<PAGE>
As filed with the Securities and Exchange Commission on April 14, 1999
Registration No. 333-71909
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT 3 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
San Francisco, California 94105
(415) 977-1000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
George R. Garrick, Chairman of the Board, Chief Executive Officer and President
FLYCAST COMMUNICATIONS CORPORATION
181 Fremont Street
San Francisco, California 94105
(415) 977-1000
(Name, Address Including Zip Code, and Telephone Number Including Area Code, of
Agent for Service)
---------------
Copies to:
Jeffrey Y. Suto Laird H. Simons III
Alissa W. Lee Katherine Tallman Schuda
Scott S. Ring Nicholas S. Khadder
VENTURE LAW GROUP FENWICK & WEST LLP
A Professional Corporation Two Palo Alto Square
2800 Sand Hill Road Palo Alto, CA 94306
Menlo Park, CA 94025 (650) 494-0600
(650) 854-4488
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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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........................ $58,650,000 $16,305(2)
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act.
(2) $11,190 of this registration fee was previously paid.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
April 14, 1999
3,000,000 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 3,000,000 shares of our common stock. We anticipate the initial
public offering price will be between $15.00 and $17.00 per share.
We have 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 450,000
additional shares to cover any over-allotments.
BT Alex. Brown
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Hambrecht & Quist
Wit Capital Corporation
as e-Manager(TM)
, 1999
<PAGE>
[INSIDE FRONT COVER]
Title: Maximizing Return On Investment by Acting as a Market Maker
Flow chart beginning with larger sites and smaller sites (represented by larger
and smaller three-dimensional cylinders), from which arrows point to the Flycast
logo and "Flycast Network." Two-way arrows also point between the logo and Media
Sales Force, represented by a series of faces, and Ad Agent, represented by a
desktop computer. Two-way arrows also point between "Media Sales Force" and
"Larger Advertisers and Agencies," which is accompanied by corporate logos, and
"Ad Agent" and "Smaller Buyers," which is also accompanied by corporate logos.
From the Flycast Network and the Flycast logo, a two-way arrow also points to
the BellSouth logo, the SBC logo,the US West logo and "Value Added Resellers." A
two-way arrow also points between these items and "Targeted Marketplace
Solutions."
[INSIDE FRONT COVER FOLD-OUT]
Title: AdExchange, our automated advertising management platform that enables
real-time advertising delivery using ValueTrak reporting and immediate
adjustments by both advertisers and Web sites.
Text to the left of the bottom graphics representing process:
1.The viewer requests a Web page from a browser
2.An advertisement is requested from AdEx
3.AdEx delivers the advertisement to the viewer
4.The site delivers the requested page with an embedded advertisement
5.The viewer selects an advertisement and goes to an e-commerce site
6.ValueTrak records any transactions initiated by the viewer on the site and
conveys it to AdEx
7.Advertisers use AdAgent to execute and manage their advertising campaigns and
AdReporter to monitor the performance of their campaign
8.Web sites use SiteRegistry to register their ad space with the Flycast
Network and SiteReporter to monitor the performance of advertising campaigns
run on their site
Text box to the right of the bottom graphic representing process: AdEx receives
orders from advertisers and matches them with appropriate advertising space
available on the Flycast Network. AdEx allows Flycast to target advertising to
viewers based on a wide selection of Web site and viewer characteristics,
including geographical location, content, prior use of the Web and advertising
previously viewed.
Flycast is a registered trademark and AdAgent, AdEx, AdExchange, AdReporter,
Category Select, 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, financial statements and notes to financial statements appearing
elsewhere in this prospectus.
The Company
Our company, Flycast Communications Corporation, is a leading provider of
Web-based direct response advertising solutions to advertisers. We work closely
with advertisers to maximize the value of their advertising campaigns on the
Web. Other advertising solution companies seek to maximize the value for Web
sites by representing them in their sale of space to advertisers. Our
advertiser customers are primarily companies selling goods and services over
the Internet, direct marketing agencies, or other advertisers who are
interested in driving the Web user towards specific actions. Those actions
include things such as clicking on advertisements, registering their names or
other information, or buying products. We offer our customers direct response
solutions that include widespread placement of advertisements over the Web,
prices that minimize their cost per action and continuous improvement and
optimization of their campaign through the application of technology and
through the services of our trained staff.
Advertising on the Web is expanding rapidly. Forrester Research, Inc.
estimates that $1.5 billion was spent on Web advertising in 1998 and that this
amount will grow to $15 billion in 2003. On the Web, as in traditional media,
there are two types of advertising:
. brand advertising, which is intended to generate awareness of and create
a specific image for a particular company, product or service; and
. direct response advertising, which is intended to generate a specific
response or action from the consumer after exposure to an advertisement.
Direct response advertising solutions are measured on the short-term
benefit from the advertisement and are designed to maximize the number
of responses per advertising dollar.
Forrester Research, Inc. estimates that direct marketing will account for 65%
of total Web advertising spending in 2002, or $5.5 billion, as compared to
brand advertising.
We believe the Web is particularly well-suited for direct response
advertising for the following reasons:
. the Web makes it easier for consumers to read and respond to an
advertisement than traditional direct marketing methods such as toll-
free numbers or reply cards in direct mailings;
. measuring response rates, an essential element for direct marketers, is
easier on the Web than in traditional media, enabling advertisers to
modify their campaigns quickly to increase response rates; and
. Web-based direct marketers benefit from the growing supply of unsold ad-
vertising space on the Web.
An industry source, Paul Kagan Associates, Inc., estimates that approximately
75% of available Web advertising space goes unsold. This imbalance of supply
and demand for advertising space enables us to offer advertisers a critical
mass of space from our Web site partners at low cost. This, in turn, minimizes
their cost per action.
Our advertising network currently combines advertising space from over 850
Web sites. The number of advertisements served on our network has increased
from 93 million in December 1997 to
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<PAGE>
950 million in March 1999. Our network reached over 22 million individual Web
users or 37% of all Web users in the U.S. during the month of February 1999. We
believe this compares favorably to the audience reach of the top 10 Web sites.
Many of our Web site partners are small and medium sites that do not maintain
their own sales forces. We also partner with larger Web sites that offer us
their unsold advertising space. For our Web site partners, we create value by
generating revenue from space on their sites that would otherwise go unsold.
Once an advertiser defines an advertising campaign, we place that campaign
onto the Flycast Network. We use our technology system, called AdEx, which we
developed over the past three years, to match individual advertisements from
the campaign with appropriate advertising space on our network. AdEx also
measures the effectiveness of the campaign, which allows our media consultants
to regularly optimize the placement across our network of sites and improve the
campaign performance.
We have also recently entered the market for local Web advertising solutions.
We signed agreements with BellSouth, SBC Communications and U S WEST. Under
these agreements, we will deliver local Web advertising inventory to
BellSouth's, SBC's and U S WEST's sales forces that they, in turn, will offer
to local advertisers. We believe that local advertisers represent a growing
market on the Web. We intend to develop relationships with other companies that
are seeking local advertising solutions.
Our principal executive offices are located at 181 Fremont Street, San
Francisco, California 94105. Our telephone number at that location is (415)
977-1000. Information contained on our Web site does not constitute part of
this prospectus.
----------------
Unless otherwise indicated, the information in this prospectus assumes:
. the exercise of warrants to purchase 7,143 shares of common stock and
158,649 shares of preferred stock prior to the closing of this offering;
. the conversion of each outstanding share of preferred stock into common
stock, which will occur upon the closing of this offering;
. our reincorporation into Delaware prior to the closing of this offering;
and
. no exercise of the Underwriters' over-allotment option.
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<PAGE>
The Offering
(1) The number of shares of common stock to be outstanding after the offering
is based on the number of shares outstanding as of March 31, 1999. This
number excludes:
. 1,930,469 shares subject to outstanding options or reserved for issuance
under our 1997 Stock Option Plan;
. 3,469,749 shares subject to outstanding options or reserved for issuance
under our 1999 Stock Option Plan;
. 169,067 shares subject to warrants outstanding at March 31, 1999, net of
warrants to purchase 165,792 shares that will be exercised immediately
before the completion of this offering; and
. 550,000 shares reserved for issuance under our 1999 Directors' Stock
Option Plan and 1999 Employee Stock Purchase Plan. See "Management--Stock
Plans" and Notes 5 and 8 of Notes to Financial Statements.
<TABLE>
<S> <C>
Common stock offered by Flycast..... 3,000,000 shares
Common stock to be outstanding after
the offering....................... 14,108,995 shares(1)
Use of proceeds..................... For working capital and general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol....... FCST
</TABLE>
Summary Financial Information
See Note 6 of Notes to Financial Statements for a description of the method
that we used to compute our net loss per share, and Note 1 of Notes to
Financial Statements for how we calculated the number of shares used in that
computation. The Pro Forma column in the Balance Sheet Data below reflects:
. the sale of preferred stock in January 1999 for a total purchase price of
$13.5 million;
. the exercise of warrants outstanding at December 31, 1998 to purchase
217,170 shares that will expire upon the closing of this offering for a
total 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 $16.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. See
"Capitalization."
<TABLE>
<CAPTION>
Years Ended
December 31, Three Months Ended
---------------- -----------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1997 1998 1998 1998 1998 1998
------- ------- -------- -------- -------- --------
Statement of Operations
Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
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 $63,632
Working capital................................ 4,088 18,887 62,527
Total assets................................... 10,791 25,590 69,230
Long-term obligations, less current portion.... 4,704 4,704 4,704
Mandatorily redeemable preferred stock......... 13,855 -- --
Total stockholders' equity (deficit)........... (12,578) 16,076 59,716
</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 three-year operating history, making it difficult for you to
evaluate our business and your investment
We commenced operations in April 1996 and did not begin to generate revenue
until the second quarter of 1997. Thus, we have only a limited operating
history upon which you can evaluate our business. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by early-stage companies in the Web advertising market, which is
new and rapidly evolving. We may not be successful in addressing these risks
and our business strategy may not be successful. These risks include our
ability to:
. maintain and increase our inventory of advertising space on Web sites;
. maintain and increase the number of advertisers that use our products
and services; and
. continue to expand the number of products and services we offer.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more detailed information.
We have a history of losses and anticipate continued losses
Our accumulated deficit as of 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, you should ignore revenue projections of $30 million in 1999
and $70 million in 2000 that received limited circulation in the press in the
fall of 1998. Our current internal revenue projections are lower than those
revenue projections by at least 20% to 30% in 1999 and at least 35% to 45% in
2000. You should not base your decision as to whether to invest in shares of
our common stock on either the published revenue projections or any calculation
of what our current internal revenue projections may be. Any projections or
other forward-looking statements are subject to a great deal of uncertainty and
change. Our future revenue and operating results will be affected by a number
of factors, including those set forth in this section. It is likely that our
internal projections for 1999 and 2000 will change throughout 1999 and 2000. In
addition, projections published by market analysts may differ from our internal
revenue projections. We do not believe that we will be required to provide any
updates or further information as to our internal revenue projections for 1999
and 2000 and it is not our present intention to do so.
We plan to increase our operating expenses to expand our infrastructure to
support our current business and new lines of businesses, including our
reseller network. The timing of this expansion and the rate at which our
reseller network generates revenue could cause material fluctuations in our
results of operations. We also plan to purchase additional capital equipment.
Our losses may increase in the future and we may not be able to achieve or
sustain profitability. Even if we do achieve profitability, we may not be able
to sustain or increase profitability on a quarterly or annual basis in the
future. If our revenue grows more slowly than we anticipate, or if our
operating expenses exceed our expectations and cannot be adjusted accordingly,
our business, results of operations and financial
6
<PAGE>
condition will be materially and adversely affected. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more detailed information.
Our quarterly operating results are subject to fluctuations and seasonality
that make it difficult to predict our financial performance
Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors, some of which are outside of our control.
Therefore, you should not rely on period-to-period comparisons of results of
operations as an indication of our future performance. It is possible that in
some future periods our operating results may fall below the expectations of
market analysts and investors. In this event, the market price of our common
stock would likely fall.
7
<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
our estimates of future revenue and on our investment plans. In particular, we
plan to increase our operating expenses significantly in order to expand our
sales and marketing operations, including our reseller network, to enhance
AdEx, our advertising management platform, and to expand internationally. To
the extent that these expenses precede increased revenue, our business, results
of operations and financial condition would be materially and adversely
affected. We may be unable to, or may elect not to, adjust spending quickly
enough to offset any unexpected revenue shortfall. Therefore, any significant
shortfall in revenue in relation to our expectations would also have a material
adverse effect on our business, results of operations and financial condition.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more detailed information.
We may experience capacity constraints that could affect our advertising
revenue
Our future success depends in part on the efficient performance of AdEx, as
well as the efficient performance of the systems of third parties such as our
Internet service providers. An increase in the volume of advertising delivered
through our servers could strain the capacity of the software or hardware that
we have deployed, which could lead to slower response times or system failures
and adversely affect the availability of advertisements, the number of
advertising views received by advertisers and our advertising revenues. Due to
unexpected growth in the number of advertising views that we served in 1998, we
experienced a slowdown, and in some cases an interruption, in delivering
advertisements to viewers over a three-week period that limited the number of
advertising views we were able to serve. As the numbers of Web pages and users
increase, our products, services and infrastructure may not be able to grow to
meet the demand. To the extent that we do not effectively address any capacity
constraints or system failures, our business, results of operations and
financial condition would be materially and adversely affected. Please see
"Business--Technology and Operations" for more detailed information.
We run the risk of system failure that could adversely affect our business
The continuing and uninterrupted performance of our system is critical to our
success. Customers may become dissatisfied by any system failure that
interrupts our ability to provide our services to them, including failures
affecting the ability to deliver advertisements quickly and accurately to the
8
<PAGE>
targeted audience. Sustained or repeated system failures would reduce
significantly the attractiveness of our solutions to advertisers and Web sites.
Our business, results of operations and financial condition could be materially
and adversely affected by any damage or failure that interrupts or delays our
operations.
Our operations depend on our ability to protect our computer systems against
damage from a variety of sources, including telecommunications failures,
malicious human acts and natural disasters. In this regard, we lease server
space in the San Francisco Bay Area. Therefore, any of the above factors
affecting the San Francisco Bay Area would have a material adverse effect on
Flycast's business. Further, despite network security measures, our servers are
vulnerable to computer viruses and disruptions from unauthorized tampering with
our computer systems. We do not carry enough business interruption insurance to
compensate for losses that may occur as a result of any of these events.
Despite precautions, unanticipated problems affecting our systems could cause
interruptions in the delivery of our solutions in the future. Our data storage
centers incorporate redundant systems, consisting of additional servers, but
the primary system does not switch over to the backup system automatically.
We also depend upon Internet service providers that provide consumers with
access to our products and services. In the past, users have occasionally
experienced difficulties due to system failures unrelated to our systems. Any
disruption in the Internet access provided by third-party providers or any
failure of third-party providers to handle higher volumes of user traffic could
have a material adverse effect on our business, results of operations and
financial condition.
