<PAGE>
As filed with the Securities and Exchange Commission on March 18, 1999
Registration No. 333-71909
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT 2 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)
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181 Fremont Street, Suite 120
San Francisco, California 94105
(415) 977-1000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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George R. Garrick, Chairman of the Board, Chief Executive Officer and President
FLYCAST COMMUNICATIONS CORPORATION
181 Fremont Street, Suite 120
San Francisco, California 94105
(415) 977-1000
(Name, Address Including Zip Code, and Telephone Number Including Area Code, of
Agent for Service)
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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 A Professional Corporation
2800 Sand Hill Road Two Palo Alto Square
Menlo Park, CA 94025 Palo Alto, CA 94306
(650) 854-4488 (650) 494-0600
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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.
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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........................ $40,250,000 $11,190(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
March 18, 1999
Shares
[LOGO OF FLYCAST COMMUNICATIONS CORPORATION]
FLYCAST COMMUNICATIONS CORPORATION
Common Stock
---------
This is the initial public offering of Flycast Communications Corporation and
we are offering shares of our common stock. We anticipate the
initial public offering price will be between $ and $ per share.
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 6.
<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
additional shares to cover any over-allotments.
BT Alex. Brown
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Hambrecht & Quist
, 1999
<PAGE>
[INSIDE FRONT COVER]
Title: Maximizing ROI 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 "Vertical
Marketplace Solutions."
[INSIDE FRONT COVER FOLD-OUT]
Title: AdExchange, our proprietary automated advertising management platform
that optimizes real-time advertising delivery using PassiveProfiling, 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 clicks on an advertisement and links 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, nature of content, Web usage patterns and prior
advertising exposure.
Flycast is a registered trademark and AdAgent, AdEx, AdExchange, AdReporter,
Category Select, Passive Profiling, Run of Category, Run of Network,
SiteRegistry, SiteReporter, and Site Select are trademarks of Flycast. All
other brand names or trademarks appearing in this prospectus are the property
of their respective holders.
2
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and Financial Statements and notes thereto 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 a specific action. Those actions
include such things as clicking on an advertisement, registering his or her
name or other information, or buying a product. 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
. 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 by 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.
. Web-based direct marketers benefit from the growing supply of unsold ad-
vertising space on the Web.
An industry source 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, thereby minimizing their cost per action.
3
<PAGE>
Our advertising network currently combines advertising space from over 780
Web sites. The number of advertisements served on our network has increased
from 93 million in December 1997 to 600 million in December 1998. Our network
reached over 20 million individual Web users or 35% of all Web users in the
U.S. during the month of December 1998. 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 cannot afford to maintain their own sales forces.
We also partner with larger Web sites which 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 entered the market for local Web advertising solutions. We
recently signed agreements with BellSouth Corporation, SBC Communications Inc.
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.
Flycast's principal executive offices are located at 181 Fremont Street,
Suite 120, San Francisco, California 94105. Its telephone number at that
location is (415) 977-1000. Information contained on our Web site does not
constitute part of this prospectus.
The Offering
<TABLE>
<S> <C>
Common stock offered by Flycast..... shares
Common stock to be outstanding after
the offering....................... shares(1)
Use of proceeds..................... For working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................. FCST
</TABLE>
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(1) Based on the number of shares outstanding as of December 31, 1998.
Excludes:
. 2,045,904 shares subject to outstanding options or reserved for issuance
under our 1997 Stock Option Plan;
. 169,067 shares subject to outstanding warrants, net of warrants to
purchase 217,170 shares that will be exercised immediately before the
completion of this offering; and
. Shares reserved for issuance under our stock plans. See "Management--
Stock Plans" and Notes 5 and 8 of Notes to Financial Statements.
Unless otherwise indicated, the information in this prospectus assumes:
. the sale of 1,496,347 shares of preferred stock in January 1999;
. the exercise of warrants to purchase 40,476 shares of common stock and
176,694 shares of preferred stock prior to the closing of this offering;
. the conversion of each outstanding share of preferred stock into common
stock, all of which will occur upon the closing of this offering;
. our reincorporation into Delaware prior to the closing of this offering;
and
. no exercise of the Underwriters' over-allotment option.
4
<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. The Pro Forma
column in the Balance Sheet Data below reflects:
. the sale of preferred stock in January 1999 for an aggregate purchase
price of $13.5 million;
. the exercise of warrants to purchase 217,170 shares that will expire
upon the closing of this offering for an aggregate exercise price of
approximately $1.3 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 $ 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
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Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1997 1998 1998 1998 1998 1998
------- ------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 630 $ 8,029 $ 603 $1,172 $2,116 $4,138
Gross profit............ 74 2,084 120 293 546 1,125
Operating loss.......... (3,411) (8,895) (1,495) (1,758) (2,477) (3,165)
Net loss................ (3,417) (9,307) (1,467) (1,776) (2,532) (3,532)
Basic and diluted loss
per common share....... $(31.80) $(11.93) $(3.26) $(2.37) $(2.85) $(3.43)
Shares used in basic and
diluted loss per common
share.................. 114 835 500 819 945 1,076
Pro forma basic and
diluted loss per common
share.................. $ (1.40)
Shares used in pro forma
basic and diluted loss
per common share....... 7,113
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C>
Cash, cash equivalents and investments......... $ 5,193 $19,992 $
Working capital................................ 4,088 18,887
Total assets................................... 10,791 25,590
Long-term obligations, less current portion.... 4,704 4,704
Mandatorily redeemable preferred stock......... 13,855 --
Total stockholders' equity (deficit)........... (12,578) 16,076
</TABLE>
5
<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 limited operating history upon which you can evaluate our
business
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;
. 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 December 31, 1998 was $14.0 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, we specifically disavow revenue projections that received
limited circulation in the press in the fall of 1998 and that greatly exceed
our most recent comparable projections for future years. 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 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.
6
<PAGE>
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
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 time or system failures
and adversely affect the availability of advertisements, the number of
advertising views received by advertisers and our advertising revenues. Due to
the unexpected growth in the number of advertising views 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
7
<PAGE>
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 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
they do 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.
Our business model has a limited history and may not suceed
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 may result in the loss of
customers, which could have a material adverse effect on Flycast's business,
results of operations and financial condition. For more detailed information,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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 adopt 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.
8
<PAGE>
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 successfully 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 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 a return on investment for advertisers will
achieve broad market acceptance or generate significant revenue. 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;
. attract advertisers and Web sites to the Flycast Network;
. retain advertisers by differentiating the technology and services we
provide to them; and
. obtain adequate available advertising space from a large base of 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 to our strategy is to enhance the return on investment and
other performance measurements for the advertisers using the Flycast Network.
We have limited experience in implementing and following this strategy and we
cannot assure you that such a strategy will succeed or that we will be able to
achieve or maintain adequate gross margins.
We face intense competition that could adversely affect our business
We face intense competition. We expect such competition to continue to
increase because there are no substantial barriers to entry. Increased
competition is likely to result in price reductions, 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. Competition is likely to arise from a
variety of sources. 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 any 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
Corporation and SBC Communications Inc. Our agreements with them provide that
Flycast will deliver a wholesale supply of local Web advertising that their
Yellow Pages sales force will resell
9
<PAGE>
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 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 or may not succeed
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
70 employees on December 31, 1998. 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, 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
10
<PAGE>
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, Sales joined Flycast
in January 1999. Three other members of our management team, including our
Chief Executive Officer, have been with 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 "Certain 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 such 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.
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
. availability 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
11
<PAGE>
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.
We will be subject to risks associated with international expansion that could
affect our business
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, aggregate
Web sites 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;
. 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 patent applications 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 Patent and Trademark Office informed us that the patent
application had been withdrawn from issue in the United States. 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 Patent
and Trademark Office suggested a claim for interference purposes with respect
to such application. The purpose of an
12
<PAGE>
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 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 would likely take
years to resolve and it may 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 which 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, 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, such 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 certain 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 such
claims or litigation unless we enter into arrangements with the third parties
responsible for such 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 certain 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 that could
affect our business
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
13
<PAGE>
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 certain 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 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 such 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.
A substantial number of our shares will be eligible for future sale
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 December 31, 1998 upon
completion of this offering, we will have shares of common stock
outstanding. Of these shares, the shares being offered hereby will
be freely tradable and 11,124,104 shares will become eligible for sale in the
public market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
------------ -----------------------------------------------------------------------
<C> <S>
10,349,439 At various times after the date of this prospectus pursuant to Rule 144
774,665 At various times after 90 days from the date of this prospectus
</TABLE>
14
<PAGE>
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 our 1997
Stock Option Plan;
. 2,000,000 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 December 31, 1998, options to purchase 1,934,199 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 contractual restrictions that apply to the outstanding stock. These stock
options generally have exercise prices significantly below the expected initial
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 fall. As of
December 31, 1998, we also have 386,237 shares of common stock that may be
issued upon the exercise of outstanding warrants, including 217,170 shares of
common stock that may be issued upon the exercise of outstanding warrants that
terminate upon the effective date of this offering.
