
indemnity agreement with respect to any Preliminary Prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person at or prior to the written confirmation of the
sale of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses,
claims, damages or liabilities, unless such failure is the result of non-
compliance by the Company with Section 4(d) hereof. This indemnity
obligation will be in addition to any liability which the Company may
otherwise have.
(2) to reimburse each Underwriter and each such controlling person
upon demand for any legal or other out-of-pocket expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
controlling person is a party to any action or proceeding. In the event
that it is finally judicially determined that the Underwriters were not
entitled to receive payments for legal and other expenses pursuant to this
subparagraph, the Underwriters will promptly return all sums that had been
advanced pursuant hereto together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate
for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate").
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i)
17
<PAGE>
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or(b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing,
the indemnifying party shall pay as incurred (or within 30 days of presentation)
the fees and expenses of the counsel retained by the indemnified party in the
event (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them or (iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable period of
time after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from
18
<PAGE>
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
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<PAGE>
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. Default by Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section
20
<PAGE>
9, the Closing Date or Option Closing Date, as the case may be, may be postponed
for such period, not exceeding seven days, as you, as Representatives, may
determine in order that the required changes in the Registration Statement or in
the Prospectus or in any other documents or arrangements may be effected. The
term "Underwriter" includes any person substituted for a defaulting Underwriter.
Any action taken under this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
10. Notices.
-------
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland 21202, Attention:
_____________________________; with a copy to BT Alex. Brown Incorporated, One
Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006, Attention:
General Counsel; if to the Company, to Flycast Communications Corporation, 181
Fremont Street, Suite 120, San Francisco, California 94105, Attention: George
Garrick; with a copy to Venture Law Group, A Professional Corporation, 2800 Sand
Hill Road, Menlo Park, California 94025, Attention: Jeffrey Y. Suto.
11. Termination.
-----------
(a) This Agreement may be terminated by you by notice to the Company
at any time prior to the Closing Date if any of the following has occurred: (i)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading, or placement on any watch list for
possible downgrading, in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Exchange Act); (vii) the suspension of trading of the
Company's common stock by the NASDAQ Stock Market, the Commission, or any other
governmental authority or, (viii) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States; or
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(b) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. Information Provided by Underwriters.
------------------------------------
The Company, the Selling Shareholders and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters),
legends required by Item 502(d) of Regulation S-K under the Act and the
information under the caption "Underwriting" in the Prospectus.
14. Miscellaneous.
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the Company
or its directors or officers and (c) delivery of and payment for the Shares
under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
FLYCAST COMMUNICATIONS CORPORATION
By
---------------------------------------
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<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
HAMBRECHT & QUIST LLC
DAIN RAUSCHER WESSELS
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By:
-------------------------------------
Authorized Officer
23
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SCHEDULE I
Schedule of Underwriters
Number of Firm Shares
Underwriter to be Purchased
----------- ------------------------
BT Alex. Brown Incorporated
Hambrecht & Quist LLC
Dain Rauscher Wessels
__________
Total __________
24
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FLYCAST COMMUNICATIONS CORPORATION
The undersigned, George R. Garrick and Jeffrey Y. Suto, hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of Flycast Communications Corporation, a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on January 25, 1999.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
"The name of this corporation is Flycast Communications Corporation (the
"Corporation").
- ------------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
------------ ---------------
number of shares which the Corporation is authorized to issue is one hundred two
million (102,000,000) shares, each with a par value of $0.001 per share. One
hundred million (100,000,000) shares shall be Common Stock and two million
(2,000,000) shares shall be Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
<PAGE>
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, adopt, alter, amend or
repeal the Bylaws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal Bylaws made by the
Board of Directors as provided for in this Restated Certificate of
Incorporation. The affirmative vote of 66-2/3% of the total number of votes of
the then outstanding shares of capital stock of this Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required for the adoption, amendment or repeal of sections 2.4 (Notice
of Stockholders' Meetings) and 2.5 (Manner of Giving Notice) of the
Corporation's Bylaws.
ARTICLE VII
The number of directors which shall constitute the whole Board of Directors
of the Corporation shall be as specified in the Bylaws of the Corporation.
ARTICLE VIII
The election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statute) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
If at any time this Corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, for so long
as such class is so registered, any action by the stockholders of such class
must be taken at an annual or special meeting of stockholders and may not be
taken by written consent. This provision shall supersede any provision to the
contrary in the Bylaws of the Corporation.