We have a limited number of customers upon whom we rely, and the loss of a
major customer could adversely affect our revenue
We expect that a limited number of customers will account for a significant
portion of our revenue for the foreseeable future. As a result, if we lose a
major customer, our revenue could be adversely affected. In addition, we cannot
be certain that customers that have accounted for significant revenue in past
periods, individually or as a group, will continue to generate revenue in any
future period. We also target small advertisers that have limited advertising
budgets and/or are interested in reaching small and limited target audiences.
We may not be able to generate sufficient revenue from these advertisers to
lessen our dependence on our largest customers. We typically enter into short-
term contracts with Web sites for their supply of advertising views. The loss
of a significant number of these advertising views might result in the loss of
customers, which could have a material adverse effect on our business, results
of operations and financial condition. For more detailed information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
We depend on the evolution of Web advertising for our future success
We expect to derive substantially all of our revenue in the foreseeable
future from Web advertising. Therefore, our future success depends on increased
use of the Web as an advertising medium. If the market for Web advertising
fails to develop or develops more slowly than we expect, then our business,
results of operations and financial condition would be materially and adversely
affected. The Web has not existed long enough as an advertising medium to
demonstrate its effectiveness relative to traditional advertising media.
Customers that have relied on traditional media for advertising may be
reluctant to use Web advertising. Many customers have limited or no experience
using the Web as an advertising medium, have allocated only a limited portion
of their advertising budgets to Web advertising or may find Web advertising to
be less effective for promoting their products and services than advertising
using traditional media. In addition, advertisers and advertising agencies that
have invested substantial resources in traditional methods of advertising may
be reluctant to reallocate their media buying resources to Web advertising. We
cannot assure you that the market for Web advertising will continue to develop
or be sustainable.
9
<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 successful alternative forms of Web advertising could have a material
and adverse effect on the Web advertising market and our business, results of
operations and financial condition.
Our business model has a limited history and may not succeed
Our business model is to generate revenue primarily by providing Web
advertising solutions to response-oriented advertisers. We cannot assure you
that Web advertising, response-oriented marketing or our model for providing
solutions based upon providing an improved return on investment for advertisers
will achieve broad market acceptance or generate significant revenue. 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 of our strategy is to enhance 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 this strategy will succeed or that we will be able to achieve
or maintain adequate gross margins.
We face intense competition from more established Web advertising companies
that could adversely affect our business
We face intense competition from Web advertising networks and providers of
advertising inventory management products and services. We expect this
competition to continue to increase because there are no substantial barriers
to entry. Increased competition is likely to result in price reductions for
advertising space, reduced gross margins and loss of our market share. We may
not be able to compete successfully, and competitive pressures may materially
and adversely affect our business, results of operations and financial
condition. Many of our existing competitors, as well as a number of potential
new competitors, have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than we do. Please see "Business--Competition" for more
detailed information.
We will depend on distribution relationships to increase our revenue
We believe that our future success will depend in part on our relationships
with companies that distribute or resell our Web advertising solutions. These
relationships have not generated significant revenue to date, and, in order for
us to be successful, revenue generated by our resellers must increase. Our
inability to enter into future distribution relationships might limit the
number and size of the markets that we serve. This could limit our revenue
growth and have a material adverse effect on our business, results of
operations and financial condition. We have recently initiated reseller
relationships with BellSouth, SBC Communications and U S WEST. Our agreements
with them provide that Flycast will deliver a wholesale supply of local Web
advertising that their Yellow Pages sales
10
<PAGE>
forces will resell to local advertisers. These resellers have no obligation to
resell our inventory of advertising space on Web sites and can terminate their
relationships with us with limited or no penalty with as little as 120 days'
notice. The loss of any reseller, the failure of any reseller to perform under
its agreement with us or our inability to attract and retain new resellers
could have a material adverse effect on our business, results of operations and
financial condition.
Intensive marketing and sales efforts may be necessary to educate prospective
local advertisers about the uses and benefits of our products and services in
order to generate demand for our services in the local advertiser market
segment. These companies may not have adequate resources available to advertise
their products and services and may not be willing to devote the staff
necessary to educate themselves on the uses and benefits of our advertising
solutions for localized or otherwise limited target customers. We will depend
on our distributors to sell our Web advertising solutions. If these
distributors do not sell our solutions in an effective manner, our business,
results of operations and financial condition may be materially adversely
affected. Please see "Business--Products and Services--Flycast Local
Market/Value Added Reseller Division" for more detailed information.
We need to manage our available advertising space and to establish
relationships with diverse Web sites to attract customers
We need to make available a consistent supply of attractive advertising
space to attract customers. Our failure to do so could have a material and
adverse effect on our business, results of operations and financial condition.
The Web sites that list their unsold advertising space with us are not bound by
contracts that ensure us a consistent supply of inventory. In addition, Web
sites can change the number of advertising views they make available to us at
any time, subject to monthly minimums. If a Web site publisher decides not to
make advertising space from its Web sites available to the Flycast Network, we
may not be able to replace this advertising space with advertising space from
other Web sites that have comparable traffic patterns and user demographics in
time to fulfill a buyer's request. We expect our customers' requirements to
become more sophisticated as the Web matures as an advertising medium. For
example, we expect our customers to become more precise in their requirements
for geographically-targeted advertising that we sell through our reseller
network. We cannot assure you that the amount or type of advertising space
listed or the number of Web sites listing their advertising space on the
Flycast Network will increase or even remain constant in the future.
We need to manage our growth effectively in a rapidly growing Web advertising
market where the requirements for success change frequently
As we continue to increase the scope of our operations, we will need an
effective planning and management process to implement our business plan
successfully in the rapidly evolving market for Web advertising. Our business,
results of operations and financial condition will be materially and adversely
affected if we are unable to manage our expanding operations effectively. We
anticipate that we will commence international operations starting in the
second quarter of 1999. We have grown from 31 employees on January 1, 1998 to
86 employees on March 31, 1999. We plan to continue to expand our sales and
marketing, customer support and research and development organizations. Past
growth has placed, and any future growth will continue to place, a significant
strain on our management systems and resources. We have recently implemented a
new financial reporting system and expect that we will need to continue to
improve our financial and managerial controls and our reporting systems and
procedures. In addition, we will need to expand, train and manage our
work force.
We depend on key personnel for our future success
Our future success depends to a significant extent on the continued service
of our key senior management, technical and sales personnel. We do not have
long-term employment agreements with
11
<PAGE>
any of our key personnel nor do we have key-person insurance on any of our
employees. The loss of the services of any member of our management team, or of
any other key employees, would have a material adverse effect on our business,
results of operations and financial condition. Recently, we have experienced
significant changes to our executive management team. For example, our Chief
Financial Officer, Vice President, Engineering and Vice President, Media Sales
joined Flycast in January 1999, our Executive Vice President Finance,
Administration and Corporate Development, Vice President, Direct Marketing,
Vice President, Business Development and Vice President, Network Operations
joined Flycast in March 1999. Three other members of our management team,
including our Chief Executive Officer, have been employed by us for less than
one year. We cannot assure you that the new members of our management team will
work effectively together or with the rest of our management. Our future
success also depends on our continuing ability to attract, retain and motivate
highly skilled employees. Competition for employees in the industry is intense.
We may be unable to retain our key employees or attract, assimilate or retain
other highly qualified employees in the future. We have experienced difficulty
from time to time in attracting the personnel necessary to support the growth
of our business, and we may experience similar difficulty in the future. Please
see "Management" for more detailed information.
We may face potential claims that would affect our financial results
As described more completely under "Related Party Transactions--Employment
and Severance Agreements," we were unable to close an oral severance agreement
that we reached with a former employee and we were therefore forced to
foreclose on a promissory note from that employee. If that employee should
elect to contest the number of shares issued to him or any of the payments made
to him, we would be subjected to the costs and diversion of management time
that this litigation would entail. In addition, should we ultimately be
required to issue additional shares to this employee, our stockholders would
experience additional dilution in their holdings and we would incur a non-cash
charge equal to the fair market value of the additional shares at the time they
are issued.
We depend on the continued growth of Internet usage and infrastructure for our
business
Our market is new and rapidly evolving. Our business would be adversely
affected if Web usage does not continue to grow. Web usage may be inhibited for
a number of reasons, such as:
. inadequate network infrastructure;
. security concerns;
. inconsistent quality of service; and
. unavailability of cost-effective, high-speed service.
If Web usage grows, the Internet infrastructure may not be able to support
the demands placed on it by this growth or its performance and reliability may
decline. In addition, Web sites have experienced interruptions in their service
as a result of outages and other delays occurring throughout the Internet
network infrastructure. If use of the Internet does not continue to grow, or if
the Internet infrastructure does not effectively support growth that may occur,
our business, results of operations and financial condition would be materially
and adversely affected.
We must keep pace with rapidly changing technologies to be successful
The Web and Web advertising markets are characterized by rapidly changing
technologies, evolving industry standards, frequent new product and service
introductions and changing customer demands. The introduction of new products
and services embodying new technologies and the emergence of new industry
standards and practices can render existing products and services obsolete and
unmarketable or require unanticipated investments in research and development.
12
<PAGE>
Our future success will depend on our ability to adapt to rapidly changing
technologies, to enhance existing solutions and to develop and introduce a
variety of new solutions to address our customers' changing demands. For
example, advertisers may require the ability to deliver advertisements
utilizing new formats that go beyond stationary images and incorporate video,
audio and interactivity, and more precise consumer targeting techniques. In
addition, increased availability of Internet access that delivers greater
amounts of data faster is expected to enable the development of new products
and services that take advantage of this expansion in delivery capability. Our
failure to adapt successfully to these changes could adversely affect our
business, results of operations and financial condition. We may also experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our solutions. In addition, any new solutions or
enhancements that we develop must meet the requirements of our current and
prospective customers and must achieve significant market acceptance. Material
delays in introducing new solutions and enhancements may cause customers to
forego purchases of our solutions and purchase those of our competitors.
Our planned international expansion may be affected by factors beyond our
control
We expect to initiate operations in selected international markets in the
second quarter of 1999. To date, we have not developed international versions
of our solutions. Expansion into international markets will require management
attention and resources. We also may enter into a number of international
alliances as part of our international strategy and rely extensively on these
business partners to conduct operations, establish local networks, register Web
sites as affiliates and coordinate sales and marketing efforts. Our success in
these markets will depend on the success of our business partners and their
willingness to dedicate sufficient resources to our relationships. We cannot
assure you that we will be successful in expanding internationally.
International operations are subject to other inherent risks, including:
. the impact of recessions in economies outside the United States;
. changes in regulatory requirements;
. 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
13
<PAGE>
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 this application. The purpose of an
interference proceeding is to determine the relative priority between two or
more applicants, and which of the applicants, if any, will ultimately be issued
the patent. The 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 might result in substantial expense to Flycast. Patents
may not be issued with respect to our pending or future patent applications.
Even if patents are issued, the patents may not be upheld as valid or prevent
the development of competitive solutions. Third parties may have or may in the
future be granted patents that cover our technology. We may be limited in our
ability to use our technology, whether or not patented, without licenses, which
may not be available on commercially reasonable terms.
We depend on our intellectual property rights and are subject to the risk of
infringement
Our success and ability to compete are substantially dependent on our
internally-developed technologies and trademarks, including AdEx, our
advertising management platform, and applications that use the AdEx platform,
which we protect through a combination of patent, copyright, trade secret and
trademark law. We cannot guarantee that any of our patent applications or
trademark registrations will be approved. Even if they are approved, these
patents or trademarks may be successfully challenged by others or invalidated.
We cannot guarantee that any of our intellectual property rights will be
viable or valuable in the future since the validity, enforceability and scope
of protection of proprietary rights in Internet-related industries is uncertain
and still evolving. Any claims could subject us to significant liability for
damages and could result in the invalidation of our intellectual property
rights. Any claims or litigation from third parties may also result in
limitations on our ability to use the intellectual property subject to any
claims or litigation unless we enter into arrangements with the third parties
responsible for those claims or litigation, which may be unavailable on
commercially reasonable terms. Please see "Business--Intellectual Property
Rights" for more detailed information.
We are subject to privacy concerns that may limit our success
Our technology collects and utilizes data derived from user activity on the
Web sites in the Flycast Network. AdEx enables the use of personal profiles, in
addition to other mechanisms, to deliver targeted advertising, to help compile
demographic information and to limit the frequency with which an advertisement
is shown to the user. The effectiveness of our technology and the success of
our business could be limited by any reduction or limitation in the use of
personal profiles. These personal profiles contain bits of information keyed to
a specific server, file pathway or directory location that are stored in the
Internet user's hard drive and passed to a Web site's server through the user's
browser software. Personal profiles are placed on the user's hard drive without
the user's knowledge or consent, but can be removed by the user at any time
through the modification of the user's browser settings. In addition, currently
available Web browsers can be configured to prevent personal profiles from
being stored on their hard drive. Some commentators, privacy advocates and
governmental bodies have suggested limiting or eliminating the use of personal
profiles.
The European Union has recently adopted a directive addressing data privacy
that may result in limitations on the collection and use of information
regarding Internet users. These limitations may limit our ability to target
advertising or collect and use information in most European countries.
14
<PAGE>
We are subject to government regulation and legal uncertainties of doing
business on the Web
Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could affect the
costs of communicating on the Web and adversely affect the demand for our
advertising solutions or otherwise have a material and adverse effect on our
business, results of operations and financial condition. Recently, the United
States Congress enacted Internet legislation regarding children's privacy,
copyrights and taxation. A number of other laws and regulations may be adopted
covering issues such as user privacy, pricing, acceptable content, taxation and
quality of products and services. This legislation could hinder growth in the
use of the Web generally and decrease the acceptance of the Web as a
communications, commercial and advertising medium. In addition, the growing use
of the Web has burdened the existing telecommunications infrastructure and has
caused interruptions in telephone service. Telephone carriers have petitioned
the government to regulate and impose fees on Internet service providers and
online service providers in a manner similar to long distance carriers.
Due to the global nature of the Web, it is possible that, while our
transmissions originate in California, the governments of other states or
foreign countries might attempt to regulate our transmissions or levy sales or
other taxes relating to our activities. Furthermore, the European Union
recently adopted a directive addressing data privacy that may result in limits
on the collection and use of user information. The laws governing the Internet
remain largely unsettled, even in areas where there has been some legislative
action. It may take years to determine whether and how existing laws including
those governing intellectual property, privacy, libel and taxation apply to the
Internet and Internet advertising. In addition, the growth and development of
the market for Internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the Internet. Our
business, results of operations and financial condition could be adversely
affected by the adoption or modification of laws or regulations relating to the
Internet, or the application of existing laws to the Internet.
We face an unknown number of Year 2000 risks
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with these Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
We do not yet know the extent of our exposure to the Year 2000 risks.
We have made a preliminary assessment of our Year 2000 readiness. We plan to
perform a Year 2000 simulation on our software during the second quarter of
1999. We are also in the process of contacting third-party vendors, licensors
and providers of software, hardware and services regarding their Year 2000
readiness. Following this testing and after contacting these vendors and
licensors, we will be better able to make a complete evaluation of our Year
2000 readiness, to determine what costs will be necessary to be Year 2000
compliant, and to determine whether contingency plans need to be developed.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance" for more detailed information.