Certain stockholders and warrant holders, representing approximately
10,248,783 shares of common stock, may have the right, subject to conditions,
to include their shares in certain 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 fall. In addition, any demand to include
such 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 representative 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,
15
<PAGE>
particularly Internet companies. In the past, these broad market fluctuations
have been unrelated or disproportionate to the operating performance of these
companies. Any such 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, in the aggregate, beneficially own approximately % of our common
stock following the completion of this offering, or % 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
Our management can 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
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 Certain Charter and Bylaw Provisions" for
more detailed information.
You will incur immediate and substantial dilution
Investors purchasing shares in the offering will incur immediate and
substantial dilution in net tangible book value per share. In addition, the
exercise of options and warrants currently outstanding could cause additional
substantial dilution to such investors. Please see "Dilution" for more detailed
information.
16
<PAGE>
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 shares being offered by
Flycast at an assumed initial public offering price of $ per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be $ , or $ 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, Suite 120, San Francisco, California 94105. Our telephone number at
that location is (415) 977-1000. References in the prospectus to "Flycast",
"we" or "us" refer to Flycast and its predecessor California corporation.
Information contained in our Web site does not constitute part of this
prospectus.
17
<PAGE>
CAPITALIZATION
The Actual column in the following table sets forth Flycast's actual
capitalization as of December 31, 1998. 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 50,000,000 shares of common
stock and 2,000,000 shares of undesignated preferred stock;
. the issuance of 1,496,347 shares of Series C Preferred Stock in January
1999;
. the issuance of 217,170 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 $ per share,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds."
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Current portion of long-term obligations....... $ 1,460 $ 1,460 $ 1,460
======== ======= =======
Long-term obligations, less current portion.... $ 4,704 $ 4,704 4,704
Mandatorily redeemable preferred stock, $0.0001
par value; 9,904,000 shares authorized;
6,733,612 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................................... 13,855
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; 2,656,635 shares issued
and outstanding, actual; 50,000,000 shares
authorized, 11,103,764 shares issued and
outstanding, pro forma; 50,000,000 shares
authorized, shares issued and
outstanding, pro forma as adjusted........... 912 29,566
Common stock options.......................... 2,837 2,837
Deferred stock compensation................... (1,690) (1,690) (1,690)
Notes receivable from stockholders............ (606) (606) (606)
Accumulated deficit........................... (14,031) (14,031) (14,031)
-------- ------- -------
Total stockholders' equity (deficit)......... (12,578) 16,076
-------- ------- -------
Total capitalization......................... $ 5,981 $20,780 $
======== ======= =======
</TABLE>
- --------
Excludes:
. 2,045,904 shares subject to outstanding options or reserved for issuance
under our 1997 Stock Option Plan;
. 169,067 shares subject to outstanding warrants, net of warrants to
purchase 217,170 shares that will be exercised immediately before the
completion of this offering; and
. Shares reserved for issuance under our stock plans. See "Management--
Stock Plans" and Notes 5 and 8 of Notes to Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of Flycast as of December 31, 1998 was
approximately $1.45 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
$ per share after deducting estimated underwriting discounts and
commissions and estimated offering expenses, the pro forma net tangible book
value of Flycast as of December 31, 1998 would have been $ per share of
common stock. This represents an immediate increase in net tangible book value
of $ per share to existing stockholders and an immediate dilution of $
per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Pro forma net tangible book value per share before the
offering................................................... $1.45
Increase attributable to new investors......................
-----
Pro forma net tangible book value after the offering..........
------
Dilution per share to new investors........................... $
======
</TABLE>
The following table summarizes on a pro forma basis, as of December 31, 1998,
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.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).. 11,103,764 % $29,566,000 % $2.66
New investors.............
---------- ----- ----------- -----
Totals................ 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
- --------
Excludes:
. 2,045,904 shares subject to outstanding options or reserved for issuance
under our 1997 Stock Option Plan;
. 169,067 shares subject to outstanding warrants, net of warrants to
purchase 217,170 shares that will be exercised immediately before the
completion of this offering; and
. Shares reserved for issuance under our stock plans. See "Management--
Stock Plans" and Notes 5 and 8 of Notes to Financial Statements.
19
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the financial statements, the notes thereto 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.
<TABLE>
<CAPTION>
Years Ended
April 14, 1996 December 31,
(Inception) to --------------------------
December 31, 1996 1997 1998
------------------------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue........................ $ -- $ 630 $ 8,029
Cost of revenue................ -- 556 5,945
------------- ------------ ------------
Gross profit................... -- 74 2,084
Operating expenses:
Sales and marketing.......... 103 1,384 5,180
Research and development..... 201 1,376 2,621
General and administrative... 141 725 2,031
Stock-based compensation..... -- -- 1,147
------------- ------------ ------------
Total operating expenses... 445 3,485 10,979
------------ ------------
Operating loss................. (445) (3,411) (8,895)
Interest expense, net.......... -- (6) (412)
------------- ------------ ------------
Net loss....................... $ (445) $ (3,417) $ (9,307)
============= ============ ============
Basic and diluted loss per
common share(1)............... $ (445.00) $ (31.80) $ (11.93)
============= ============ ============
Shares used in basic and
diluted loss per common
share(1)...................... 1 114 835
============= ============ ============
Pro forma basic and diluted
loss per common share(2)...... $ (1.40)
============
Shares used in pro forma basic
and diluted loss per common
share(2)...................... 7,113
============
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1997 1998
-------- ------- --------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and investments........... $ 11 $ 3,560 $ 5,193
Working capital (deficiency)..................... (51) 3,498 4,088
Total assets..................................... 214 4,675 10,791
Long term obligations, less current portion...... -- 40 4,704
Mandatorily redeemable preferred stock........... -- 8,195 13,855
Total stockholders' equity (deficit)............. 150 (4,058) (12,578)
</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 such 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.
20
<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
780 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
and 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 CPM-based 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, Chicago,
Boulder, Los Angeles, New York, Philadelphia and Sarasota. The advertisements
we deliver are typically sold pursuant to 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 40% of our revenue for the quarter ended December 31, 1998. No single
customer accounted for more than 10% of our revenue for the year ended December
31, 1998. One customer accounted for 12% of our revenue for the quarter ended
December 31, 1998. No Web site contributed more than 5% of our advertising
views served, as measured based on the fees we paid to Web sites, during the
quarter ended December 31, 1998.
We have entered into value added reseller relationships with BellSouth
Corporation, SBC Communications, Inc. and USWEST. Under these agreements, we
will deliver local Web advertising inventory to BellSouth's, SBC's and USWEST's
sales forces that they will resell 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 December 31,
1998, had an accumulated deficit of $14.0 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 certain stock options granted to employees. Stock-based
compensation of $1.1 million was amortized during the year ended December 31,
1998, and stock-based compensation of $1.7 million will be amortized over the
remaining vesting periods of the related options, including $1.0 million in 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 results for any period should
not be relied upon as an indication of future performance. We currently expect
to significantly increase our operating expenses in order to expand our sales
and marketing
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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 revenues:
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------
1997 1998
------ ------
<S> <C> <C>
Revenue..................................................... 100.0% 100.0%
Cost of revenue............................................. 88.3 74.0
------ ------
Gross profit.............................................. 11.7 26.0
Operating expenses:
Sales and marketing....................................... 219.8 64.5
Research and development.................................. 218.4 32.6
General and administrative................................ 115.1 25.3
Stock-based compensation.................................. -- 14.3
------ ------
Total operating expenses................................ 553.3 136.7
------ ------
Operating loss.............................................. (541.6) (110.8)
Interest expense, net ...................................... (1.0) (5.1)
------ ------
Net loss.................................................... (542.6)% (115.9)%
====== ======
</TABLE>
Periods Ended December 31, 1996, 1997 and 1998
Revenue. Our revenue is derived primarily from the delivery of advertisements
on Web sites in the Flycast Network. 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 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
$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. We cannot predict whether this
decrease as a percentage of revenue will continue in the future.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation, travel, advertising, trade show and marketing materials expenses.
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 64.5% 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. We expect sales and
marketing expenses to increase on an absolute dollar basis in future periods as
we hire additional personnel, expand into new markets and continue to promote
our advertising solutions.