ARTICLE XI
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
ARTICLE XII
Notwithstanding any other provisions of this Restated Certificate of
Incorporation or the Bylaws (and notwithstanding the fact that a lesser
percentage may be specified by law, this Restated Certificate of Incorporation
or the Bylaws of this Corporation), the affirmative vote of 66-2/3% of the total
number
-2-
<PAGE>
of the then outstanding shares of capital stock of this Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to amend or repeal, or to adopt any provision inconsistent
with the purpose or intent of, Articles VI through XIV. Notice of any such
proposed amendment, repeal or adoption, shall be contained in the notice of the
meeting at which it is to be considered. Subject to the provisions set forth
herein, this Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE XIII
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Neither any
amendment nor repeal of this Article XIII, nor the adoption of any provision of
this Restated Certificate of Incorporation inconsistent with this Article XIII,
shall eliminate or reduce the effect of this Article XIII in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article XIII, would accrue or arise, prior to such amendment, repeal or adoption
of any inconsistent provision.
ARTICLE XIV
"Listing Event" as used in this Restated Certificate of Incorporation shall
-------------
mean the Corporation becoming a "Listed Corporation" within the meaning of
------------------
Section 301.5 of the California Corporations Code. For the management of the
business and for the conduct of the affairs of the Corporation, and in further
definition, limitation and regulation of the powers of the Corporation, its
directors and its stockholders or any class thereof, as the case may be, it is
further provided that, effective upon the occurrence of the Listing Event:
(i) Each of the Corporation's director shall serve until his or her
successor is duly elected and qualified or until his or her death, resignation,
or removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal, or other causes shall be filled by either (i) the
affirmative vote of the holders of a majority of the voting power of the then-
outstanding shares of voting stock of the corporation entitled to vote generally
in the election of directors (the "Voting Stock") voting together as a single
------------
class; or (ii) by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors. Newly
created directorships resulting from any increase in the number of directors
shall, unless the Board of Directors determines by resolution that any such
newly created directorship shall be filled by the stockholders, be filled only
by the affirmative vote of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified.
(ii) There shall be no right with respect to shares of stock of the
Corporation to cumulate votes in the election of directors.
-3-
<PAGE>
(iii) Any director, or the entire Board of Directors, may be removed
from office at any time (i) with cause by the affirmative vote of the holders of
at least a majority of the voting power of the then-outstanding shares of the
Voting Stock, voting together as a single class; or (ii) without cause by the
affirmative vote of the holders of at least 66-2/3% of the voting power of the
then-outstanding shares of the Voting Stock."
-4-
<PAGE>
Pursuant to Section 242 and 245 of the General Corporation Law of the State
of Delaware, this Restated Certificate of Incorporation restates and integrates,
but does not further amend, the provisions of this Corporation's Certificate of
Incorporation, and there is no discrepancy between those provisions and the
provisions of this Restated Certificate of Incorporation. Pursuant to Section
242 and 245 of the General Corporation Law of the State of Delaware, this
Restated Certificate of Incorporation has been duly adopted by written consent
of the Board of Directors of this Corporation without a vote of the
stockholders.
Executed at San Francisco, California, on _______________, 1999.
________________________________
George R. Garrick, President
________________________________
Jeffrey Y. Suto, Secretary
-5-
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment 4 to Registration Statement No. 333-
71909 of Flycast Communications Corporation of our report dated February 3,
1999 (March 30, 1999 as to the last paragraph of Note 8), appearing in the
Prospectus, which is part of this Registration Statement, and of our report
dated February 3, 1999 relating to the financial statement schedule appearing
elsewhere in this Registration Statement.
We also consent to the references to us under the headings "Experts" and
"Change in Accountants" in such Prospectus.
/s/ Deloitte & Touche LLP
San Jose, California
April 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1998
<CASH> 15,032
<SECURITIES> 185
<RECEIVABLES> 4,548
<ALLOWANCES> 323
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 20,709
<PP&E> 5,184
<DEPRECIATION> 992
<TOTAL-ASSETS> 25,049
<CURRENT-LIABILITIES> 9,241
<BONDS> 0
27,900
0
<COMMON> 1,204
<OTHER-SE> (18,018)
<TOTAL-LIABILITY-AND-EQUITY> 25,049
<SALES> 4,656
<TOTAL-REVENUES> 4,656
<CGS> 3,378
<TOTAL-COSTS> 3,378
<OTHER-EXPENSES> 5,811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> (4,596)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,596)
<EPS-PRIMARY> (4.04)
<EPS-DILUTED> (4.04)
<FN>
<F1>Current assets: prepaid expenses and other assets are $1267. Long-term
assets: other assets are $148.
</FN>
</TABLE>