Virtually all of our shares will be eligible for sale shortly after the
offering, and that could result in a decline in our stock price
If our stockholders sell substantial amounts of common stock in the public
market following this offering, the market price of our common stock could
fall. These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
15
<PAGE>
appropriate. Based on shares outstanding as of March 31, 1999, upon completion
of this offering, we will have 14,108,995 shares of common stock outstanding.
Of these shares, the 3,000,000 shares being offered hereby will be freely
tradable and 11,108,995 shares will become eligible for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
------------ -----------------------------------------------------------------------
<C> <S>
10,351,651 At various times after the date of this prospectus pursuant to Rule 144
757,344 At various times after 90 days from the date of this prospectus
</TABLE>
These shares are subject to contractual restrictions with us and, in most
cases, with the underwriters, that prevent them from being sold until 180 days
after the effective date of the registration statement for this offering
without the consent of BT Alex. Brown Incorporated.
In addition, upon the effective date of this offering, we expect to register
for sale
. 2,800,000 shares of common stock reserved for issuance under the 1997
Stock Option Plan;
. 3,500,000 shares of common stock reserved for issuance under the 1999
Stock Option Plan;
. 200,000 shares of common stock reserved for issuance under the Direc-
tors' Stock Option Plan; and
. 350,000 shares of common stock reserved for issuance under the 1999 Em-
ployee Stock Purchase Plan.
As of March 31, 1999, options to purchase 3,747,454 shares of common stock
were outstanding and shares acquired upon exercise of these options will be
eligible for sale in the public market from time to time subject to vesting and
the 180-day lockup restrictions that apply to the outstanding stock. These
stock options generally have exercise prices significantly below the expected
initial public offering price of our common stock. The possible sale of a
significant number of these shares may cause the price of the common stock to
decline. As of March 31, 1999, we also have 334,859 shares of common stock that
may be issued upon the exercise of outstanding warrants, including 165,792
shares of common stock that may be issued upon the exercise of outstanding
warrants that terminate upon the effective date of this offering.
Stockholders and warrant holders representing approximately 10,250,995 shares
of common stock may have the right, subject to conditions, to include their
shares in registration statements relating to our securities. By exercising
their registration rights and causing a large number of shares to be registered
and sold in the public market, these holders could cause the price of the
common stock to decline. In addition, any demand to include these shares in our
registration statements could have an adverse effect on our ability to raise
needed capital. Please see "Shares Eligible for Future Sale" for more detailed
information.
We expect to experience volatility in our stock price that could affect your
investment
Prior to this offering, there has been no public market for our common stock.
Accordingly, we cannot predict the extent to which investor interest in our
common stock will lead to the development of a trading market or how liquid
that market might become. The initial public offering price for the shares will
be determined by us and the representatives of the underwriters and may not be
indicative of prices that will prevail in the trading market. The price at
which our common stock will trade after this offering is likely to be highly
volatile and may fluctuate substantially due to factors such as:
. actual or anticipated fluctuations in our results of operations;
. changes in or failure by us to meet securities analysts' expectations;
. announcements of technological innovations;
16
<PAGE>
. introduction of new services by us or our competitors;
. developments with respect to intellectual property rights;
. conditions and trends in the Internet and other technology industries;
and
. general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stocks of technology companies, particularly Internet companies. In the
past, these broad market fluctuations have been unrelated or disproportionate
to the operating performance of these companies. Any significant fluctuations
in the future might result in a material decline in the market price of our
common stock. In the past, following periods of volatility in the market price
of a particular company's securities, securities class action litigation has
often been brought against that company. We may become involved in this type of
litigation in the future. Litigation is often expensive and diverts
management's attention and resources, which could have a material adverse
effect upon our business and operating results.
We will be substantially influenced by officers and directors
We anticipate that executive officers, directors and entities affiliated with
them will beneficially own approximately 49.9% of our common stock following
the completion of this offering, or 48.4% if the over-allotment option is
exercised in full. These stockholders may be able to control all matters
requiring approval by our stockholders, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control of
Flycast. Please see "Principal Stockholders" for more detailed information.
We will have broad discretion in use of the proceeds from this offering in ways
with which you may not agree
Of the net proceeds to Flycast from this offering, estimated at approximately
$43.6 million, a substantial portion will be used for general corporate
purposes and has not yet been designated for a particular purpose. Our
management can therefore spend most of the proceeds from this offering in ways
with which the stockholders may not agree. Please see "Use of Proceeds" for
more detailed information.
We have adopted anti-takeover provisions that could affect the sale of Flycast
Provisions of our Certificate of Incorporation, our Bylaws and Delaware law,
such as the elimination of the ability to act by written consent, could make it
more difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders. Please see "Description of Capital Stock--
Delaware Anti-Takeover Law and Charter and Bylaw Provisions" for more detailed
information.
17
<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 3,000,000 shares being
offered by Flycast at an assumed initial public offering price of $16.00 per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses, are estimated to be $43,640,000, or $50,336,000 if
the underwriters' over-allotment option is exercised in full. Flycast expects
to use the net proceeds of the offering for general corporate purposes,
including working capital, capital expenditures and possible acquisitions of
companies or technology, although there are no current agreements or
negotiations with respect to any acquisitions. Pending these uses, Flycast
intends to invest the net proceeds in short-term, interest-bearing, investment
grade securities.
DIVIDEND POLICY
Flycast has never declared or paid cash dividends on its capital stock.
Flycast currently intends to retain all available funds and any future earnings
for use in the operation of its business and does not anticipate paying any
cash dividends in the foreseeable future.
THE COMPANY
Flycast was incorporated in California under the name "Orst, Inc." on
February 14, 1994, changed its name to Flycast Communications Corporation and
began operations on April 14, 1996 and will reincorporate in Delaware prior to
this offering. Flycast's principal executive offices are located at 181 Fremont
Street, San Francisco, California 94105. Our telephone number at that location
is (415) 977-1000. Information contained in our Web site does not constitute
part of this prospectus.
18
<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 $16.00 per share,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds."
The following table does not include:
. 2,045,904 shares subject to outstanding options or reserved for issuance
under our 1997 Stock Option Plan as of December 31, 1998;
. 169,067 shares subject to outstanding warrants as of December 31, 1998,
net of warrants to purchase 217,170 shares outstanding at December 31,
1999 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.
<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, 14,103,764 shares issued and
outstanding, pro forma as adjusted........... 912 29,566 73,206
Common stock options.......................... 2,837 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 59,716
-------- -------- --------
Total capitalization......................... $ 5,981 $ 20,780 $ 64,420
======== ======== ========
</TABLE>
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<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
$16.00 per share after deducting estimated underwriting discounts and
commissions and estimated offering expenses, the pro forma net tangible book
value of Flycast as of December 31, 1998 would have been $4.23 per share of
common stock. This represents an immediate increase in net tangible book value
of $2.78 per share to existing stockholders and an immediate dilution of $11.77
per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $16.00
Pro forma net tangible book value per share before the
offering................................................... $1.45
Increase attributable to new investors...................... 2.78
-----
Pro forma net tangible book value after the offering.......... 4.23
------
Dilution per share to new investors........................... $11.77
======
</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. The
following table does not include:
. 2,045,904 shares subject to outstanding options or reserved for issuance
under our 1997 Stock Option Plan as of December 31, 1998;
. 169,067 shares subject to outstanding warrants as of December 31, 1998,
net of warrants to purchase 217,170 shares outstanding at December 31,
1999 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.
<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 78.7% $29,566,000 38.1% $ 2.66
New investors............. 3,000,000 21.3 48,000,000 61.9 $16.00
---------- ----- ----------- -----
Totals................ 14,103,764 100.0% $77,566,000 100.0%
========== ===== =========== =====
</TABLE>
20
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the financial statements, the notes to the financial statements and the
other information contained in this prospectus. The selected balance sheet data
as of December 31, 1997 and 1998 and the selected statement of operations data
for the period from April 14, 1996 (inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 have been derived from the audited
financial statements of Flycast appearing elsewhere in this prospectus.
<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 this conversion had occurred on January 1, 1998 or,
if later, the date of original issuance. See Note 1 of Notes to Financial
Statements for an explanation of the determination of the number of shares
used in computing pro forma basic and diluted loss per common share.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Flycast delivers Web-based advertising solutions designed to maximize the
return on investment for response-oriented advertisers, direct marketers and
electronic commerce companies. By combining unsold advertising space from over
850 Web sites, the Flycast Network offers advertisers a large audience of Web
users and high-quality advertising space at favorable prices. Additionally, by
selling advertising space on an unnamed basis, Flycast creates a supplemental
revenue opportunity for Web sites that does not conflict with their other sales
efforts.
We commenced operations in April 1996 as a California corporation. From April
1996 through May 1997, our operating activities related primarily to developing
our AdEx technology and the Flycast Network, identifying markets and recruiting
personnel.
Revenue from advertisements delivered on the Flycast Network began in the
second quarter of 1997. We generate revenue by delivering advertisements to Web
sites in the Flycast Network. Pricing of advertising is based on cost per
advertising impression and varies depending on whether the advertising is run
across the network, across specific categories or on individual Web sites. We
sell our services through our sales and marketing staff located in San
Francisco, Atlanta, Boston, Boulder, Chicago, Los Angeles, New York,
Philadelphia, Sarasota, Seattle and Virginia. The advertisements we deliver are
typically sold under short-term agreements that are subject to cancellation.
Advertising revenue is recognized in the period that advertisements are
delivered. We pay each Web site in the Flycast Network an agreed upon
percentage of the revenue generated by advertisements run on its site. That
amount is included in cost of revenues. Generally we bill and collect for
advertisements delivered on the Flycast Network and assume the risk of non-
payment from advertisers.
We expect to generate most of our revenue for the foreseeable future from
advertisements delivered to Web sites on the Flycast Network. Our ten largest
customers accounted for 40% of our revenue for the year ended December 31, 1998
and 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, SBC
Communications and U S WEST. Under these agreements, we will deliver local Web
advertising inventory to BellSouth's, SBC's and U S WEST's sales forces that
they, in turn, will offer to local advertisers. To date, these agreements have
not accounted for significant revenue. However, we anticipate that revenue from
these agreements will account for an increasing percentage of our revenue in
the future.
We have incurred significant losses since inception and, as of 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 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 increase significantly our operating expenses in order to expand our sales
and marketing
22
<PAGE>
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.
We anticipate that our revenue for the three months ended March 31, 1999 will
be in the range of $4.5 million to $4.7 million. We expect to finalize our
financial results for this period by late April 1999.
Results of Operations
The following table sets forth statement of operations data for the periods
indicated as a percentage of revenue:
<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 paid 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 latter
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
23
<PAGE>
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.
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, net consists of interest paid on
capital lease and debt obligations, offset in part by interest earnings on our
cash, cash equivalents and investments. Interest expense was $98,000 in 1997
and $504,000 in 1998. Interest income was $92,000 in 1997 and $92,000 in 1998.
Income Taxes. No income tax benefits have been recorded for any of the
periods presented. At December 31, 1998, we had approximately $11.0 million of
federal net operating loss carryforwards available to offset future taxable
income; these carryforwards expire in various years through 2018. As a result
of various equity transactions during 1996, 1997 and 1998, we believe that we
may have undergone an "ownership change" as defined in section 382 of the
Internal Revenue Code. Accordingly, the utilization of a portion of the net
operating loss carryforwards may be limited. Due to the uncertainty regarding
the ultimate utilization of the net operating loss carryforwards, we have not
recorded any benefit for losses and a valuation allowance has been recorded for
the entire amount of the net deferred tax asset. In addition, sales of our
stock, including shares sold in this offering, may further restrict our ability
to utilize our net operating loss carryforwards.
24
<PAGE>
Quarterly Results of Operations
The following table sets forth unaudited quarterly statement of operations
data and these data as a percentage of revenue for the four quarters of 1998.
In the opinion of management, this information has been prepared on the same
basis as the audited financial statements appearing elsewhere in this
prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results of operations. The quarterly data should be
read in conjunction with the audited financial statements of Flycast and the
notes to the financial statements appearing elsewhere in this prospectus. The
results of operations for any quarter are not necessarily indicative of the
results of operations for any future period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1998 1998 1998 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
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
25
<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 that make it difficult to predict our
financial performance."
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the
private placement of equity and convertible debt securities and borrowings from
a related party. As of 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. 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
26
<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 Year
2000 requirements or risk system failure or miscalculations causing disruptions
of normal business activities.
State of Readiness. We have made a preliminary assessment of the Year 2000
readiness of our information technology ("IT") systems, including the hardware
and software that enable us to provide and deliver our solutions, and our non-
IT systems. Our assessment plan consists of
. quality assurance testing of our internally developed proprietary soft-
ware incorporated in our solutions ("AdEx Technology");
. contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of our solutions to advertisers and the Web sites on the
Flycast Network;
. contacting third-party vendors who provide important business services
(non-IT systems);
. assessment of repair or replacement requirements;
. repair or replacement;
. implementation; and
. creation of contingency plans in the event of Year 2000 failures.
We plan to perform a Year 2000 simulation on our AdEx Technology during the
second quarter of 1999 to test system readiness. Based on the results of our
Year 2000 simulation test, we intend to revise the code of our AdEx Technology
as necessary to improve the Year 2000 compliance of our AdEx Technology. We
have 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 third party vendors that provide important
business services (non-IT systems) and will seek assurance of Year 2000
compliance from these providers. Until this testing is complete and these
vendors and providers are contacted, we will not be able to completely evaluate
whether our IT systems or non-IT systems will need to be revised or replaced.
This process will also be completed during 1999.
Costs. To date, we have not incurred any material expenditures in connection
with identifying or evaluating Year 2000 compliance issues. Most of our
expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. At this time, we do not
possess the information necessary to estimate the potential costs of revisions
to our AdEx Technology should any revisions be required or the replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Although we do not anticipate that these expenses will be
material, these expenses, if higher than anticipated, could have a material
adverse effect on our business, results of operations and financial condition.
Risks. We are not currently aware of any Year 2000 compliance problems
relating to AdEx Technology or our IT or non-IT systems that would have a
material adverse effect on our business, results of operations or financial
condition, without taking into account our efforts to avoid or fix these
problems. We may discover Year 2000 compliance problems in our AdEx Technology
that will require substantial revisions. In addition, third-party software,
hardware or services incorporated into our material IT and non-IT systems may
need to be revised or replaced, all of which could be time consuming and
expensive. If we fail to fix our AdEx Technology or to fix or replace third-
party
27
<PAGE>
software, hardware or services on a timely basis, the result could be lost
revenues, increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on our
business, results of operations and financial condition. Moreover, the failure
to adequately address Year 2000 compliance issues in our AdEx Technology, and
our IT and non-IT systems could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
In addition, there can no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and non-IT
systems providers outside Flycast's control will be Year 2000 compliant. The
failure by these entities to be Year 2000 compliant could result in a systemic
failure beyond the control of Flycast, including a prolonged Internet,
telecommunications or electrical failure, which could also prevent Flycast from
delivering its services to its customers, decrease the use of the Internet or
prevent users from accessing the Web sites in the Flycast Network, which could
have a material adverse effect on Flycast's business, results of operations and
financial condition.