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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. 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. 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. 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. 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 $1.1 million was
amortized during the year ended December 31, 1998, and stock-based compensation
of $1.7 million will be amortized over the remaining vesting periods of the
related options, including $1.0 million in the year ending December 31, 1999.
Interest Expense, Net. Interest expense 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 $12.0 million of
federal net operating loss carryforwards available to offset future taxable
income; such 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, certain events,
including sales of our stock pursuant to this offering, may further restrict
our ability to utilize our net operating loss carryforwards.
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<PAGE>
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly statement of
operations data and such data as a percentage of revenue for the four quarters
of 1998. 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 thereto 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,
1998 1998 1998 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Statements of Operations:
Revenue........................... $ 603 $ 1,172 $ 2,116 $ 4,138
Cost of revenue................... 483 879 1,570 3,013
------- ------- ------- -------
Gross profit.................. 120 293 546 1,125
Operating expenses:
Sales and marketing............. 697 805 1,460 2,218
Research and development........ 414 505 655 1,047
General and administrative...... 422 493 501 615
Stock-based compensation........ 82 248 407 410
------- ------- ------- -------
Total operating expenses...... 1,615 2,051 3,023 4,290
------- ------- ------- -------
Operating loss.................... (1,495) (1,758) (2,477) (3,165)
Interest income (expense) net..... 28 (18) (55) (367)
------- ------- ------- -------
Net loss.......................... $(1,467) $(1,776) $(2,532) $(3,532)
======= ======= ======= =======
<CAPTION>
Three Months Ended
-----------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1998 1998 1998 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
As a Percentage of Revenue:
Revenue........................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue................... 80.2 75.0 74.2 72.8
------- ------- ------- -------
Gross profit.................... 19.8 25.0 25.8 27.2
Operating expenses:
Sales and marketing............. 115.6 68.7 69.0 53.6
Research and development........ 68.7 43.1 30.9 25.3
General and administrative...... 70.1 42.0 23.7 14.8
Stock-based compensation........ 13.5 21.1 19.2 9.9
------- ------- ------- -------
Total operating expenses...... 267.9 175.0 142.9 103.7
------- ------- ------- -------
Operating loss.................... (248.1) (150.0) (117.1) (76.5)
Interest income (expense) net..... 4.7 (1.6) (2.6) (8.9)
------- ------- ------- -------
Net loss.......................... (243.4)% (151.5)% (119.7)% (85.3)%
======= ======= ======= =======
</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 quarter.
Research and development expenses increased as a result of continued
enhancement of our
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<PAGE>
tools and technology. Sales and marketing expenses increased as a result of
increased sales personnel and commissions and increased advertising and
promotion. 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."
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 December 31, 1998, we had raised approximately $12.5
million from the issuance of common and preferred stock. As of December 31,
1998, we had $5.0 million of cash and cash equivalents, and $183,000 in short-
term investments and had borrowed $6.9 million under credit and capital lease
facilities. In January 1999, we completed a private placement of equity
securities to new investors and received $13.5 million in proceeds.
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 and $7.6
million for the year ended December 31, 1998. Cash used in operating activities
for the years ended December 31, 1997 and 1998 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 and $190,000
for the year ended December 31, 1998. Cash used in investing activities was
primarily related to purchases of property and equipment in the first two
periods 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 and $9.3
million for the year ended December 31, 1998. Net cash provided by financing
activities in the first two periods 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 $6.0 million to
$8.0 million in capital expenditures during 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.
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
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<PAGE>
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 such
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 vendors of material 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 been informed by many of our hardware and software component vendors that
the products we use are currently Year 2000 compliant. We will require our
other 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 our non-IT systems and will seek assurance of Year 2000
compliance from providers of material non-IT systems. Until such testing is
complete and such 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.
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 such 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 such expenses will be
material, such 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, results of operations or financial
condition, without taking into account our efforts to avoid or fix such
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
26
<PAGE>
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 others
outside Flycast's control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could results in a systemic failure beyond
the control of Flycast, such as 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 averse 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.
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<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 a specific action. Those actions include such things as
clicking on an advertisement, registering his or her name or other information,
or buying a product. 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 with respect to
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 amount 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. They
estimate 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.
Through 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 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 several 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, thereby generating 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
campaign, manage the size and scope of the target audience 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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<PAGE>
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 the consumer after exposure 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 their 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 and late night television. According to the Direct Marketing
Association, direct marketing advertising expenditures exceeded $160 billion in
1998 or approximately 57% of the total U.S. advertising market.
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, such as calling toll-free numbers or returning a
business reply card. Web advertisements allow consumers to respond immediately
to the advertising and directly engage marketers. 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 according to Forrester Research, Inc.
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. Larger
Web sites with in-house sales forces are usually unable to sell a
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<PAGE>
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 as they frequently 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 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. On 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 advertising purchasers 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 and large 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. 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 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 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
aggregating unsold advertising inventory from over 780 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 and incremental
revenue opportunity for Web sites that does not conflict with their other sales
efforts. 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 ROI-oriented advertising solutions 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 Corporation and SBC
Communications Inc. Under these agreements, Flycast will deliver a wholesale
supply of local Web advertising that the BellSouth and SBC Yellow Pages 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 facilitate the expansion
of its 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 selling programs are essential to selling Web advertising
solutions effectively. Flycast intends to increase its
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direct sales force and continue its public relations and marketing efforts with
an aggressive marketing campaign beginning 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 drive the
acquisition of 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. Many small and medium-size Web sites that are unable to support
their own sales forces list all of their inventory with Flycast. Other 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. As of December 31, 1998, the Flycast Network
consisted of over 780 Web sites and in the quarter ended December 31, 1998, the
Flycast Network generated approximately 1.7 billion total advertising
impressions. The Flycast Network reached more than 20 million individual users
or 35% of Web users in the U.S. during the month of December 1998. By
comparison, according to Media Metrix, Inc., Yahoo.com had 26.8 million unique
users and Netscape.com had 17.5 million individual users in the same month. The
following tables show the number of Web sites and total advertising impressions
that we served during each quarter in 1998.
Graph entitled "Number of Flycast Network Sites" representing number of network
sites in each quarter of 1998.
Graph entitled "Number of Ad Impressions Served (in millions)" representing
number of advertising impressions served 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
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need to actively manage their advertising campaigns to maximize effectiveness.
In addition, Flycast's 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. While the
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 and 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 to the BellSouth, SBC
and U S WEST. Yellow Pages 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
specification, 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 buys.
. AdReporter, a Web-based tool that provides media buyers real-time
reports on their buys.
. 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 which 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 data is backed up periodically and all billing and reporting
data 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 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, increased availability of broadband Internet access is expected to
enable the development of new products and services that take advantage of this
expansion in delivery capability. As of December 31, 1998, Flycast had 22
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.
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 16
salespeople as of December 31, 1998, mainly targets larger advertisers and
agencies. These employees are located at Flycast's headquarters in San
Francisco and in Atlanta, Boston, Chicago, Boulder, Los Angeles, New York,
Philadelphia and Sarasota. The Company has four 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 services consulting group as well
as a site network services group to help increase the effectiveness and ease-
of-use of Flycast's services.
The customer service group consists of 10 individuals within two subgroups:
Media Consultants and Network Services. The Media Consultant 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 status to the
client and provide technical support. The 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 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 its public
relations program to promote the Flycast brand and Flycast's products and
services to potential ad buyers and potential members of the Flycast Network.
Our ten largest customers accounted for 40% of our revenue for both the
quarter and the year ended December 31, 1998. One customer, BONZI Software,
accounted for 12% of our revenue for the quarter ended December 31, 1998.
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; and
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. 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), C/NET (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 and trademarks, which it protects through a
combination of patent, copyright, trade secret and trademark law. Flycast has
applied to register trademarks in the United States. Flycast cannot guarantee
that any of its 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. If Flycast's trademark
registrations are not approved because third parties own such trademarks, its
use of such trademarks will be restricted unless it enters into arrangements
with such third parties, which may be unavailable on commercially reasonable
terms.
Flycast generally enters into confidentiality or license agreements with its
employees, consultants and corporate partners, and generally controls access to
and distribution of its technologies, 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
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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 data is used
for advertising targeting and predicting advertising performance. Although
Flycast believes it has the right to use such data and the compilation of such
data in its database, trade secret, copyright or other protection may not be
available for such information. In addition, others may claim rights to such
information. Flycast has licensed, and may license in the future, elements of
its trademarks, trade dress and similar intellectual property rights to third
parties. While 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 such claims or litigation
unless Flycast enters into arrangements with the third parties responsible for
such claims or litigation, which may be unavailable on commercially reasonable
terms.