Contingency Plan. As discussed above, Flycast is engaged in an ongoing Year
2000 assessment and has not yet developed any contingency plans. The results of
Flycast's Year 2000 simulation testing and the responses received from third-
party vendors and service providers will be taken into account in determining
the nature and extent of any contingency plans.
Recently Issued Accounting Principles
See Note 1 of Notes to Financial Statements for recently adopted and recently
issued accounting standards.
28
<PAGE>
BUSINESS
Overview
Our company, Flycast Communications Corporation, is a leading provider of
Web-based direct response advertising solutions to advertisers. We work closely
with advertisers to maximize the value of their advertising campaigns on the
Web. Other advertising solution companies seek to maximize the value for Web
sites by representing them in their sale of space to advertisers. Our
advertiser customers are primarily companies selling goods and services over
the Internet, direct marketing agencies, or other advertisers who are
interested in driving the Web user towards specific actions. Those actions
include things such as clicking on advertisements, registering their names or
other information, or buying products. We offer our customers direct response
solutions that include widespread placement of advertisements over the Web,
prices that minimize their cost per action and continuous improvement and
optimization of their campaign through the application of technology and
through the services of our trained staff.
Industry Background
Growth of the Internet and E-Commerce
The Internet and the Web continue to expand at a rapid pace as measured by
the number of businesses with a Web presence, the number of people using the
Internet, the volume of commerce transacted on the Internet, or e-commerce, and
the number of marketing dollars spent on the Web. Forrester Research, Inc.
estimates that in 1998 approximately 51 million people were using the Internet
in the U.S. and 86 million people were using the Internet worldwide. It further
estimates that by 2003 there will be approximately 100 million users in the
U.S. and 287 million worldwide.
Businesses have recognized the e-commerce opportunity and are increasingly
using the Internet to sell and distribute products and services to consumers.
Using the Web, they can cost-effectively reach worldwide audiences and easily
adjust their product offerings, strategies, tactics, advertising and pricing to
match the needs and responses of these audiences. According to Forrester
Research, Inc., revenue from Web sales to consumers will grow at a 69% compound
annual growth rate for the next five years, surpassing $108 billion in 2003.
Forrester also estimates that more than 40 million U.S. households will be
shopping online by 2003. As e-commerce and the number of Web users grow,
advertisers and direct marketers are increasingly using the Web to locate
customers, advertise products or services and facilitate transactions.
Forrester estimates that $1.5 billion was spent on Internet advertising
worldwide in 1998 and that this amount will grow to $15.1 billion in 2003.
The Web offers advertisers a number of advantages over other media. The Web
allows real-time interactions, promoting impulse purchases and facilitating
transactions through one-to-one relationships between advertisers and
consumers. Data regarding these transactions can be efficiently collected and
measured to generate for advertisers immediate, valuable feedback on
advertising effectiveness that is not readily available from other media. In
addition, Web advertisements can be produced for a fraction of the costs
associated with the production of TV commercials or print advertising, and
companies can adjust their advertising campaigns quickly and easily in response
to consumer reaction. The Web also gives advertisers the flexibility to target
broad, global audiences, precisely-defined consumer groups and even individual
consumers with custom-tailored advertisements. Web advertising is particularly
attractive to companies conducting local campaigns and to advertisers with
smaller advertising budgets because it allows them to tailor their advertising
campaigns, manage the size and scope of their target audiences and lower their
advertising production costs. Flycast believes that because of these
advantages, companies over time will allocate an increasing portion of their
advertising budgets to Web advertising.
29
<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 a consumer after the consumer is exposed to an
advertisement. In contrast to the brand advertiser, the response-oriented
advertiser focuses on the short-term benefit from its advertising and attempts
to maximize the number of desired responses per advertising dollar. These
responses can range from simple replies to consumer registrations or actual
purchases. In order to measure the effectiveness of advertising campaigns,
response-oriented advertisers require systems and infrastructures for targeting
consumers and managing information. Traditional response-oriented advertising
mechanisms include direct mail and toll-free numbers delivered through print
media and late night television. According to the Direct Marketing Association,
direct marketing advertising expenditures exceeded $160 billion in 1998 or
approximately 57% of total U.S. advertising expenditures.
The Internet as an Effective Medium for Response-Oriented Advertising
Flycast believes that the Web is particularly well-suited for response-
oriented advertising. Reading and clicking on a Web advertisement is easier and
more convenient for consumers than using traditional direct response
advertising mechanisms, including calling toll-free numbers or returning a
business reply card. Web advertisements allow consumers to respond immediately
to the advertising and interact directly with the advertiser. Advertisers and
vendors of products and services can use this feedback to adjust their
advertising campaigns appropriately. The following table illustrates Web
advertising dollars allocated to direct marketing and brand advertising.
Internet Advertising Allocated to Direct Marketing
[Chart representing direct marketing and brand advertising spending.]
Response-oriented advertisers benefit from the large amount of advertising
space on the Internet. Paul Kagan Associates, Inc. estimates that on average
approximately 75% of the advertising inventory on the Web goes unsold. Larger
Web sites with in-house sales forces are usually unable to sell a
30
<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 because they lack the volume
of page impressions to justify a dedicated sales force and the associated sales
infrastructure. In addition, they often are too small or lack the brand name
value to attract the attention of media representative firms. The excess supply
of advertising space on the Web is attractive to direct response advertisers
because it can be acquired for lower prices than inventory on branded Web
sites, while potentially providing similar audiences.
For e-commerce companies, Flycast believes that the Web will be the
advertising medium of choice for generating traffic and customers. These
companies want the benefits of efficient and convenient transactions with
consumers and easily measurable return on investment. Using the Web, e-commerce
companies can create advertising that provides consumers with an easy means for
immediate interactions, including accessing the e-commerce site, registering on
the Web site or making an actual purchase. These companies can also collect and
measure feedback on advertising effectiveness on a real-time basis, enabling
them to tailor their advertising campaigns to maximize return on investment.
Challenges of Response-Oriented Advertising on the Internet
Response-oriented advertisers face a number of challenges in realizing the
full potential of the Web as an advertising medium. The fact that there are
millions of Web sites, only a fraction of which are of significant size,
creates numerous obstacles for advertisers. Interacting with a large number of
relatively small Web sites increases administrative costs for advertisers. In
addition, advertisers often lack the analytical tools necessary to define and
target Web audiences and comprehensively measure return on investment and
therefore are unable to monitor the effectiveness of their Web advertising
relative to other media choices. Small Web sites also have difficulty operating
and maintaining the sophisticated advertising servers, databases and reporting
tools that response-oriented advertisers need to monitor the cost-effectiveness
of their advertising campaigns. Finally, the excess Web advertising inventory
from both small 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 own advertising campaigns or inventory. While these
tools and services can be effective for companies with extensive Web
advertising experience, the majority of advertisers and Web sites require
additional services to assist them in the planning, implementation and
evaluation of their Web advertising strategies.
Flycast believes that a significant opportunity exists for a company that can
provide complete, cost-effective solutions to response-oriented advertisers. By
providing large Web sites with the opportunity to sell advertising inventory
that would otherwise go unsold, small Web sites with a channel to sell their
advertising inventory and response-oriented advertisers with a means of
accessing cost-effective advertising space, a company can assume the valuable
role of market maker for response-oriented advertising inventory on the Web.
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The Flycast Solution
Flycast delivers Web-based advertising solutions designed to maximize the
return on investment for response-oriented advertisers, direct marketers and e-
commerce companies. Flycast provides these solutions through a large network of
Web sites, proprietary technology and responsive customer service. By combining
unsold advertising inventory from over 850 Web sites, the Flycast Network
offers advertisers a large audience of Web users and high-quality advertising
space at favorable prices. 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 advertising solutions designed to
maximize return on investment and attractive pricing levels, while at the same
time providing incremental advertising revenue for its Web site affiliates.
Flycast intends to continue to increase the number of advertising impressions
it acquires from its current Web sites and to expand the number and type of Web
sites in the Flycast Network.
Leverage Proprietary Technologies. Flycast seeks to increase the efficiency,
effectiveness and attractiveness of its service to advertisers through the use
of technology. AdEx facilitates the simultaneous processing and management of
millions of advertising transactions. AdEx allows Flycast to target advertising
to users based on a wide selection of Web site and user characteristics,
including geographical location, nature of content, type of browser and
operating system, originating Internet domain, Web usage patterns and prior
advertising exposure. It also enables advertisers to track their advertising
campaigns effectively and increase response rates. Flycast intends to continue
to invest aggressively in its AdEx platform and continue to improve the
performance and capability of this technology.
Expand Service Offerings. Flycast intends to continue to expand its products
and services. In July 1998, Flycast began to offer differentiated, geo-targeted
Internet advertising to local advertisers. To develop this market, Flycast has
initiated value added reseller relationships with BellSouth, SBC Communications
and U S WEST. Under these agreements, Flycast will deliver a wholesale supply
of local Web advertising that the BellSouth, SBC and U S WEST sales forces will
resell to local advertisers. Flycast also expects to develop relationships with
companies representing national advertisers seeking local advertising
solutions. Furthermore, Flycast intends to initiate foreign operations through
relationships with foreign partners, providing advertisers with the ability to
deliver their advertising in global markets.
Provide Superior Customer Service. Flycast believes that strong customer
service is vital to generating repeat business. Flycast intends to continue to
hire, train and support a staff of customer service representatives who work
with both advertisers and Web sites. Flycast also plans to continue enhancing
its service by providing on-demand customized online reports that allow
advertisers and Web sites to rapidly assess the efficiency and performance of
advertising campaigns.
Expand Sales and Marketing Efforts. Flycast believes that aggressive
marketing and sales programs are essential to selling Web advertising solutions
effectively. Flycast intends to increase the size of its direct sales force and
continue its public relations and marketing efforts with an aggressive
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marketing campaign that began in the first quarter of 1999. In addition,
Flycast intends to continue expanding all marketing and sales categories to
extend its presence in the marketplace, as well as to acquire new advertisers
and attract new Web sites.
Products and Services
The Flycast Network
The Flycast Network offers a comprehensive system for planning, buying,
selling, managing, evaluating and administering Web advertising. To fulfill the
needs of response-oriented advertisers, the Flycast Network aggregates
advertising inventory from Web sites that meet minimum size and quality
requirements. 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. The Flycast Network currently consists of
over 850 Web sites and in the quarter ended March 31, 1999, the Flycast Network
generated approximately 2.7 billion total advertising impressions. The Flycast
Network reached more than 22 million individual users or 37% of Web users in
the U.S. during the month of February 1999. By comparison, according to Media
Metrix, Inc., Yahoo.com had 30.7 million individual users and MSN.com had 20.5
million individual users in the same month. The following tables show the total
advertising impressions and the number of Web sites that we served during each
quarter in 1998 and the first quarter of 1999.
Graph entitled "Number of Ad Impressions Served (in millions)" representing
number of advertising impressions served in each quarter of 1998.
Graph entitled "Number of Flycast Network Sites" representing number of network
sites in each quarter of 1998.
Flycast designed its AdEx technology platform to deliver return on
investment-oriented advertising solutions to advertisers. AdEx receives orders
from advertisers and matches them with the appropriate advertising space
available on the network. Each time a Web user visits a Flycast Network Web
site, a signal is sent to the AdEx system. This signal contains information on
the type of advertising space represented. The system then selects the
appropriate advertisement and serves it to the Web site, concluding a process
that typically takes less than one second.
Through comprehensive performance reports generated by AdEx, advertisers can
track the progress of their advertising campaigns via online reports. These
reports contain detailed information such as the Web sites included in an
advertising campaign, the number of impressions served and the click-through
rates or other performance measurements. They provide the information that
advertisers need to actively manage their advertising campaigns to maximize
effectiveness. In addition, Flycast's
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Media Consultants monitor the progress of each advertising campaign relative to
the performance goals set by the advertiser. As each campaign progresses, Media
Consultants are able to adjust the advertiser's media plan in real time to
optimize the performance of the advertising campaign. Sites generating low
response rates are either rotated out of the campaign or their impression
allocations are reduced, while sites generating higher responses are allocated
increased impressions. Although this optimization process can be partially or
fully automated, most Flycast advertisers prefer to interact with Media
Consultants during the process.
Flycast maximizes value for advertisers by enabling them to calibrate a base
response of the effectiveness of advertisements placed across the Flycast
Network. Flycast's Media Consultants advise advertisers to purchase higher cost
per thousand advertising space only if it can be justified on the basis of
proportionately increased responses. For example, if an advertiser receives a
one percent response rate from advertisements with a $5 cost per thousand, then
that advertiser would need to attain a response rate of at least eight percent
in order to justify purchasing advertising space with a $40 cost per thousand.
Advertising space on the Flycast Network is sold directly to advertisers and
agencies as one of four media products--Run of Network, Run of Category,
Category Select or Site Select. Flycast sales representatives work with
advertisers to select the appropriate media product based on the advertisers'
requirements for the amount and timing of impressions, and desired response
rates. The following is a more detailed description of the four media products.
. Run of Network: Run of Network offers advertising placements across the
entire Flycast Network without specificity regarding individual Web
sites. As the lowest-cost per thousand option offered by Flycast, it
provides the greatest overall reach for advertisers. Flycast's current
rate card for Run of Network is $6 cost per thousand.
. Run of Category: Flycast Network sites are categorized into 25 affinity
categories based on nature of content, such as sports and outdoors,
entertainment, and news and information. Run of Category allows the
advertiser to select one or more specific content types within which to
run its advertising, but without specificity regarding individual Web
sites. Flycast's current rate card for Run of Category is $15 cost per
thousand.
. Category Select: Category Select allows an advertiser to define a set of
Web sites as a unique category in which its advertising is to be run,
without allocating a specific number of impressions to individual Web
sites. Flycast's rates for Category Select vary based on the number of
Web sites and impressions.
. Site Select: Flycast offers advertisers the ability to allocate the
number of impressions on specifically designated individual Web sites.
Pricing is in accordance with the Web site's current rate card, or by
agreement with the Web site directly. Flycast does not discount the
named individual Web site's advertising space or sell at rates that
conflict with those published by the Web site.
Substantially all advertisers purchase the Run of Network media product.
Actual base rates for each media product may vary depending on the length of
contract and number of impressions purchased. In addition to the base rates
charged for each media product, Flycast charges, on a cost per thousand basis,
for special targeting or advertising format requirements.
Flycast Local Market/Value Added Reseller Division
In addition to direct sales of advertising space, Flycast also packages and
sells impressions on a wholesale basis to value added resellers. To develop
this channel, Flycast recently initiated relationships with BellSouth
Corporation, SBC Communications Inc. and U S WEST. Under these
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agreements, Flycast will deliver local Web advertising inventory to the
BellSouth, SBC and U S WEST sales forces for resale to local advertisers.
Reseller arrangements allow Flycast to leverage the existing market presence,
customer relationships, sales forces and brand recognition of its channel
partners.
Flycast has developed a suite of tools and services to support value added
resellers with a turnkey offering. In addition to supplying geo-targeted
advertising inventory for resale in accordance with the value added reseller's
specifications, Flycast supplies customized, co-branded applications,
performance reporting, billing services and training and sales support.
Flycast intends to develop additional relationships with companies
representing national advertisers that are seeking local advertising solutions
and direct marketing service providers that resell advertising space to direct
marketing organizations interested in expanding their campaigns to the Web.
Technology and Operations
Flycast's proprietary AdEx technology platform is a complete suite of agent-
based solutions that enables real-time advertising delivery and management. The
key applications that utilize the AdEx platform are:
. AdAgent, a Java-based client interface that allows buyers to plan,
execute and manage advertising purchases.
. AdReporter, a Web-based tool that provides media buyers real-time
reports on their purchases.
. ValueTrak, a program that provides e-commerce advertisers the ability to
track viewers beyond a click to a transaction on an e-commerce Web site
to measure viewer responses, including registrations, units downloaded
or products purchased.
. SiteRegistry, a tool that allows affiliated Web sites to control the
pages they provide to Flycast and to create instant online information
packages about Flycast and its advertising opportunities that are then
made available to advertisers.
. SiteReporter, a tool that allows affiliated Web sites to monitor the
performance of advertising campaigns on their sites and to track the
revenue they have earned through the Flycast Network.
AdEx is designed to be scaleable through a segmented and redundant,
distributed processing architecture. Flycast's modular and open architecture
allows it to interface with third-party ad servers such as NetGravity,
Accipiter and MatchLogic, as well as providers of proprietary media formats,
including Narrative, Unicast, MacroMedia, The Thinking Media, Audiobase and
InterVU. Separate sub-systems that utilize Oracle databases support real-time,
agent-based tools, including media planning, media buying, tracking, reporting,
auditing and billing. These applications are based on a three-tiered
architecture that allows the rapid development of new applications and
interfaces.
All transaction information is backed up periodically and all billing and
reporting information is archived and kept in fireproof storage facilities.
Flycast's network management software utilizes SNMP and Optivity, and
constantly monitors each aspect of network performance. System engineers are
notified in the event performance falls outside of expected bounds. Flycast
leases space for its servers at three physically separate locations in the San
Francisco Bay Area.
Flycast intends to enhance its existing advertising solutions and to
introduce new solutions in order to meet changing consumer demands. These
enhancements may include the ability to deliver advertisements utilizing new
rich media formats and more precise consumer targeting techniques. In
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addition, Flycast expects increased availability of broadband Internet access
to enable the development of new products and services that take advantage of
this expansion in delivery capability. As of March 31, 1999, Flycast had 18
employees in research and development. For the periods ended December 31, 1996,
1997 and 1998, Flycast incurred approximately $201,000, $1.4 million and
$2.6 million in research and development expenses.
Sales, Marketing and Customer Service
Flycast sells its products and services primarily through its direct sales
force and also sells impressions on a wholesale basis to selected value added
reseller partners. Flycast's direct sales organization, which included 17
salespeople as of March 31, 1999, mainly targets larger advertisers and
agencies. These employees are located at Flycast's headquarters in San
Francisco and in Atlanta, Boston, Boulder, Chicago, Los Angeles, New York,
Philadelphia, Sarasota, Seattle and Virginia. Flycast has five employees in its
local sales organization. Flycast intends to increase its sales presence by
opening additional offices and expanding its direct sales force. To support its
direct sales force, Flycast has established a Media Consulting Group as well as
a Site Network Services Group to help increase the effectiveness and ease-of-
use of Flycast's services.
The Media Consulting Group's goals are to maintain advertiser relationships,
achieve optimal advertising results and maximize current and future media
revenue streams. Media Consultants assist clients in the planning and design of
their Web advertising campaigns. Once the campaign is underway, a Media
Consultant monitors the progress of each campaign according to the goals set by
the advertiser and can adjust the campaign in real time in order to optimize
the performance of the campaign. Media Consultants also review and analyze
media data to communicate campaign status to the client and provide technical
support. The Site Network Services Group reviews Web sites that apply to be
included in the Flycast Network, recruits new Web sites, maintains Web site
relationships and provides general Web site technical support. The Site Network
Services Group also defines and monitors the advertising categories on the
Flycast Network and analyzes existing inventory to identify categories that
require more advertising space.
To support its direct sales efforts and to promote the Flycast brand, Flycast
markets its products and services to clients via direct marketing, print
advertising, online advertising, Flycast's Web site, trade show participation
and other media events. In addition, Flycast actively pursues a public
relations program to promote the Flycast brand and Flycast's products and
services to potential advertising buyers and potential members of the Flycast
Network.
Flycast's ten largest customers accounted for 40% of its revenue for both the
quarter and the year ended December 31, 1998. One customer, BONZI Software,
accounted for 12% of Flycast's 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;
. Flycast's ability, relative to its competitors, to scale its technology
as customer needs grow; 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), CNET (Snap!), Yahoo!, SmartAge, GeoCities, Digital
Equipment Corporation (AltaVista), Excite (including WebCrawler), Infoseek,
Inktomi, Lycos (including HotBot and Tripod), Microsoft (MSN and LinkExchange)
and Netscape Communications (Netcenter).
Many of Flycast's existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than it does. This may allow them to respond more quickly than
Flycast can to new or emerging technologies and changes in customer
requirements. It may also allow them to devote greater resources than Flycast
can to the development, promotion and sale of their products and services.
These competitors may also engage in more extensive research and development,
undertake more far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to existing and potential employees,
strategic partners, advertisers and Web sites. Flycast's competitors may
develop products or services that are equal or superior to Flycast's solutions
or that achieve greater market acceptance than its solutions. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of Flycast's prospective
advertisers, advertising agency customers and Web sites. As a result, it is
possible that new competitors may emerge and rapidly acquire significant market
share. Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share. Flycast may not be able to compete
successfully, and competitive pressures may materially and adversely affect its
business, results of operations and financial condition.
Intellectual Property Rights
Flycast's success and ability to compete are substantially dependent on its
internally-developed technologies, including AdEx, its advertising management
platform, and applications that use the AdEx platform, and its trademarks
AdAgent, AdEx, AdExchange, AdReporter, Category Select, Flycast, Run of
Category, Run of Network, SiteRegistry, SiteReporter and Site Select, which it
protects through a combination of patent, copyright, trade secret and trademark
law. Flycast has applied to register patents and trademarks in the United
States and has registered the trademark Flycast. Flycast cannot guarantee that
any of its patent applications or trademark registrations will be approved.
Even if they are approved, these patents or trademarks might be successfully
challenged by others or invalidated. If Flycast's trademark registrations are
not approved because third parties own these trademarks, its use of these
trademarks will be restricted unless it enters into arrangements with these
third parties, which may be unavailable on commercially reasonable terms.
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Flycast generally enters into confidentiality or license agreements with its
employees, consultants and corporate partners, and generally controls access to
and distribution of AdEx, tools and documentation and other information.
Despite these efforts, unauthorized parties may attempt to disclose, obtain or
use Flycast's solutions or technologies. Flycast's precautions may not prevent
misappropriation of its solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect Flycast's
rights as fully as in the United States.
Flycast's customized advertiser, affiliate and sales applications collect and
utilize data derived from user activity on the Flycast Network and the Web
sites of Web advertisers and sites using Flycast's solutions. This information
is used for targeting advertising and predicting advertising performance.
Although Flycast believes it has the right to use this information and the
compilation of this information in its database, trade secret, copyright or
other protection may not be available for this information. In addition, others
may claim rights to this information. Flycast has licensed, and may license in
the future, elements of its trademarks and similar intellectual property rights
to third parties. Although Flycast attempts to ensure that the quality of its
brand is maintained by these third parties, they may take actions that could
materially and adversely affect the value of Flycast's intellectual property
rights or its reputation.
Flycast cannot guarantee that any of its intellectual property rights will be
viable or valuable in the future since the validity, enforceability and scope
of protection of intellectual property rights in Internet-related industries is
uncertain and still evolving. Furthermore, third parties may assert
infringement claims against Flycast or the Web publishers with Web sites in the
Flycast Network. Any claims could subject Flycast to significant liability for
damages and could result in the invalidation of its intellectual property
rights. In addition, any claims could result in litigation, which would be
time-consuming and expensive to defend, and divert Flycast's time and
attention. Even if Flycast prevails, this litigation could materially and
adversely affect its business, results of operations and financial condition.
Any claims or litigation from third parties may also result in limitations on
Flycast's ability to use the intellectual property subject to these claims or
litigation unless Flycast enters into arrangements with the third parties
responsible for these claims or litigation, which may be unavailable on
commercially reasonable terms.
Employees
As of March 31, 1999, Flycast had 86 employees, including 22 in sales, 15 in
marketing, 21 in services and support, 17 in research and development and 11 in
general and administrative functions. Flycast is not subject to any collective
bargaining agreements and believes that its employee relations are good.
Flycast's future success depends on its ability to attract, retain and motivate
highly-skilled employees. Competition for employees in the industry is intense.
Please see "Risk Factors -- We depend on key personnel for our future success."
Legal Proceedings
From time to time, Flycast may be involved in litigation relating to claims
arising out of its ordinary course of business. Flycast presently is not
subject to any material legal proceedings.
Facilities
Flycast's principal executive offices are located in San Francisco,
California, where Flycast leases approximately 41,800 square feet under a lease
that expires in January 2005. Flycast also leases space in various geographic
locations for sales personnel and for its servers. Flycast believes that its
current facilities are adequate to meet its needs through the end of 2000, at
which time it may need to lease additional space.
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MANAGEMENT
Executive Officers and Directors
The names and ages of Flycast's executive officers and directors as of March
31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- ----------
<C> <C> <S>
George R. Garrick............ 46 Chairman of the Board, Chief Executive
Officer and President
Thomas L. Marcus............. 45 Executive Vice President of Finance,
Administration and Corporate Development
Ralph J. Harms............... 49 Chief Financial Officer and Assistant
Secretary
Lawrence G. Braitman......... 40 Vice President, Corporate Development and
New Ventures
Frederick J. Ciaramaglia..... 51 Vice President, Engineering
Scott W. Grafft.............. 47 Vice President, Direct Marketing
Jeff J. Lehman............... 42 Vice President, Media Sales
Peter T. Nicas............... 38 Vice President, Local Market/VAR Division
Lyn Chitow Oakes............. 37 Vice President, Marketing
Greg Stuart.................. 39 Vice President, Business Development
Richard L. Thompson.......... 44 Vice President, Client Services
John C. Yung................. 35 Vice President, Network Operations
David J. Cowan(2)............ 33 Director
Ted R. Dintersmith........... 46 Director
Howard C. Draft(1)........... 45 Director
Gary L. Prophitt(1).......... 55 Director
Michael D. Solomon(2)........ 47 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
George R. Garrick has served as Chief Executive Officer and President since
joining Flycast in May 1998, has been a member of the Board of Directors of
Flycast since June 1998 and has been Chairman of the Board since January 1999.
From September 1997 until May 1998, Mr. Garrick owned and operated his own
private venture and consulting company, G2 Ventures, Inc. From April 1997 until
September 1997, Mr. Garrick served as Chief Marketing Officer for PowerAgent,
Inc., an Internet media and marketing company. From March 1996 until April
1997, Mr. Garrick founded and operated NetROI LLC, an audience measurement
software company. From November 1993 until March 1996, Mr. Garrick served as
the President and Chief Executive Officer of Information Resources, Inc.-North
America, a marketing measurement company. Other than the period from July
through October 1993, when Mr. Garrick served as President and Chief Executive
Officer of Nielsen Marketing Research U.S.A., a unit of A.C. Nielsen Co., Mr.
Garrick served Information Resources, Inc., a market measurement company, in
various capacities from 1981 until his departure in March 1996. Mr. Garrick
holds B.S. degrees in Mathematics and Engineering and an M.S. degree in
Management from Purdue University.
Thomas L. Marcus joined Flycast in March 1999 as Executive Vice President of
Finance, Administration and Corporate Development. From May 1994 until July
1998, Mr. Marcus was Vice President of Business Development, General Counsel
and Secretary at Broderbund Software, Inc., a consumer software company. From
October 1986 until May 1994, Mr. Marcus served Broderbund as its Vice
President, General Counsel and Secretary. Mr. Marcus holds an A.B. degree in
political science from Yale University and a J.D. degree from the University of
California at Berkeley.
Ralph J. Harms has served as Chief Financial Officer and Assistant Secretary
since joining Flycast in January 1999. From September 1997 through December
1998, Mr. Harms was the Vice President and Chief Financial Officer of BayStone
Software, a customer relationship management software company.
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From September 1996 until September 1997, Mr. Harms served as Vice President
and Chief Financial Officer for dpiX, a Xerox Corporation spinout manufacturer
of flat-panel displays. Mr. Harms was Vice President and Chief Financial
Officer of ESS Technology, Inc., a developer of multimedia software and fabless
chip manufacturer, from February 1995 until September 1996, and Secretary of
ESS from August 1995 until September 1996. From 1983 until February 1995, Mr.
Harms held various financial positions at SEEQ Technology Incorporated, a
manufacturer of data communication semiconductor products, most recently as
Vice President, Chief Financial Officer and Secretary. Mr. Harms holds a
B.S.E.E. degree from Michigan State University and an M.B.A. degree from the
University of Michigan.
Lawrence G. Braitman co-founded Flycast and has served as Flycast's Vice
President, Corporate Development and New Ventures since March 1999 and its Vice
President, Business Development from March 1997 to March 1999. Previously, Mr.
Braitman served as Flycast's Vice President, Marketing from April 1996 until
March 1997. Mr. Braitman also founded and served as President of Cogent Network
Corporation, a provider of ad-supported vertical market-oriented services, from
its inception in January 1995 through June 1996. From January 1996 to June
1996, Mr. Braitman was also special counsel at Prickett, Jones, Elliott,
Kristol & Schnee, a law firm, and from October 1987 to December 1995, he was an
associate and later a partner in the business and tax departments at the
Philadelphia law firm of Saul, Ewing, Remick & Saul. Mr. Braitman holds a
B.A. degree in Psychology from Franklin and Marshall College and a J.D. degree
from Georgetown Law School.
Frederick J. Ciaramaglia has served as Vice President, Engineering since
joining Flycast in January 1999. Prior to joining Flycast, Mr. Ciaramaglia was
Vice President, Engineering for Eloquent, Inc., an Internet knowledge
deployment software and services company, from June 1998 to January 1999. From
March 1994 to March 1997, Mr. Ciaramaglia served as Vice President, Research
and Development for SQA, Inc., a developer of automated software quality
products, and from April 1997 to April 1998 as Vice President, Research and
Development for the SQA Division of Rational Software Corporation after
Rational acquired SQA. From June 1992 to February 1994, Mr. Ciaramaglia served
as Senior Vice President, Development at Clinical Information Advantages, a
computerized patient record software products company. Mr. Ciaramaglia was a
founder of Softbridge Microsystems, Inc., a software development company, and
served as its Senior Vice President, Technology from January 1983 to June 1992.