Employees
As of December 31, 1998, Flycast had 70 employees, including 20 in sales, 9
in marketing, 11 in services and support, 22 in research and development and 8
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 21,800 square feet under a lease
that expires in January 2005. Flycast also leases space in various geographic
locations for sales personnel. Flycast believes that its current facilities are
adequate to meet its needs through the end of 1999, at which time it may need
to lease additional space. Flycast believes additional space is available on
reasonable terms.
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MANAGEMENT
Executive Officers and Directors
The names and ages of Flycast's executive officers and directors as of
January 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- ----------
<C> <C> <S>
George R. Garrick............ 47 Chairman of the Board, Chief Executive
Officer and President
Ralph J. Harms............... 49 Chief Financial Officer and Assistant
Secretary
Lawrence G. Braitman......... 40 Vice President, Business Development
Richard L. Thompson.......... 44 Vice President, Client Services
Frederick J. Ciaramaglia..... 51 Vice President, Engineering
Lyn Chitow Oakes............. 37 Vice President, Marketing
Peter T. Nicas............... 38 Vice President, Local Market/VAR Division
Jeff J. Lehman............... 42 Vice President, Media Sales
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)........ 46 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.
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. 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.
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Lawrence G. Braitman co-founded Flycast and has served as Flycast's Vice
President, Business Development since March 1997. 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.
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.
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.
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.
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
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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.
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.
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
40
<PAGE>
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.
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 certain of 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
and 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 "Certain
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.
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<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 aggregate
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, Business
Development
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) Ralph J. Harms, Flycast's Chief Financial Officer, commenced employment
with Flycast on January 4, 1999. Mr. Harms' salary on an annualized basis
for 1999 is $150,000. 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.
(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 "Certain
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
"Certain 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 "Certain Transactions--Employment and
Severance Agreements."
(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 "Certain 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 "Certain Transactions--Employment and
Severance Agreements."
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<PAGE>
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 an aggregate
of 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 aggregate stock value derived from that calculation
compounds 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 aggregate 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)(2) Granted Fiscal Year ($/Share) Date 5% 10%
- ---------- ---------- ------------- -------------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
George R. Garrick....... 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.......... 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.... -- -- -- -- -- --
Richard L. Thompson..... -- -- -- -- -- --
Edwin Videki(5)......... 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>
- --------
(1) Mr. Harms was granted an option to purchase 125,000 shares of common stock
on January 4, 1999 pursuant to Flycast's 1999 Stock Option Plan. The
percent of total options granted to employees represented by such option
would have been 4.7% had it been granted in 1998; the exercise price per
share is $8.50; the expiration date of the option is January 3, 2009 and
the potential realizable value at assumed rates of stock price appreciation
for the option term are $668,201 at 5% and $1,693,351 at 10%.
(2) 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
percent of total options granted to employees represented by such option
would have been 6.8% had it been granted in 1998; the exercise price per
share is $8.75; the expiration date of the option is January 27, 2009 and
the potential realizable value at assumed rates of stock appreciation for
the option term are $1,018,023 at 5% and $2,579,871 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.
43
<PAGE>
(5) 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 value 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 value 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.
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 such 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 January 1999, neither Mr.
Harms nor Mr. Ciaramaglia 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 "Certain 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 "Certain 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 is expected to be approved by the stockholders prior
to the closing of this offering. 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 has been 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. As of January 31, 1999, options to purchase 905,500 shares of common
stock at a weighted average exercise price of $8.72 per share were outstanding
and 1,094,500 shares remained available for future option grants.
44
<PAGE>
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 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 an aggregate fair market value in excess of $100,000, any such 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 such 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 such 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 aggregate exercise price.
45
<PAGE>
The Board has the authority to amend or terminate the 1999 Option Plan as
long as such action does not materially and adversely affect any outstanding
option and provided that stockholder 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 January 31, 1999, options to purchase 776,853 shares of
common stock with a weighted average exercise price of $0.65 had been
exercised, of which 774,665 shares were outstanding, options to purchase a
total of 1,957,792 shares at a weighted average exercise price of $2.01 per
share were outstanding and 65,355 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 is expected to be approved by the
stockholders prior to the closing of this offering. 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 such
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
46
<PAGE>
each of the first, second, third and fourth anniversaries of the date of grant.
In addition, on the date of 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 such 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 such 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 such 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 such 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 is expected to be approved by
the stockholders prior to the closing of this offering. 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 day of
the immediately preceding fiscal year, or a lesser
47
<PAGE>
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 such 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
each offering period or at the end of each 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 such 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. If the
fair market value of the common stock on April 29, 1999 is less than the public
offering price as set forth in this prospectus, participants will be
automatically withdrawn from the first offering period and enrolled in the
offering period beginning May 1, 1999 unless a participant notifies Flycast
that he or she does not wish to switch offering periods.
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
unless the Board shortens any ongoing offering period so that employees' rights
to purchase stock under the Purchase Plan are exercised prior to the
transaction. 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.
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<PAGE>
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 allowed by Internal Revenue
Service guidelines, which is $10,000 for 1999. Flycast may contribute such
amounts to the accounts of participants in the 401(k) Plan as are 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 certain circumstances, 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 such
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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<PAGE>
CERTAIN 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 in the aggregate $610,295 to Flycast as a
capital contribution. His aggregate 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 aggregate amount of $110,000,
Alex Brown & Sons, Custodial fbo Richard L. Thompson in the amount of $80,000,
Alex Brown & Sons, Custodial fbo Lawrence G. Braitman, Flycast's Vice
President, Business Development, in the aggregate amount of $60,000. The
principal amounts of these notes were converted into an aggregate of 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, Alex Brown & Sons, Custodial fbo
Peter D. Olson loaned to Flycast $130,000 in March 1997 and Ms. Dorward loaned
to Flycast an aggregate of $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
50
<PAGE>
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 such 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.
The amounts outstanding pursuant to such promissory notes are $159,600 plus
accrued interest at January 31, 1999.
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 an aggregate of 611,295 shares of Series A Preferred Stock.
In July and August 1997, Flycast issued and sold an aggregate of 5,324,532
shares of Series B Preferred Stock at a purchase price per share of $1.33 and
warrants to purchase an aggregate of 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;
. Alex. Brown & Sons, Custodial fbo Peter D. Olson converted its note 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 an
aggregate of 1,127,820 shares of Series B Preferred Stock.
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<PAGE>
In January 1998, Flycast granted a nonstatuatory stock option to purchase an
aggregate of 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. The amount currently outstanding under the
promissory note is $233,750, plus accrued interest at January 31, 1999. Mr.
Levine's employment with Flycast terminated effective January 20, 1998. 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 Janu-
ary 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 and January 1999, Flycast issued and sold an aggregate of
1,994,132 shares of Series C Preferred Stock at a purchase price of $9.04 per
share and warrants to purchase an aggregate of 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 such
shares included, among others:
. entities affiliated with Bessemer Venture Partners, which converted
$1,555,136 of outstanding debt into an aggregate of 172,028 shares of Se-
ries C Preferred Stock and received warrants to purchase 45,908 shares of
Series C Preferred 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 an aggregate of 101,418 shares of Series C
Preferred Stock and received warrants to purchase 27,064 shares of Series
C Preferred Stock. In January 1999, Flycast issued and sold
52
<PAGE>
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 Ven-
tures, 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 an
aggregate of 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.
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 such transaction, unless this
acceleration would prevent "pooling of interests" accounting treatment for such
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
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<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. 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 orally agreed that he will enter into a
six-month consulting relationship 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 will continue to vest at the rate of
1/48th per month until the termination of the consulting relationship. Flycast
expects to repurchase any remaining unvested shares at the termination of the
consulting relationship. Mr. Levine will also receive $87,500 as consideration
for these consulting services. Mr. Levine is prohibited from working for a
competitor during the term of the consulting relationship. The above oral
agreement is subject to the execution of a mutually acceptable agreement
incorporating these terms and a mutual release of claims. See "Management--
Executive Compensation" and "--Option Grants."