Mr. Ciaramaglia holds a B.S. degree in Computer Science from the Massachusetts
Institute of Technology.
Scott W. Grafft joined Flycast in March 1999 as Vice President, Direct
Marketing. From November 1998 to March 1999, Mr. Grafft was Executive Vice
President, Co-Director of FCB Direct at Foote, Cone and Belding, an advertising
agency. Mr. Grafft served Foote, Cone and Belding as Senior Vice President,
Director of Direct Marketing from October 1997 until November 1998. From August
1992 until October 1997, Mr. Grafft held various positions at DraftDirect
Worldwide, an advertising agency, serving as Senior Vice President, Custom
Marketing Group Manager from January 1997 to October 1997, Senior Vice
President, Group Account Director from March 1996 to January 1997, Vice
President, Group Account Director from February 1994 to March 1996, Vice
President, Account Supervisor from July 1993 to February 1994, and Account
Supervisor from August 1992 to July 1993.
Jeff J. Lehman has served as Vice President, Media Sales since joining
Flycast in January 1999. From October 1997 through January 1999, Mr. Lehman
served as Vice President of Advertising Sales for RealNetworks, Inc. From
November 1996 until October 1997, Mr. Lehman served as Vice President of Client
Site Development for Softbank, and from April 1996 until November 1996 he
served as Softbank's Vice President of Technology Sales. From September 1985
until April 1996, Mr. Lehman held various sales positions at Ziff-Davis
Publishing Company, where he most recently was Vice President of Sales and
Market Development of ZDNet, a division of Ziff-Davis, from July 1995 until
April 1996 and Director of the Ziff-Davis Magazine Network from May 1994 until
July 1995. Mr. Lehman holds a B.S.B.A. degree in Finance and Economics and an
M.B.A. degree, both from the University of Central Florida.
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Peter T. Nicas has served as Vice President, Local Market/VAR Division since
joining Flycast in September 1998. From April 1998 until September 1998, Mr.
Nicas served as Flycast's Director of Sales, Eastern U.S. Prior to joining
Flycast, Mr. Nicas served as a Regional Vice President of Sales, Southeastern
and Southcentral Regions, for Softbank Interactive Marketing from January 1997
until April 1998, and as Softbank's Southeastern Sales Director from June 1996
until January 1997. From September 1995 until May 1996, Mr. Nicas was a Vice
President and Publisher of both Multimedia Producer and AV/Video magazines for
Knowledge Industry Publications. Previously, Mr. Nicas worked for eight years
at Cahners Publishing Company, a division of Reed Elsevier, where he served as
Vice President and as a Publisher of Client/Server Today from January 1994
until September 1995, as Datamation's Regional Sales Manager for the
Southeastern territory from March 1991 until January 1994, and in various other
positions in sales, marketing and acquisitions from January 1987 until March
1991. Mr. Nicas holds a B.A. degree in Finance and Business Administration from
Lenoir-Rhyne College.
Lyn Chitow Oakes has served as Vice President, Marketing since joining
Flycast in July 1998. From May 1997 until March 1998, Ms. Oakes was Vice
President of Marketing for Electric Classifieds, Inc., a provider of online
classifieds solutions. From April 1990 until November 1996, Ms. Oakes held
various positions at America Online, Inc., where she was Vice President of
Internet and Community Services from January until November 1996, Vice
President of GNN and Internet Services from June 1995 until January 1996, Vice
President of Internet and Multimedia Services from January through June 1995,
Director of Multimedia and New Technology Services from June 1994 until January
1995, and Manager of Corporate Development and New Technology from January 1993
until June 1994. From 1983 until 1990, Ms. Oakes held various other positions
in the advertising industry. Ms. Oakes holds a B.S. degree in Elementary
Education from Keene State College in the University of New Hampshire system
and an M.B.A. degree from Bentley College.
Greg Stuart joined Flycast in March 1999 as Vice President, Business
Development. From April 1996 until March 1999, Mr. Stuart served as a Principal
for @webrite, inc., an independent consulting firm for Web-based businesses.
From August 1993 to April 1996, Mr. Stuart was Senior Vice President, Director
of Interactive Marketing Division at Wunderman Cato Johnson, a direct marketing
advertising agency. From March 1984 until August 1993, Mr. Stuart held various
positions in New York advertising agencies. Mr. Stuart holds a B.A. degree in
economics from the University of Washington.
Richard L. Thompson co-founded Flycast and has served as Flycast's Vice
President, Client Services since June 1998. From November 1998 until January
1999, he also served as Flycast's acting Vice President, Engineering.
Previously, Mr. Thompson served as Flycast's Chief Operating Officer and
Assistant Secretary from March 1997 through May 1998 and as Flycast's
President, Chief Executive Officer and Chief Financial Officer from April 1996
until March 1997. Mr. Thompson also served on Flycast's Board of Directors from
April 1996 until June 1998. From September 1994 until April 1996, Mr. Thompson
pursued an M.B.A. degree at The Wharton School of Business at the University of
Pennsylvania. From September 1982 through September 1994, Mr. Thompson held
various positions in engineering, sales and marketing for Octel Communications,
a telecommunications company, most recently as Manager of the Advanced
Technologies Group. Mr. Thompson holds an A.B. degree in Psychology from the
University of California, Santa Cruz and an M.B.A. degree from The Wharton
School of Business.
John C. Yung has served as Vice President, Network Operations since joining
Flycast in March 1999. From June 1995 to March 1999, Mr. Yung held various
positions at PointCast, Inc., a provider of Internet news services, serving as
Vice President of Networks and Operations from February 1999 to March 1999,
Senior Director of Networks and Operations from October 1998 to February 1999,
Director of Network Operations from June 1996 to October 1998, and Manager of
Network Operations from June 1995 to June 1996. Mr. Yung held the position of
Network Manager from August 1992 to June 1995 at C-Cube Microsystems, Inc., a
semiconductor development company. Mr. Yung holds a B.S. degree in Computer
Science from National University.
41
<PAGE>
David J. Cowan has been a director of Flycast since July 1997. Mr. Cowan has
been a Partner of Bessemer Venture Partners since August 1996. While employed
by Bessemer Venture Partners, Mr. Cowan also served as the Chief Financial
Officer of VeriSign, Inc., a provider of secure communication solutions for the
Internet and private networks, from January 1995 until December 1996, and as
Chief Executive Officer of Visto, a private Internet services company, from
August 1996 until April 1997. From July 1992 to August 1996, Mr. Cowan was an
Associate of Bessemer Venture Partners. Mr. Cowan is also a director of
VeriSign, Inc. and Worldtalk Corporation, an Internet software company. Mr.
Cowan holds an A.B. degree in Computer Science and Mathematics and an M.B.A.
degree, both from Harvard University.
Ted R. Dintersmith has been a director of Flycast since July 1997. Since
February 1996, he has been a General Partner of Charles River Partnership VIII.
Previously, from October 1987 to February 1996, he was a General Partner of
Aegis Venture Funds. Prior in his career, Mr. Dintersmith was an executive with
Analog Devices, Inc., where he served as General Manager of their Digital
Signal Processing Division. Mr. Dintersmith is also a director of several
internet software companies. Mr. Dintersmith holds a B.A. degree in Physics and
English from the College of William and Mary and a Ph.D. in Engineering from
Stanford University.
Howard C. Draft has been a director of Flycast since January 1999. Since
1988, he has served as the Chairman of the Board and Chief Executive Officer of
Draft Worldwide, a full service international marketing enterprise. Previously,
he served as Draft Worldwide's President from 1986 to 1988, and in other
positions for Draft Worldwide since 1978, when he became a member of the
original Chicago agency. Mr. Draft holds a B.A. degree in Philosophy and Art
History from Ripon College.
Gary L. Prophitt has been a director of Flycast since January 1999. Since
1994, he has been the President of Intelligent Media Ventures, Inc., the wholly
owned electronic publishing subsidiary of BellSouth Enterprises. Mr. Prophitt
has served BellSouth Corporation, the parent company of BellSouth Enterprises,
in various capacities since 1972, including eight years in business development
and corporate mergers and acquisitions. Mr. Prophitt holds a B.A. degree in
Industrial Management and an M.B.A degree, both from the University of South
Florida.
Michael D. Solomon has been a director of Flycast since April 1996. Mr.
Solomon has been the acting Chief Executive Officer of MachOne Communications
since September 1998. In addition, Mr. Solomon has been a Venture Partner of
Mohr Davidow Ventures since March 1996. Between 1994 and 1998, Mr. Solomon has
been a director of Collabra; e-sales, Ltd.; I.C. VERIFY, Inc.; and ShareData,
Inc., which were acquired by Netscape Communications Corporation, Microsoft
Corporation, CyberCash and E*Trade Securities, Inc., respectively. From July
1990 to July 1994, Mr. Solomon served as the President and Chief Executive
Officer of LightSource, Inc., a color measurement device company. From 1985 to
1989, Mr. Solomon served as the founding Vice President of Sales and Marketing
of Aldus Corporation, a desktop publishing software company later acquired by
Adobe Systems, Inc. Mr. Solomon holds a B.A. degree in Business Administration
from Kent State University.
Board Composition
Flycast currently has authorized seven directors. Each director is elected
for a period of one year at Flycast's annual meeting of stockholders and serves
until the next annual meeting or until his successor is duly elected and
qualified. The executive officers serve at the discretion of the Board. There
are no family relationships among any of the directors or executive officers of
Flycast.
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
42
<PAGE>
review Flycast's internal controls and financial management practices. The
Audit Committee currently consists of Howard C. Draft and Gary L. Prophitt. The
Compensation Committee determines compensation for Flycast's personnel and
administers Flycast's stock plans. The Compensation Committee currently
consists of David J. Cowan and Michael D. Solomon.
Board Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at Board meetings, the issuance of common stock and the grant of
stock options, directors are not compensated for their services as directors.
In July 1997, Michael D. Solomon purchased 90,000 shares of common stock at a
purchase price of $0.10 per share. Directors who are also employees are
eligible to participate in the 1997 Stock Option Plan and in the 1999 Stock
Option Plan and, following this offering, will be eligible to participate in
the 1999 Employee Stock Purchase Plan. In January 1998, Michael D. Solomon was
granted an option to purchase 50,000 shares of common stock under the 1997
Stock Option Plan at an exercise price of $0.13 per share. In January 1999,
Howard C. Draft was granted an option to purchase 20,000 shares of common stock
under the 1999 Stock Option Plan at an exercise price of $8.75 per share.
Directors who are not employees are eligible to participate in the 1999 Stock
Option Plan and 1999 Directors' Stock Option Plan. The above issuances of stock
and options are subject to vesting. See "--Stock Plans" and "Related Party
Transactions."
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Board are currently David J.
Cowan and Michael D. Solomon. Neither Mr. Cowan nor Mr. Solomon has at any time
been an officer or employee of Flycast.
43
<PAGE>
Executive Compensation
The following table provides summary information concerning the compensation
received for services rendered to Flycast during 1998 by Flycast's current and
former Chief Executive Officers, each of the other four most highly compensated
executive officers who were serving as executive officers at December 31, 1998
and a former executive officer who would have been among the four most highly
compensated executive officers had he continued to serve as an Executive
Officer through the end of 1998 (the "Named Officers"), each of whose total
compensation during Flycast's last fiscal year exceeded, or would have exceeded
on an annualized basis, $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------- -------------
Shares
Other Annual Underlying All Other
Name and Principal Position(1) Salary Bonus Compensation Options Compensation
- ------------------------------ -------- ------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
George R. Garrick....... $152,564(2) $30,417 $ 80,000(3) 880,000 $ 140(4)
Chairman of the Board,
Chief Executive Officer
and President
Miles Walsh............. 100,861(5) -- -- 35,000 90,099(6)
Former President and
Chief Executive Officer
Larry M. Levine......... 164,545(7) 25,000 -- 187,000 120(4)
Former Vice President,
Advertising Services
Peter T. Nicas.......... 137,500(8) 20,000 -- 120,000 210(4)
Vice President, Local
Market/VAR Division
Lawrence G. Braitman.... 127,536 25,000 -- -- 219(4)
Vice President,
Corporate Development
and New Ventures
Richard L. Thompson..... 127,536 25,000 -- -- 219(4)
Vice President, Client
Services
Edwin Videki............ 95,500(9) -- -- 160,000 43,465(10)
Former Chief Technology
Officer and former
Vice President,
Engineering
</TABLE>
- --------
(1) Thomas L. Marcus, Flycast's Executive Vice President of Finance,
Administration and Corporate Development, commenced employment with
Flycast on March 17, 1999. Mr. Marcus' salary on an annualized basis for
1999 is $175,000, which does not include a $25,000 bonus payable upon the
commencement of employment or a $50,000 bonus payable upon the
satisfaction of established performance goals. Frederick J. Ciaramaglia,
Flycast's Vice President, Engineering, commenced employment with Flycast
on January 27, 1999. Mr. Ciaramaglia's salary on an annualized basis for
1999 is $160,000, which does not include a $20,000 bonus payable upon the
commencement of employment or a $40,000 bonus payable upon the
satisfaction of established performance goals. Scott W. Grafft, Flycast's
Vice President, Direct Marketing, commenced employment with Flycast on
March 29, 1999. Mr. Grafft's salary on an annualized basis for 1999 is
$200,000, which does not include sales commissions, a $25,000 bonus
payable upon the commencement of employment or a $50,000 bonus payable
upon the satisfaction of established performance goals. Jeff J. Lehman,
Flycast's Vice President, Media Sales, commenced employment with Flycast
on January 28, 1999. Mr. Lehman's salary on an annualized basis for 1999
is $150,000, which does not include sales commissions or an estimated
bonus of $50,000 payable upon the satisfaction of established performance
goals.
(2) Represents the amount Mr. Garrick was paid in salary by Flycast during
1998. Mr. Garrick commenced employment with Flycast on May 21, 1998. His
salary on an annualized basis for 1998 was $250,000. See "Related Party
Transactions--Employment and Severance Agreements."
(3) Represents budgeted allowance for reimbursement of relocation expenses. In
1998, Mr. Garrick was reimbursed for $63,130 of this budgeted amount.
(4) Represents life insurance premiums paid by Flycast on behalf of the
officer during 1998.
(5) Represents the amount Mr. Walsh was paid in salary during 1998. Mr.
Walsh's employment as President and CEO of Flycast was terminated
effective May 20, 1998. Subsequently, Mr. Walsh was employed by Flycast
for a period of one month as Vice President, Business Planning. See
"Related Party Transactions--Employment and Severance Agreements."
(6) Consists of $90,000 paid in conjunction with Mr. Walsh's termination and
$99 in life insurance premiums. See "Related Party Transactions--
Employment and Severance Agreements."
44
<PAGE>
(7) Represents the total amount Mr. Levine was paid in salary and commissions
during 1998. Mr. Levine commenced employment with Flycast on June 15,
1998. Mr. Levine's employment with Flycast was terminated effective
January 20, 1999. Subsequent to his termination, Mr. Levine entered into a
consulting arrangement with Flycast. See "Related Party Transactions--
Employment and Severance Agreements."
(8) Represents the total amount Mr. Nicas was paid in salary and commissions
during 1998. Mr. Nicas commenced employment with Flycast on April 4, 1998.
(9) Represents the amount Mr. Videki was paid in salary during 1998. Mr.
Videki's salary on an annualized basis for the fiscal year ended December
31, 1998 was $130,000. Mr. Videki's employment with Flycast commenced on
March 12, 1998 and was terminated effective December 14, 1998.
(10) Consists of $43,332 paid in conjunction with Mr. Videki's termination and
$133 in life insurance premiums. See "Related Party Transactions--
Employment and Severance Agreements."
Option Grants
The following table provides information regarding stock options granted to
the Named Officers during the fiscal year ended December 31, 1998. The
individual grants consist of options granted pursuant to Flycast's 1997 Stock
Option Plan. For purposes of calculating the percent of total options granted
to employees in fiscal year, Flycast granted options to purchase
2,547,250 shares of common stock to employees and consultants. The exercise
price per share of each option was equal to the fair market value of common
stock on the date of grant as determined by the Board. In determining the fair
market value of the common stock on each grant date, the Board considered,
among other things, Flycast's absolute and relative levels of revenues and
operating results, the state of Flycast's technology development, increases in
operating expenses, the absence of a public trading market for Flycast's
securities, the intensely competitive nature of Flycast's market and the
appreciation of stock values of a number of generally comparable Web
advertising companies. The potential realizable value is based on the
assumption that the common stock of Flycast appreciates at the annual rate
shown, compounded annually, from the date of grant until the expiration of the
ten-year term. These numbers are calculated based on Securities and Exchange
Commission requirements and do not reflect Flycast's projection or estimate of
future stock price growth. Potential realizable values are computed by:
. multiplying the number of shares of common stock subject to a given op-
tion by the exercise price;
. assuming that the total stock value derived from that calculation com-
pounds at the annual 5% or 10% rate shown in the table for the entire
ten-year term of the option; and
. subtracting from that result the total option exercise price.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Shares Total Options Price Appreciation
Underlying Granted to for Option Term
Options Employees in Exercise Price Expiration ---------------------
Name(1) Granted Fiscal Year ($/Share) Date 5% 10%
- ------- ---------- ------------- -------------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
George R. Garrick(2).... 880,000 34.5% $ 1.25 6/29/08 $ 691,784 $ 1,753,117
Miles Walsh(3).......... 35,000 1.4 0.13 1/28/08 2,861 7,252
Larry M. Levine(4)...... 187,000 7.3 1.25 6/29/08 147,004 372,537
Peter T. Nicas(5)....... 50,000 2.0 .13 3/24/08 4,088 10,359
20,000 .8 1.40 9/08/08 17,609 44,625
50,000 2.0 1.75 10/27/08 55,028 139,452
Lawrence G.
Braitman(6)............ -- -- -- -- -- --
Richard L. Thompson(7).. -- -- -- -- -- --
Edwin Videki(8)......... 140,000 5.5 0.13 3/24/08 11,446 29,006
20,000 .8 1.40 9/08/08 17,609 44,625
</TABLE>
45
<PAGE>
- --------
(1) . Mr. Marcus was granted an option to purchase 200,000 shares of common
stock on March 30, 1999 pursuant to Flycast's 1999 Stock Option Plan.
The exercise price per share of the option is $12.00; the expiration
date of the option is March 29, 2009 and the potential realizable values
at assumed rates of stock appreciation for the option term are
$1,509,347 at 5% and $3,824,982 at 10%.
. Mr. Ciaramaglia was granted an option to purchase 185,000 shares of
common stock on January 28, 1999 pursuant to Flycast's 1999 Stock Option
Plan. The exercise price per share of the option is $8.75; the
expiration date of the option is January 27, 2009 and the potential
realizable values at assumed rates of stock appreciation for the option
term are $1,018,023 at 5% and $2,579,871 at 10%.
. Mr. Grafft was granted an option to purchase 175,000 shares of common
stock on March 30, 1999 pursuant to Flycast's 1999 Stock Option Plan.
The exercise price per share of the option is $12.00; the expiration
date of the option is March 29, 2009 and the potential realizable values
at assumed rates of stock appreciation for the option term are
$1,320,679 at 5% and $3,346,859 at 10%.
. Mr. Lehman was granted an option to purchase 175,000 shares of common
stock on January 28, 1999 pursuant to Flycast's 1999 Stock Option Plan.
The exercise price per share of the option is $8.75; the expiration date
of the option is January 27, 2009 and the potential realizable values at
assumed rates of stock appreciation for the option term are $962,995 at
5% and $2,440,418 at 10%.
(2) Mr. Garrick was granted an option to purchase an additional 100,000
shares of common stock on January 28, 1999 pursuant to Flycast's 1999
Stock Option Plan. The exercise price per share of the option is $8.75;
the expiration date of the option is January 27, 2009 and the potential
realizable values at assumed rates of stock appreciation for the option
term are $550,283 at 5% and $1,394,525 at 10%.
(3) Mr. Walsh's employment as President and Chief Executive Officer of Flycast
terminated in May 1998 and his employment as Vice President of Business
Planning terminated in June 1998.
(4) Mr. Levine's employment with Flycast terminated in January 1999.
(5) Mr. Nicas was granted an option to purchase an additional 55,000 shares of
common stock on January 28, 1999 pursuant to Flycast's 1999 Stock Option
Plan. The exercise price per share of the option is $8.75; the expiration
date of the option is January 27, 2009 and the potential realizable values
at assumed rates of stock appreciation for the option term are $302,656 at
5% and $766,989 at 10%.
(6) Mr. Braitman was granted an option to purchase 60,000 shares of common
stock on January 28, 1999 pursuant to Flycast's 1999 Stock Option Plan. The
exercise price per share of the option is $8.75; the expiration date of the
option is January 27, 2009 and the potential realizable values at assumed
rates of stock appreciation for the option term are $330,170 at 5% and
$836,715 at 10%.
(7) Mr. Thompson was granted an option to purchase 60,000 shares of common
stock on January 28, 1999 pursuant to Flycast's 1999 Stock Option Plan. The
exercise price per share of the option is $8.75; the expiration date of the
option is January 27, 2009 and the potential realizable values at assumed
rates of stock appreciation for the option term are $330,170 at 5% and
$836,715 at 10%.
(8) Mr. Videki was initially granted 140,000 shares at an option exercise price
of $0.13 per share ("March Option") and 20,000 shares at an option exercise
price of $1.40 per share ("September Option"). Upon termination of Mr.
Videki's employment with Flycast in December 1998, 23,333 shares of the
March Option had vested and 1,667 shares of the September Option were
deemed to have vested. The remaining shares subject to these options were
canceled. The potential realizable values of the remaining shares subject
to the March Option at assumed rates of stock appreciation for the option
term are $1,908 and $4,834 respectively. The potential realizable values of
the remaining shares subject to the September Option at assumed rates of
stock appreciation for the option term are $1,468 and $3,719 respectively.
46
<PAGE>
Option Exercises and Holdings
The following table provides information concerning option exercises during
1998 and the shares of common stock represented by outstanding stock options
held by each of the Named Officers as of December 31, 1998. Since there was no
public trading market for Flycast's common stock as of December 31, 1998, the
values of unexercised options at December 31, 1998 are based on a fair market
value of common stock of $8.50 per share as determined by the Board on January
4, 1999. Therefore, these values are calculated based on the $8.50 per share
value, less the applicable exercise price per share, multiplied by the number
of shares underlying these options.
Option Exercises During Last Fiscal Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1998 December 31, 1998
Acquired Value ------------------------- -------------------------
Name(1) on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George R. Garrick....... 170,000 $ 0 470,000 240,000 $ 3,407,500 $ 1,740,000
Miles Walsh(2).......... 35,000 0 -- -- -- --
Larry M. Levine(3)...... 187,000 0 -- -- -- --
Peter T. Nicas.......... 50,000 63,500 70,000 -- 479,500 --
Lawrence G. Braitman.... -- -- -- -- -- --
Richard L. Thompson..... -- -- -- -- -- --
Edwin Videki(4)......... -- -- 25,000 -- 207,132 --
</TABLE>
- --------
(1) Since their employment with Flycast commenced in 1999, none of Mr. Marcus,
Mr. Ciaramaglia, Mr. Grafft or Mr. Lehman acquired or exercised any options
during 1998.
(2) Mr. Walsh's employment as President and Chief Executive Officer of Flycast
terminated in May 1998 and his employment as Vice President of Business
Planning terminated in June 1998. All of the shares acquired on exercise of
options granted to Mr. Walsh during 1998 were deemed to have vested at the
time of grant in January 1998. See "Related Party Transactions--Employment
and Severance Agreements."
(3) Mr. Levine's employment with Flycast terminated in January 1999. Subsequent
to his termination, Mr. Levine entered into a consulting relationship with
Flycast. Flycast expects to repurchase any unvested shares at the
termination of the consulting arrangement. See "Related Party
Transactions--Employment and Severance Agreements".
(4) Mr. Videki's employment with Flycast terminated in December 1998.
Stock Plans
1999 Stock Option Plan. Flycast's 1999 Stock Option Plan was adopted by the
Board in January 1999 and 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 was initially reserved for issuance under the 1999
Option Plan, plus an automatic annual increase on the first day of Flycast's
fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser
of 500,000 shares, 3% of Flycast's outstanding common stock on the last day of
the immediately preceding fiscal year or a lesser number of shares as
determined by the Board. On March 30, 1999, the Board adopted an amendment to
the 1999 Stock Option Plan that increased the number of shares of common stock
reserved for issuance to 3,500,000 and changed the automatic annual increase to
the lesser of 1,000,000 shares or 3% of Flycast's outstanding common stock. As
of March 31, 1999, options to purchase 30,251 shares of common stock with a
weighted average exercise price of $9.00 had been exercised, all of which
shares were outstanding, options to purchase 1,883,740 shares of common stock
at a weighted average exercise price of $10.32 per share were outstanding and
1,586,009 shares remained available for future option grants.
The purposes of the 1999 Option Plan are to attract and retain the best
available personnel, to provide additional incentives to Flycast's employees
and consultants and to promote the success of
47
<PAGE>
Flycast's business. The 1999 Option Plan provides for the granting to
employees, including officers and directors, of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
and for the granting to employees and consultants, including nonemployee
directors, of nonstatutory stock options. To the extent an optionee would have
the right in any calendar year to exercise for the first time one or more
incentive stock options for shares having a total fair market value in excess
of $100,000, any excess options shall be treated as nonstatutory stock options.
The calculation is made taking into account shares under all of Flycast's plans
and is determined for each share as of the date the option to purchase the
shares was granted. Unless terminated earlier, the 1999 Option Plan will
terminate in January 2009.
The 1999 Option Plan may be administered by the Board or a committee of the
Board. The 1999 Option Plan is currently administered by the compensation
committee. The administrator determines the terms of options granted under the
1999 Option Plan, including the number of shares subject to an option and its
exercise price, term and exercisability. In no event, however, may an
individual employee receive option grants under the 1999 Option Plan during any
one fiscal year of Flycast that would allow him or her to purchase more than
1,000,000 shares. The exercise price of all incentive stock options granted
under the 1999 Option Plan must be at least equal to the fair market value of
the common stock of Flycast on the date of grant. The exercise price of any
incentive stock option granted to an optionee who owns stock representing more
than 10% of the total combined voting power of all classes of outstanding
capital stock of Flycast or any parent or subsidiary corporation of Flycast
must equal at least 110% of the fair market value of the common stock on the
date of grant. After the effective date of this offering, the exercise price of
nonstatutory stock options granted under the 1999 Option Plan will be the price
determined by the administrator; provided, however, that the exercise price of
any nonstatutory stock option granted to Flycast's Chief Executive Officer or
its four other most highly compensated officers will generally equal at least
100% of the fair market value of the common stock on the date of grant. Payment
of the option exercise price may be made in cash or other consideration as
determined by the administrator.
The administrator determines the term of options, which may not exceed ten
years, or five years in the case of an incentive stock option granted to a 10%
stockholder. No option may be transferred by the optionee other than by will or
the laws of descent or distribution, with the proviso that the administrator
may grant nonstatutory stock options after the effective date of the offering
with limited transferability rights. Generally, each option may be exercised
during the lifetime of the optionee only by the optionee. The administrator
determines when options vest and become exercisable. Flycast expects that
options granted under the 1999 Option Plan generally will vest at the rate of
1/8th of the total number of shares subject to the options six months after the
date of grant, and 1/48th of the total number of shares subject to the options
each month thereafter.
In the event of the sale of all or substantially all of the assets of
Flycast, or the merger or consolidation of Flycast with or into another
corporation, the administrator shall either:
. provide that outstanding options shall be assumed or equivalent options
substituted by the successor corporation;
. provide notice to optionees that all options, to the extent then
exercisable or to be exercisable as a result of the transaction, must be
exercised on or before a specified date after which the options
terminate; or
. terminate each option in its entirety in exchange for a payment equal to
the excess of the fair market value of the portion of the optioned stock
that is vested and exercisable immediately prior to the closing of the
transaction over the total exercise price.
The Board has the authority to amend or terminate the 1999 Option Plan as
long as this action does not materially and adversely affect any outstanding
option and provided that stockholder
48
<PAGE>
approval for any amendments to the 1999 Option Plan must be obtained to the
extent required by applicable law.
1997 Stock Option Plan. Flycast's 1997 Stock Option Plan was adopted by the
Board and approved by Flycast's stockholders in March 1997. A total of
2,800,000 shares of common stock has been reserved for issuance under the 1997
Option Plan. As of March 31, 1999, options to purchase 869,531 shares of common
stock with a weighted average exercise price of $0.71 had been exercised, of
which 727,093 shares were outstanding, options to purchase a total of 1,863,714
shares at a weighted average exercise price of $2.07 per share were outstanding
and 66,755 shares remained available for future option grants. Unless
terminated earlier, the 1997 Option Plan will terminate in March 2007.
The terms of options issued under the 1997 Option Plan are generally the same
as those that may be issued under the 1999 Option Plan, except with respect to
the following features. The 1997 Option Plan does not impose an annual
limitation on the number of shares subject to options that may be issued to any
individual employee. In addition, nonstatutory stock options granted under the
1997 Option Plan are nontransferable in all cases and must be granted with an
exercise price equal to at least 85% of the fair market value of the common
stock on the date of grant, unless granted to a 10% stockholder, in which case
the exercise price must be at least 110% of the fair market value on the date
of grant.