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 January 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, Suite 120, San
Francisco, CA 94105. The table includes all shares of common stock issuable
within 60 days of January 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 11,124,104 shares of common stock outstanding as of January 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
Number of Shares 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%
1400 Old Country Rd., Suite 407
Westbury, NY 11590
Ted R. Dintersmith
Entities affiliated with Charles River
Partnership(2).............................. 2,093,837 18.8
1000 Winter Street, Suite 3300
Waltham, MA 02154
Entities affiliated with St. Paul Venture
Capital(3)................................... 1,256,302 11.3
8500 Normandale Lake Blvd., Suite 1940
Bloomington, MN 55437
Richard L. Thompson(4)........................ 1,030,000 9.3
George R. Garrick(5).......................... 694,999 6.3
Lawrence G. Braitman(6)....................... 606,000 5.5
Peter D. Olson(7)............................. 599,872 5.4
992 South DeAnza Boulevard
San Jose, CA 95129
Gary L. Prophitt(8)........................... 442,477 4.0
Miles Walsh(9)................................ 218,317 2.0
Larry M. Levine(10)........................... 187,000 1.7
Michael D. Solomon............................ 140,000 1.3
Peter T. Nicas(11)............................ 120,000 1.1
Edwin Videki (12)............................. 25,000 *
Howard C. Draft(13)........................... 5,531 *
All directors and officers as a group (16
persons)(14)................................. 7,972,398 71.6
</TABLE>
- --------
* Less than one percent of the outstanding shares of common stock.
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<PAGE>
(1) Represents:
. 730,046 shares of outstanding common stock and 31,809 shares of com-
mon stock that the stockholder has the right to acquire pursuant to
warrants exercisable within 60 days of January 31, 1999 held by
Bessec Ventures IV, L.P.;
. 205,171 shares of outstanding common stock and 4,591 shares of com-
mon stock that the stockholder has the right to acquire pursuant to
warrants exercisable within 60 days of January 31, 1999 held by Bes-
semer Venture Investors, L.P.;
. 730,045 shares of outstanding common stock and 31,807 shares of com-
mon stock that the stockholder has the right to acquire pursuant to
warrants exercisable within 60 days of January 31, 1999 held by Bes-
semer 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 war-
rants exercisable within 60 days of January 31, 1999 held by BVP IV
Special Situations, L.P.; and
. 316,405 shares of outstanding common stock and 9,210 shares of com-
mon stock stockholders have the right to acquire pursuant to war-
rants exercisable within 60 days of January 31, 1999 held by various
other individuals or entities, including 18,236 shares of outstand-
ing 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 January 31, 1999, that are ei-
ther managers or former members of Deer IV & Co. LLC or employees of
Deer II & Co. LLC or individuals or entities associated with Besse-
mer 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 such entity,
and disclaims beneficial ownership of such shares in which he has no pecu-
niary 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 January 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 January 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 such 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 January 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
January 31, 1999 held by St. Paul Venture Capital IV, LLC.
(4) Represents:
. 80,000 shares of outstanding common stock held by Alex. Brown &
Sons, Custodial fbo Richard L. Thompson; and
. 950,000 shares of outstanding common stock held by Mr. Thompson.
(5) Includes 134,999 shares of common stock issuable within 60 days of January
31, 1999 upon the exercise of an incentive stock option, all of which will
have vested, and 390,000 shares of common stock issuable upon the exercise
of nonstatutory stock options within 60 days of January 31, 1999, none of
which will have vested.
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<PAGE>
(6) Represents,
. 60,000 shares of common stock held by Alex. Brown & Sons, Custodial
fbo Lawrence G. Braitman 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 January 31, 1999 held by Alex. Brown
& Sons, Custodial fbo Peter D. Olson. 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 January 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 such shares except to the
extent he has pecuniary interest in such shares.
(9) Represents 218,317 shares of common stock held by the Walsh/Emerson Family
Trust.
(10) Flycast expects to repurchase a portion of these shares of common stock
upon termination of Mr. Levine's consulting relationship with Flycast.
(11) Includes 70,000 shares of common stock issuable within 60 days of January
31, 1999 upon the exercise of stock options, 2,500 shares of which will
have vested.
(12) Represents 25,000 shares of common stock issuable within 60 days of
January 31, 1999 upon the exercise of outstanding stock options, all of
which have vested.
(13) 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.
(14) Represents shares listed as to all directors, current executive officers
and former executive officers that are Named Officers, notwithstanding the
fact that some directors or executive officers may disclaim beneficial
ownership of such shares, and includes 744,999 shares of common stock
issuable within 60 days of January 31, 1999 upon the exercise of
outstanding options and 137,883 shares of common stock issuable within 60
days of January 31, 1999 upon exercise of outstanding warrants. See
"Management--Executive Compensation."
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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 January 31, 1999, there were 11,124,104 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 212,659 shares of
common stock and preferred stock that terminate on the effective date of this
offering, held of record by 104 stockholders. Options to purchase an aggregate
of 2,863,292 shares of common stock were also outstanding. There will be
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 January 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 such 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 8,234,470 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 such 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 January 31, 1999, there were warrants outstanding to purchase an aggregate
of 212,659 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
58
<PAGE>
years from the effective date of this offering. The warrants to purchase shares
of preferred stock that survive the 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 aggregate 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 10,079,716 shares of common stock, assuming the conversion of
all outstanding preferred stock upon completion of this offering, and warrants
to purchase 169,067 shares of common stock or their transferees are entitled to
rights with respect to the registration of such 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 such form becomes
available to Flycast, provided, among other limitations, that the proposed
aggregate 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.
59
<PAGE>
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 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
such 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.
60
<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 shares
of common stock. Of these shares, the 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 11,124,104 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 8,862,802 shares will be eligible for sale pursuant to
Rules 144, 144(k) and 701.
. An additional 2,261,302 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 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 certain 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
61
<PAGE>
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
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 such 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 January 31, 1999, there were outstanding
options under the 1997 Stock Option Plan and 1999 Stock Option Plan for the
purchase 2,863,292 shares. No shares have been issued to date under Flycast's
Purchase Plan or Directors' Plan. In addition, as of January 31, 1999, there
are warrants to purchase 169,067 shares of common stock that are exercisable
following this offering. See "Risk Factors--A substantial number of our shares
will be eligible for future sale," "Management--Stock Plans" and "Description
of Capital Stock--Registration Rights."
62
<PAGE>
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.........................................
--------------
Total.......................................................
==============
</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.
Flycast has granted to the Underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to
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 such 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 . 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 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 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.
63
<PAGE>
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.
Two entities and two individuals affiliated with BT Alex. Brown Incorporated
own an aggregate of 104,977 shares of Flycast common stock.
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, thereby 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.
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.
64
<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. Certain 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
In December 1998, Flycast appointed Deloitte & Touche LLP to replace the
former accountants 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.
65
<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 thereto. 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 thereto. Statements made in this prospectus
concerning the contents of any document referred to herein are not necessarily
complete. With respect to each such 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 schedules thereto 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 certain 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.
66
<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
F-2
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
BALANCE SHEETS
December 31, 1997 and 1998
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
December 31, Pro Forma
----------------- December 31,
1997 1998 1998
------- -------- ------------
(Unaudited)
(Note 1)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 3,560 $ 5,010 $ 19,809
Investments.................................. 183 183
Accounts receivable, net of allowance for
doubtful accounts of $0, $12 and $178, re-
spectively.................................. 397 3,449 3,449
Prepaid expenses and other assets............ 39 256 256
------- -------- --------
Total current assets........................ 3,996 8,898 23,697
PROPERTY AND EQUIPMENT, NET.................... 661 1,785 1,785
OTHER ASSETS................................... 18 108 108
------- -------- --------
TOTAL ASSETS................................... $ 4,675 $ 10,791 $ 25,590
======= ======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY (DEFI-
CIT)
CURRENT LIABILITIES:
Accounts payable............................. $ 326 $ 2,521 $ 2,521
Accrued liabilities.......................... 78 369 369
Accrued compensation and benefits............ 63 460 460
Short-term capital lease obligations......... 31 477 477
Short-term debt.............................. 983 983
------- -------- --------
Total current liabilities................... 498 4,810 4,810
LONG-TERM CAPITAL LEASE OBLIGATIONS............ 40 1,022 1,022
LONG-TERM DEBT................................. 3,682 3,682
------- -------- --------
Total liabilities........................... 538 9,514 9,514
------- -------- --------
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 (none pro
forma) (aggregate liquidation preference
$911)....................................... 951 1,027
Series B, 5,500,000 shares designated,
5,324,532 shares issued and outstanding
(none pro forma) (aggregate liquidation
preference $7,082).......................... 7,244 7,824
Series C, 3,484,000 shares designated,
497,785 shares issued and outstanding in
1998 (none pro forma) (aggregate liquidation
preference $4,500).......................... 5,004
------- -------- --------
Total mandatorily redeemable preferred
stock...................................... 8,195 13,855
------- -------- --------
COMMON STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.0001 par value, 20,000,000
shares authorized, 2,352,031, 2,656,635 and
11,103,764 shares issued and outstanding in
1997, 1998 and pro forma, respectively...... 237 912 29,566
Common stock options......................... 2,837 2,837
Deferred stock compensation.................. (1,690) (1,690)
Notes receivable from stockholders........... (227) (606) (606)
Accumulated deficit.......................... (4,068) (14,031) (14,031)
------- -------- --------
Total common stockholders' equity (defi-
cit)....................................... (4,058) (12,578) 16,076
------- -------- --------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND COMMON STOCKHOLDERS'
EQUITY (DEFICIT).............................. $ 4,675 $ 10,791 $ 25,590
======= ======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Period from Years Ended
April 14, 1996 December 31,
(Inception) to ----------------
December 31, 1996 1997 1998
----------------- ------- -------
<S> <C> <C> <C>
REVENUE................................... $ $ 630 $ 8,029
COST OF REVENUE........................... 556 5,945
-------- ------- -------
GROSS PROFIT.............................. 74 2,084
-------- ------- -------
OPERATING EXPENSES:
Sales and marketing..................... 103 1,384 5,180
Research and development................ 201 1,376 2,621
General and administrative.............. 141 725 2,031
Stock-based compensation................ 1,147
-------- ------- -------
Total operating expenses.............. 445 3,485 10,979
-------- ------- -------
OPERATING LOSS............................ (445) (3,411) (8,895)
INTEREST INCOME........................... 92 92
INTEREST EXPENSE.......................... (98) (504)
-------- ------- -------
NET LOSS.................................. $ (445) $(3,417) $(9,307)
-------- ------- -------
ACCRETION OF MANDATORILY REDEEMABLE
PREFERRED STOCK.......................... 206 656
-------- ------- -------
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS.. $ (445) $(3,623) $(9,963)
======== ======= =======
BASIC AND DILUTED LOSS PER COMMON SHARE... $(445.00) $(31.80) $(11.93)
======== ======= =======
SHARES USED IN BASIC AND DILUTED LOSS PER
COMMON SHARE............................. 1 114 835
======== ======= =======
PRO FORMA BASIC AND DILUTED LOSS PER
COMMON SHARE (Note 1).................... $ (1.40)
=======
SHARES USED IN PRO FORMA BASIC AND DILUTED
LOSS PER COMMON SHARE (Note 1)........... 7,113
=======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998
(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..... (1,690) (1,690)
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)
===== ===== ====== ======= ===== ======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
Period from April 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998
(In Thousands)
<TABLE>
<CAPTION>
Period from
April 14, 1996 Years Ended
(Inception) to December 31,
December 31, ----------------
1996 1997 1998
-------------- ------- -------
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss.................................... $(445) $(3,417) $(9,307)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 18 184 531
Provision for doubtful accounts........... 12 236
Loss on sale of property and equipment.... 5
Stock and warrants issued for services.... 225
Noncash interest expense.................. 71 248
Stock-based compensation expense.......... 1,147
Changes in operating assets and
liabilities:
Accounts receivable..................... (409) (3,288)
Prepaid expenses and other assets....... (3) (54) (307)
Accounts payable........................ 40 286 2,195
Accrued liabilities..................... 24 116 688
----- ------- -------
Net cash used in operating
activities........................... (366) (3,211) (7,627)
----- ------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment......... (218) (544) (11)
Proceeds from sale of property and
equipment.................................. 4
Purchases of short-term investments......... (183)
----- ------- -------
Net cash used in investing
activities........................... (218) (544) (190)
----- ------- -------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from long-term debt................ 5,100
Payments on long-term debt.................. (179)
Payments on capital leases.................. (28) (225)
Proceeds from payment of notes receivable
from stockholders.......................... 16 25
Proceeds from issuance of common stock...... 595 8 46
Proceeds from issuance of preferred stock... 7,308 4,500
----- ------- -------
Net cash provided by financing
activities........................... 595 7,304 9,267
----- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS..... 11 3,549 1,450
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD....................................... 11 3,560
----- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD...... $ 11 $ 3,560 $ 5,010
===== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest...................... $ 27 $ 256
======= =======
Noncash financing and investing activities:
Purchase of equipment under capital
leases................................... $ 100 $ 1,653
======= =======
Issuance of common stock for notes
receivable............................... $ 16 $ 228 $ 446
===== ======= =======
Repurchase of common stock for
extinguishment of debt................... $ 42
=======
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
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.
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.
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.
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
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.
Unaudited Pro Forma Information--The unaudited pro forma balance sheet
presents the Company's balance sheet as if the following had occurred at
December 31, 1998: (i) the issuance of 1,496,347 shares of Series C preferred
stock in exchange for cash of $13,527,000 (which occurred in January 1999),
(ii) the exercise of warrants to acquire 43,854 shares of Series B preferred
stock, 132,840 shares of Series C preferred stock, and 40,476 shares of common
stock, which must be exercised or expire upon the closing of the initial public
offering contemplated by the Company and (iii) 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
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
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.
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
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
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.
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.
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
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.
. 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
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
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, 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.
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
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.
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............................................... (328,475) 0.24
---------
Balance, December 31, 1998............................... 1,934,199 $1.85
=========
Available for grant at December 31, 1998................. 111,705
=========
</TABLE>
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
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.
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.
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
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>
1996 1997 1998
----- ---------- ----------
<S> <C> <C> <C>
Shares (denominator):
Weighted average common shares outstand-
ing....................................... 1,000 1,168,469 2,359,397
Weighted average common shares outstanding
subject to repurchase..................... -- (1,054,562) (1,524,202)
----- ---------- ----------
Shares used in computation, basic and
diluted..................................... 1,000 113,907 835,195
----- ---------- ----------
</TABLE>
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.
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
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.
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.
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
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
common stock have initially been reserved for issuance under the 1999 Stock
Plan, and the number of shares reserved will increase for each of the next five
years by the lesser of 375,000 or 3% of the number of shares of common stock
outstanding at the beginning of the year.
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.
F-17
<PAGE>
Title: Advertising partners
Subtitle: Flycast maintains marketing relationships with leading advertisers
and agencies.
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: Eagle River.
* Text reading: "THE NEW VAIO 505 SUPERSLIM NOTEBOOK." "Sony VAIODirect,"
"Click Here." Intel logo. Agency: In-House
* GOTO.com logo on left. Text reading: "Type in what you're looking for..."
above rectangular box. Go logo on right. Text reading: "Idealab." Agency: In-
House
* Disney.com Cupid's Corner logo on left. Text reading: "Send a FREE Disney
Valentine" below four pictures of Disney characters. Agency: ITraffic.
* 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 buy beanie babies." eBay logo on right. Agency:
In-House
* Text reading: Shop@Toyota. Picture of car on right. Agency: Saatchi & Saatchi.
-----------
* Text reading: "Upgrading your Internet experience is as easy as clicking on
this button," "New Netscape Communicator 4.5 -- Free Download" and "Install
Now." Netscape logo on right. Agency: iBalls.
* Wells Fargo logo on left. Text reading: "Apply Online" in upper left and
"America's FASTEST Home Equity Loan Approvals!" Agency: Bozell.
* Jenny Craig logo on left. Text reading: "Jenny Craig has a Free Program for
you!" Additional text reading: "Plus the cost of food. Click here to learn
more." Agency: Interactive Agency.
* Text reading: "at the center of a great PC experience is an Intel(c) Pentium
processor" and "click here to see what your PC can really do." Intel logo on
right. 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.
* Picture of letter on left addressed to Grandma with address. Text reading:
"Order personalized holiday cards online" and "only $19.95 click here." Kodak
logo on right. Agency: Ogilvy One.
* Text reading: "World Offers," "New York to London $114" and "*One-way fares
based on round-trip purchase." Additional text reading: "Need a vacation?
Click for Details." British Airways logo on right. Agency: Agency.com
<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............................................................. 6
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
The Company.............................................................. 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 28
Management............................................................... 38
Certain Transactions..................................................... 50
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 63
Legal Matters............................................................ 65
Experts.................................................................. 65
Change in Accountants.................................................... 65
Additional Information................................................... 66
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
[FLYCAST LOGO]
Common Stock
-------------
PROSPECTUS
-------------
BT Alex. Brown
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Hambrecht & Quist
, 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.............................................. $11,190
NASD filing fee................................................... 4,525
Nasdaq National Market listing fee................................ *
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
NASD and Blue Sky qualification fees and expenses................. *
Transfer Agent and Registrar fees................................. *
Miscellaneous fees and expenses................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be filed by amendment.
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 such
indemnification under certain 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 3.2 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
with respect to certain matters, including matters arising under the Securities
Act.
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 aggregate
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 aggregate 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' aggregate 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 an aggregate 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 such 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 such individual were exchanged
for 611,295 shares of Series A Preferred Stock.
(8) In July and August 1997, the Registrant issued and sold an aggregate of
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 an aggregate purchase price of $7,081,628, of which $291,633 represented
conversion of debt and the remainder was paid in cash. In conjunction with
such financing and in connection with certain loan arrangements, the
Registrant also issued warrants, including the warrant described in item
(3) above, to purchase an aggregate 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 an aggregate
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 and January 1999, the Registrant issued and sold an
aggregate of 1,994,132 shares of Series C Preferred Stock at a purchase
price of $9.04 per share to a total of 42 investors for an aggregate
purchase price of $18,026,953, of which $4,499,995 represented conversion
of debt and the remainder was paid in cash. In conjunction with such
financing and the issuance of the convertible debt, the Registrant also
issued warrants to purchase an aggregate of 132,840 shares of Series C
Preferred Stock at an exercise price of $9.04 per share to thirty-five
investors.
II-2
<PAGE>
(12) From March 1997, when the 1997 Stock Option Plan was adopted, to January
31, 1999, 761,215 shares of common stock have been issued pursuant to
exercises of options by thirty employees at a weighted average exercise
price of $0.65 by cash and promissory notes.
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 such Securities Act as transactions by an issuer not involving any public
offering. In addition, certain 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
such 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 such 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 (subject to negotiation).
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 and form of option agreement.
10.4** 1999 Employee Stock Purchase Plan 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ --------------------------------------------------------------------
<C> <S>
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-6).
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
** 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 thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of such 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 March 18, 1999.
FLYCAST COMMUNICATIONS CORPORATION
/s/ George R. Garrick
By: __________________________________
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:
Signature Title Date
/s/ George R. Garrick Chairman of the
- ------------------------------------ Board, Chief March 18, 1999
George R. Garrick Executive Officer
and President
(Principal
Executive Officer)
* Chief Financial
- ------------------------------------ Officer and March 18, 1999
Ralph J. Harms Assistant
Secretary
(Principal
Financial and
Accounting
Officer)
* Director
- ------------------------------------ March 18, 1999
David J. Cowan
* Director
- ------------------------------------ March 18, 1999
Ted R. Dintersmith
* Director
- ------------------------------------ March 18, 1999
Howard Draft
* Director
- ------------------------------------ March 18, 1999
Gary Prophitt
* Director
- ------------------------------------ March 18, 1999
Michael D. Solomon
/s/ George R. Garrick
*By:________________________________ March 18, 1999
George R. Garrick Attorney-in-fact
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 (subject to negotiation).
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 and form of option agreement.
10.4** 1999 Employee Stock Purchase Plan 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-6).
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Represents exhibits previously filed.
<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 fifty-two
million (52,000,000) shares, each with a par value of $0.0001 per share. Fifty
million (50,000,000) 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
The Board of Directors of the Corporation is expressly authorized to make,
adopt, alter, amend or repeal the Bylaws of the Corporation.
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
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and 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
-2-
<PAGE>
amendment nor repeal of this Article XIII, nor the adoption of any provision of
this Amended and 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
In the election of directors, each holder of shares of any class or series
of capital stock of the Corporation shall be entitled to one vote for each share
held. No stockholder will be permitted to cumulate votes at any election of
directors.
-3-
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at San Francisco, California, on _______________, 1999.
___________________________________
George R. Garrick, President
___________________________________
Jeffrey Y. Suto, Secretary
-4-
<PAGE>
EXHIBIT 3.5
BYLAWS
OF
FLYCAST COMMUNICATIONS CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - CORPORATE OFFICES............................................................ 1
1.1 Registered Office....................................................... 1
1.2 Other Offices........................................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS.................................................... 1
2.1 Place Of Meetings....................................................... 1
2.2 Annual Meeting.......................................................... 1
2.3 Special Meeting......................................................... 1
2.4 Notice Of Stockholders' Meetings........................................ 2
2.5 Advance Notice of Nominees.............................................. 2
2.6 Advance Notice Of Stockholder Business.................................. 3
2.7 Manner Of Giving Notice; Affidavit Of Notice............................ 4
2.8 Quorum.................................................................. 4
2.9 Adjourned Meeting; Notice............................................... 4
2.10 Conduct Of Business..................................................... 4
2.11 Voting.................................................................. 4
2.12 Waiver Of Notice........................................................ 5
2.13 Record Date For Stockholder Notice; Voting; Giving Consents............. 5
2.14 Proxies................................................................. 5
ARTICLE III - DIRECTORS.................................................................. 6
3.1 Powers.................................................................. 6
3.2 Number Of Directors..................................................... 6
3.3 Election, Qualification And Term Of Office Of Directors................. 6
3.4 Resignation And Vacancies............................................... 6
3.5 Place Of Meetings; Meetings By Telephone................................ 7
3.6 Regular Meetings........................................................ 7
3.7 Special Meetings; Notice................................................ 7
3.8 Quorum.................................................................. 8
3.9 Waiver Of Notice........................................................ 8
3.10 Board Action By Written Consent Without A Meeting....................... 8
3.11 Fees And Compensation Of Directors...................................... 8
3.12 Approval Of Loans To Officers........................................... 9
3.13 Removal Of Directors.................................................... 9
3.14 Chairman Of The Board Of Directors...................................... 9
ARTICLE IV - COMMITTEES.................................................................. 9
4.1 Committees Of Directors................................................. 9
4.2 Committee Minutes....................................................... 10
4.3 Meetings And Action Of Committees....................................... 10
ARTICLE V - OFFICERS..................................................................... 10
5.1 Officers................................................................ 10
5.2 Appointment Of Officers................................................. 10
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.3 Subordinate Officers.................................................... 10
5.4 Removal And Resignation Of Officers..................................... 11
5.5 Vacancies In Offices.................................................... 11
5.6 Chief Executive Officer................................................. 11
5.7 President............................................................... 11
5.8 Vice Presidents......................................................... 11
5.9 Secretary............................................................... 12
5.10 Chief Financial Officer................................................. 12
5.11 Representation Of Shares Of Other Corporations.......................... 12
5.12 Authority And Duties Of Officers........................................ 13
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS......... 13
6.1 Indemnification Of Directors And Officers............................... 13
6.2 Indemnification Of Others............................................... 13
6.3 Payment Of Expenses In Advance.......................................... 13
6.4 Indemnity Not Exclusive................................................. 14
6.5 Insurance............................................................... 14
6.6 Conflicts............................................................... 14
ARTICLE VII - RECORDS AND REPORTS........................................................ 14
7.1 Maintenance And Inspection Of Records................................... 14
7.2 Inspection By Directors................................................. 15
7.3 Annual Statement To Stockholders........................................ 15
ARTICLE VIII - GENERAL MATTERS........................................................... 15
8.1 Checks.................................................................. 15
8.2 Execution Of Corporate Contracts And
Instruments............................................................. 15
8.3 Stock Certificates; Partly Paid Shares.................................. 15
8.4 Special Designation On Certificates..................................... 16
8.5 Lost Certificates....................................................... 16
8.6 Construction; Definitions............................................... 16
8.7 Dividends............................................................... 17
8.8 Fiscal Year............................................................. 17
8.9 Seal.................................................................... 17
8.10 Transfer Of Stock....................................................... 17
8.11 Stock Transfer Agreements............................................... 17
8.12 Registered Stockholders................................................. 17
ARTICLE IX - AMENDMENTS.................................................................. 18
</TABLE>
-ii-
<PAGE>
BYLAWS
OF
FLYCAST COMMUNICATIONS CORPORATION
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE.
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING.
--------------
The annual meeting of stockholders shall be held on such date, time
and place, either within or without the State of Delaware, as may be designated
by resolution of the Board of Directors each year. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING.
---------------
A special meeting of the stockholders may be called at any time by the
Board of Directors, the chairman of the board, the president or by one or more
stockholders holding shares in the aggregate entitled to cast not less than
fifty percent (50%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the president or the chairman of the board, the request
shall be in writing, specifying the time of such meeting and the general nature
of the business proposed to be transacted, and shall be delivered personally or
sent by registered mail to the chairman of the board, the president, any vice
president, or the secretary of the corporation. No business may be transacted
at such special meeting otherwise than specified in such notice. The officer
receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of this Article II,
<PAGE>
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after the receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this Section
2.3 shall be construed as limiting, fixing, or affecting the time when a meeting
of stockholders called by action of the Board of Directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.
--------------------------------
All notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF NOMINEES.
---------------------------
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the secretary of the corporation.
To be timely, a stockholder's notice shall be delivered to or mailed
and received at the principal executive offices of the corporation (a) in the
case of an annual meeting, not less than sixty (60) days nor more than ninety
(90) days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
changed by more than thirty (30) days from such anniversary date, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the earlier of the day on which such
notice of the date of the meeting was mailed or such public disclosure was made;
and (b) in the case of a special meeting at which Directors are to be elected,
not later than the close of business on the tenth (10th) day following the
earlier of the day on which notice of the date of the meeting was mailed or
public disclosure was made. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or re-
election as a Director (i) the name, age, business address and residence address
of such person, (ii) the principal occupation or employment of such person,
(iii) the class and number of shares of the corporation which are beneficially
owned by such person and (iv) any other information relating to such person that
is required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
corporation's books, of such stockholder, (ii) the class and number of shares of
the corporation which are beneficially owned by such stockholder and also which
are owned of record by such stockholder and (iii) a description of all
arrangements or understandings between such stockholder and each nominee and any
other person or persons (naming such person or persons) relating to the
nomination. At the request of the Board of Directors any person nominated by
the Board of Directors for election as a director shall furnish to the
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<PAGE>
secretary of the corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 2.5. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the Bylaws, and if he or she should so determine, he or
she shall so declare to the meeting and the defective nomination shall be
disregarded. Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Bylaw.
2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS.
--------------------------------------
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the annual meeting. To be
properly brought before an annual meeting, business must be: (a) pursuant to
the corporation's notice of meeting (or any supplement thereto), (b) by or at
the direction of the Board of Directors, or (c) by any stockholder of the
corporation who is a stockholder of record at the time of giving of the notice
provided for in this Section 2.6, who shall be entitled to vote at such meeting
and who complies with the notice procedures set forth in this Section 2.6.
Business to be brought before an annual meeting by a stockholder shall not be
considered properly brought if the stockholder has not given timely notice
thereof in writing to the secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the corporation not less than
sixty (60) nor more than ninety (90) days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the meeting is changed by more than thirty (30) days from such
anniversary date, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the earlier
of the day on which such notice of the date of the meeting was mailed or such
public disclosure was made. A stockholder's notice to the secretary shall set
forth as to each matter the stockholder proposes to bring before the meeting:
(i) a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (ii) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (iii) the class and number of shares of the
corporation, which are owned by the stockholder of record and by the beneficial
owner, if any, on whose behalf the proposal is made, (iv) any material interest
of the stockholder of record and the beneficial owner, if any, on whose behalf
the proposal is made in such business, and (v) any other information that is
required by law to be provided by the stockholder in his or her capacity as a
proponent of a stockholder proposal.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2.6. The chairman of the meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section,
and, if he or she should so determine, he or she shall so declare at the meeting
that any such business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Bylaw.
-3-
<PAGE>
2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.8 QUORUM.
------
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.9 ADJOURNED MEETING; NOTICE.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.10 CONDUCT OF BUSINESS.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
2.11 VOTING.
------
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.13 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements). Except as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
2.12 WAIVER OF NOTICE.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning
-4-
<PAGE>
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be specified
in any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(b) The record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is delivered to the corporation.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.14 PROXIES.
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
-5-
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 POWERS.
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 NUMBER OF DIRECTORS.
-------------------
Upon the adoption of these bylaws, the number of directors
constituting the entire Board of Directors shall be one. Thereafter, this
number may be changed by a resolution of the Board of Directors or of the
stockholders, subject to Section 3.4 of these Bylaws. No reduction of the
authorized number of directors shall have the effect of removing any director
before such director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal. Elections of
directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES.
-------------------------
Any director may resign at any time upon written notice to the
attention of the Secretary of the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
-6-
<PAGE>
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
----------------------------------------
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
-7-
<PAGE>
3.8 QUORUM.
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee. Written consents representing actions taken by the
board or committee may be executed by telex, telecopy or other facsimile
transmission, and such facsimile shall be valid and binding to the same extent
as if it were an original.
3.11 FEES AND COMPENSATION OF DIRECTORS.
----------------------------------
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
3.12 APPROVAL OF LOANS TO OFFICERS.
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the
-8-
<PAGE>
Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this section contained shall be
deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
3.13 REMOVAL OF DIRECTORS.
--------------------
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.
----------------------------------
The corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the corporation.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS.
-----------------------
The Board of Directors may designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate 1 or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, or in these Bylaws,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to the following matters: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by this chapter to be
submitted to stockholders for approval or (ii) adopting, amending or repealing
any Bylaw of the corporation.
4.2 COMMITTEE MINUTES.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
-9-
<PAGE>
4.3 MEETINGS AND ACTION OF COMMITTEES.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS.
--------
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the Board of Directors, a chief executive officer, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS.
-----------------------
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the Secretary of the corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the
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<PAGE>
resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party.
5.5 VACANCIES IN OFFICES.
--------------------
Any vacancy occurring in any office of the corporation shall be filled
by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the corporation (if such an officer is appointed) shall, subject to
the control of the Board of Directors, have general supervision, direction, and
control of the business and the officers of the corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a chairman of the board, at all meetings of the Board of Directors and shall
have the general powers and duties of management usually vested in the office of
chief executive officer of a corporation and shall have such other powers and
duties as may be prescribed by the Board of Directors or these bylaws.
5.7 PRESIDENT.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS.
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 SECRETARY.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of
-11-
<PAGE>
certificates evidencing such shares, and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
----------------------------------------------
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS.
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
-------------------------------------------------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
-----------------------------------------
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an
-12-
<PAGE>
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (a) who is or was a director or
officer of the corporation, (b) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (c) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS.
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (a) who is or was an employee or
agent of the corporation, (b) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (c) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation
6.5 INSURANCE.
---------
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
-13-
<PAGE>
6.6 CONFLICTS.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the certificate
of incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
-------------------------------------
The corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS.
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
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<PAGE>
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
--------------------------------------
The shares of a corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the Board of Directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
-----------------------------------
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
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<PAGE>
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS.
---------
The directors of the corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the certificate
of incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR.
-----------
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL.
----
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
-16-
<PAGE>
8.10 TRANSFER OF STOCK.
-----------------
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS.
-------------------------
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS.
-----------------------
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
-17-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
FLYCAST COMMUNICATIONS CORPORATION
ADOPTION BY INCORPORATOR
------------------------
The undersigned person appointed in the certificate of incorporation to act
as the Incorporator of FlyCast Communications Corporation hereby adopts the
foregoing bylaws as the Bylaws of the corporation.
Executed this 25th day of January 1999.
/s/ Scott S. Ring
----------------------------------------
Scott S. Ring, Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
----------------------------------------------------
The undersigned hereby certifies that the undersigned is the duly elected,
qualified, and acting Secretary of FlyCast Communications Corporation, and that
the foregoing Bylaws were adopted as the Bylaws of the corporation on January
25, 1999, by the person appointed in the certificate of incorporation to act as
the Incorporator of the corporation.
Executed this 25th day of January 1999.
/s/ Jeff Suto
----------------------------------------
Jeff Suto, Secretary
<PAGE>
EXHIBIT 4.1
[LOGO] NUMBER [LOGO] SHARES [LOGO]
------ ------
FCST
COMMON STOCK COMMON STOCK
FLYCAST
NETWORK
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 344067 10 3
SEE REVERSE FOR CERTAIN DEFINITIONS AND A
STATEMENT AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS ON SHARES.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK
PAR VALUE OF $.0001 PER SHARE, OF
FLYCAST COMMUNICATIONS CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile signatures of its duly authorized officers.
Dated:
/s/ RALPH HARMS /s/ GEORGE GARRICK
CHIEF FINANCIAL OFFICER AND ASSISTANT CHAIRMAN, C.E.O., AND PRESIDENT
SECRETARY
Countersigned and Registered:
U.S. STOCK TRANSFER CORPORATION
Transfer Agent and Registrar
By:
Authorized Signature
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of designation, and the
number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be considered as though they were written out in full
according to applicable laws of regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ------------ Custodian --------------
TEN ENT - as tenants by the entities (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act --------------------------------
in common (State)
UNIF TRF MIN ACT - _________ Custodian (unit age ______)
(Cust)
------------ under Uniform Transfers
(Minor)
to Minor Act ------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above text.
FOR VALUE RECEIVED, ____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________
_____________________________________
THE SIGNATURE TO THE ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
NOTICE: UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM). PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment 2 to Registration Statement No. 333-
71909 of Flycast Communications Corporation of our report dated February 3,
1999, 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
March 18, 1999