Options granted under the 1997 Option Plan generally may be exercised
immediately after the grant date, but to the extent the shares subject to the
options are not vested as of the date of exercise, Flycast retains a right to
repurchase any shares that remain unvested at the time of the optionee's
termination of employment by paying an amount equal to the exercise price times
the number of unvested shares. Options granted under the 1997 Option Plan
generally vest at the rate of 1/8th of the total number of shares subject to
the options six months after the date of grant, and 1/48th of the total number
of shares subject to the options each month thereafter.
In addition, upon a sale of all or substantially all of Flycast's assets, or
a merger or consolidation of Flycast with or into another corporation, all
options outstanding under the 1997 Option Plan will be assumed or equivalent
options substituted by the successor corporation, unless the successor
corporation does not agree to this assumption or substitution, in which case
the options terminate upon the closing of the transaction.
1999 Directors' Stock Option Plan. The 1999 Directors' Stock Option Plan was
adopted by the Board in January 1999 and 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 the
director has a personal interest. Unless terminated earlier, the Directors'
Plan will terminate in January 2009.
The Directors' Plan provides that each person who becomes a nonemployee
director after the date of this prospectus will be granted a nonstatutory stock
option to purchase 20,000 shares of common stock on the date on which the
optionee first becomes a nonemployee director of Flycast. This option will
become exercisable as to 25% of the total number of shares underlying the
option on each of the first, second, third and fourth anniversaries of the date
of grant. In addition, on the date of
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Flycast's Annual Stockholders Meeting each year, each nonemployee director will
be granted an additional option to purchase 5,000 shares of common stock if, on
that date, he or she has served on the Board for at least six months. The
subsequent option will become exercisable as to 100% of the shares underlying
the option on the day before the fourth anniversary of the date of grant. All
options granted under the Directors' Plan shall have an exercise price equal to
100% of the fair market value of the common stock as of the date of grant.
The Directors' Plan sets neither a maximum nor a minimum number of shares for
which options may be granted to any one nonemployee director, but does specify
the number of shares that may be included in any grant and the method of making
a grant. No option granted under the Directors' Plan is transferable by the
optionee other than by will or the laws of descent or distribution or pursuant
to a qualified domestic relations order, and each option is exercisable, during
the lifetime of the optionee, only by the optionee. If a nonemployee director
ceases to serve as a director for any reason other than death or disability, he
or she may, but only within 90 days after the date he or she ceases to be a
director of Flycast, exercise options granted under the Directors' Plan to the
extent that he or she was entitled to exercise those options at the date of
termination. To the extent that he or she was not entitled to exercise an
option at the date of termination, or if he or she does not exercise an option
that he or she was entitled to exercise within the 90 day period, the option
will terminate. If a director's service on the Board terminates as a result of
his or her disability, he or she may, but only within 12 months from the date
of his or her termination, exercise options granted under the Directors' Plan
to the extent that he or she was entitled to exercise the options on the date
of termination. If a director's service on the Board terminates as a result of
his or her death, for a period of 12 months following the date of death, the
director's estate will have the right to exercise any option granted under the
Directors' Plan as to all shares which would have vested if the deceased
director had continued in his or her position on the Board for an additional
six months following the date of death. If a director dies within three months
after termination of service on the Board, then for a period of 12 months
following the date of death, the director's estate may exercise the options
granted under the Directors' Plan to the extent that the director was entitled
to exercise these options on the date of termination. Options granted under the
Directors' Plan have a term of ten years.
In the event of a dissolution or liquidation of Flycast, a sale of all or
substantially all of Flycast's assets, or a merger, consolidation or other
capital reorganization of Flycast with or into another corporation, each option
outstanding under the Directors' Plan will be assumed or equivalent options
substituted by the successor corporation, unless the successor corporation does
not agree to this assumption or substitution, in which case the options will
terminate upon the closing of the transaction; provided, however, that upon a
sale of all or substantially all of Flycast's assets or a merger or
consolidation of Flycast with or into another corporation in which more than
50% of the shares entitled to vote are exchanged, each director holding options
under the Directors' Plan will have the right to exercise his or her options
immediately prior to the closing of the transaction as to all of the shares of
stock underlying these options, including shares that the director would not
otherwise be entitled to purchase.
The Board may amend or terminate the Directors' Plan at any time; provided,
however, that no action may adversely affect any outstanding option and
provided that stockholder approval for any amendments to the Directors' Plan
must be obtained to the extent required by applicable law.
1999 Employee Stock Purchase Plan. Flycast's 1999 Employee Stock Purchase
Plan was adopted by the Board in January 1999 and 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
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number of shares determined by the Board. The Purchase Plan becomes effective
upon the effective date of the Registration Statement for this offering. Unless
terminated earlier by the Board, the Purchase Plan will terminate in January
2019.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of 24
months' duration, with new offering periods commencing on May 1 and November 1
of each year, other than the first offering period. Except for the first
offering period, each offering period will consist of four consecutive purchase
periods of six months' duration, at the end of which six month period an
automatic purchase will be made for participants. The initial offering period
is expected to commence on the date of this offering and end on April 30, 2001;
the initial purchase period is expected to begin on the date of this offering
and end on October 31, 1999. The Purchase Plan will be administered by the
Board or by a committee appointed by the Board. Employees, including officers
and employee directors of Flycast, or of any majority-owned subsidiary
designated by the Board, are eligible to participate in the Purchase Plan if
they are employed by Flycast or any subsidiary for at least 20 hours per week
and more than five months per year. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions, which in any
event may not exceed 10% of an employee's compensation, at a price equal to the
lower of 85% of the fair market value of the common stock at the beginning of
the offering period or at the end of the purchase period. The Board will have
the discretion to increase, prior to the beginning of an offering period, the
percentage of participants' compensation that may be withheld through the
Purchase Plan, provided that this percentage may not exceed 20%. Employees may
end their participation in the Purchase Plan at any time during an offering
period, and participation ends automatically on termination of employment.
No employee will be granted an option under the Purchase Plan if immediately
after the grant the employee would own stock or hold outstanding options to
purchase stock equaling 5% or more of the total voting power or value of all
classes of stock of Flycast or its subsidiaries, or if this option would permit
an employee's rights to purchase stock under all employee stock purchase plans
of Flycast and its subsidiaries to accrue at a rate that exceeds $25,000 of
fair market value of the stock for each calendar year in which the option is
outstanding at any time. In addition, no employee may purchase more than 2,000
shares of common stock under the Purchase Plan in any one purchase period. If
the fair market value of the common stock on a purchase date is less than the
fair market value at the beginning of the offering period, each participant in
the Purchase Plan will automatically be withdrawn from the offering period as
of the end of the purchase date and re-enrolled in the new 24 month offering
period beginning on the first business day following the purchase date.
The Purchase Plan provides that, in the event of a merger or consolidation of
Flycast with or into another corporation or a sale of all or substantially all
of Flycast's assets, each right to purchase stock under the Purchase Plan will
be assumed or an equivalent right substituted by the successor corporation. If
the successor corporation does not agree to assume or substitute stock purchase
rights, the offering period then in progress would be shortened and a new
exercise date occurring prior to consummation of the acquisition would be set.
The Board has the power to amend or terminate the Purchase Plan and to change
or terminate offering periods as long as this action does not adversely affect
any outstanding rights to purchase stock thereunder, provided, however, that
the Board may amend or terminate the Purchase Plan or an offering period even
if it would adversely affect outstanding options in order to avoid Flycast's
incurring adverse accounting charges.
401(k) Retirement Plan
Effective in October 1997, Flycast established a 401(k) defined contribution
retirement plan covering all full-time employees as of their date of hire. The
401(k) Plan provides for voluntary employee contributions from 1% to 25% of
annual compensation, subject to the maximum limit
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allowed by Internal Revenue Service guidelines, which is $10,000 for 1999.
Flycast may contribute to the accounts of participants in the 401(k) Plan in
amounts determined by the Board. However, to date, Flycast has not made any
contributions to the accounts of 401(k) Plan participants.
Limitation of Liability and Indemnification Matters
To the extent permitted by the Delaware General Corporation Law, Flycast has
included in its Amended and Restated Certificate of Incorporation a provision
to eliminate the personal liability of its directors for monetary damages for
breach or alleged breach of their fiduciary duties as directors, subject to
exceptions. In addition, Flycast's Bylaws provide that it is required to
indemnify its officers and directors under specific conditions, including those
circumstances in which indemnification would otherwise be discretionary, and is
required to advance expenses to its officers and directors as incurred in
connection with proceedings against them for which they may be indemnified.
Flycast has entered into indemnification agreements with its officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in Delaware law. The
indemnification agreements require Flycast, among other things, to indemnify
its officers and directors against liabilities that may arise by reason of
their status or service as officers and directors, other than liabilities
arising from willful misconduct of a culpable nature, to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms. Flycast is in the process of obtaining directors' and
officers' liability insurance.
At present, Flycast is not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. Flycast is not aware of any
threatened litigation or proceeding that might result in a claim for
indemnification. Flycast believes that its charter provisions and
indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.
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RELATED PARTY TRANSACTIONS
Since January 1, 1996, there has not been any transaction or series of
similar transactions to which Flycast was or is a party in which the amount
involved exceeded or exceeds $60,000 and in which any director or executive
officer of Flycast, any holder of more than 5% of any class of Flycast's voting
securities or any member of the immediate family of any of the foregoing
persons had or will have a direct or indirect material interest, other than the
transactions described below.
Equity and Convertible Debt Financings
In March 1994, Peter D. Olson, Flycast's then-current President, purchased
1,000 shares of Flycast's common stock for $1,000 in cash. Subsequently, Mr.
Olson transferred property totaling $610,295 to Flycast as a capital
contribution. His investment of $611,295 was converted into 611,295 shares of
Series A Preferred Stock in connection with the stock recapitalization and
Series A Preferred Stock financing described below.
In April 1996, Mr. Olson loaned $25,000 to Flycast, which was repaid in full
by Flycast in January 1997.
In June 1996, in connection with a Convertible Note Purchase Agreement,
Flycast issued promissory notes bearing no interest to Richard L. Thompson,
Flycast's Vice President, Client Services in the amount of $110,000, Richard L.
Thompson (through his individual retirement account), in the amount of $80,000,
Lawrence G. Braitman (through his individual retirement account), Flycast's
Vice President, Corporate Development and New Ventures, in the amount of
$60,000. The principal amounts of these notes were converted into 250,000
shares of Series A Preferred Stock at a conversion price of $1.00 per share in
July 1997.
In February 1997, Flycast entered into a Convertible Note and Warrant
Purchase Agreement with several investors including Mr. Olson and Ruth Dorward,
Mr. Thompson's mother. In connection with this agreement and in exchange for
convertible promissory notes bearing interest at 8% per annum, the principal
amount of which was convertible into shares of Series B Preferred Stock and
warrants exercisable to purchase an additional number of shares of Series B
Preferred Stock equal in value to 20% of the notes' principal amount, Mr. Olson
loaned to Flycast $41,633 in February 1997, Peter D. Olson (through his
individual retirement account) loaned to Flycast $130,000 in March 1997 and Ms.
Dorward loaned to Flycast $75,000 in February 1997. In July and August 1997,
the interest due under the notes was paid in cash and the notes were converted
into shares of Series B Preferred Stock and warrants exercisable to purchase
Series B Preferred Stock as described below.
In June 1997, Flycast issued a promissory note in the principal amount of
$400,000 and a warrant to purchase 33,333 shares of common stock at an exercise
price per share of $0.01 to Bessemer Venture Partners IV, L.P., a greater than
5% stockholder and an entity with which David J. Cowan, a director of Flycast,
is affiliated. The principal amount of the note was converted into shares of
Series B Preferred Stock.
In July 1997, in connection with restricted stock purchase agreements,
Flycast issued and sold 840,000 shares of common stock to Richard L. Thompson,
546,000 shares of common stock to Lawrence G. Braitman, 330,000 shares to David
Roth, a co-founder of Flycast, 349,011 shares of common stock to Miles Walsh,
the then-current President and Chief Executive Officer, 120,000 shares of
common stock to Mr. Olson and 90,000 shares of common stock to Michael D.
Solomon, a director of
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Flycast, each at a purchase price $0.10 per share. Flycast's restricted stock
purchase agreements with Messrs. Thompson, Braitman, Walsh, Olson and Solomon
provide for full acceleration of vesting, subject to conditions, in the event
that the individual's relationship with Flycast is terminated within 12 months
following an acquisition or merger that results in the transfer of more than
50% of Flycast's equity ownership. In addition, Flycast's restricted stock
purchase agreements with Messrs. Thompson, Braitman, Walsh, Olson and Solomon
provide for payment to Flycast for this stock in the form of promissory notes,
bearing interest at 6.65% per annum, compounded annually, with principal and
interest due upon the earliest of:
. nine months after the closing of an initial public offering of Flycast's
common stock;
. July 2002; or
. the termination of his service provider relationship with Flycast.
As of March 31, 1999, the following amounts are owed to Flycast under the
promissory notes:
. Mr. Thompson is indebted to Flycast in the amount of $93,813 including
interest;
. Mr. Braitman is indebted to Flycast in the amount of $60,979 including
interest;
. Mr. Olson is indebted to Flycast in the amount of $13,402, including in-
terest; and
. Mr. Solomon is indebted to Flycast in the amount of $10,051 including in-
terest.
In July 1997, Flycast issued and sold shares of Series A Preferred Stock at a
purchase price per share of $1.00 in a private placement transaction. As part
of this private placement Mr. Olson received 611,295 shares of Series A
Preferred Stock in connection with his previous capital contributions and a
stock recapitalization pursuant to which the shares of common stock held by him
were exchanged for 611,295 shares of Series A Preferred Stock.
In July and August 1997, Flycast issued and sold 5,324,532 shares of Series B
Preferred Stock at a purchase price per share of $1.33 and warrants to purchase
77,688 shares of Series B Preferred Stock at an exercise price per share of
$1.33 in a private placement transaction. In exchange for the promissory notes
described above, the following transactions occurred:
. Mr. Olson converted his note in the principal amount of $41,633 into
31,303 shares of Series B Preferred Stock and a warrant to purchase
6,260 shares of Series B Preferred Stock;
. Peter D. Olson converted his note (held in the name of his individual
retirement account) in the principal amount of $130,000 into 97,744
shares of Series B Preferred Stock and a warrant to purchase
19,549 shares of Series B Preferred Stock; and
. Ms. Dorward converted her note in the principal amount of $75,000 into
56,390 shares of Series B Preferred Stock and a warrant to purchase
11,278 shares of Series B Preferred Stock.
Other purchasers of shares of Series B Preferred Stock included the
following:
. entities and individuals affiliated with Bessemer Venture Partners,
which purchased 1,879,699 shares of Series B Preferred Stock, including
300,751 shares issued upon conversion of the above described note in the
principal amount of $400,000 and including 15,000 shares of Series B
Preferred Stock purchased by David J. Cowan, a director of Flycast;
. entities affiliated with Charles River Partnership, which purchased
1,879,699 shares of Series B Preferred Stock, and with which Ted R.
Dintersmith, a director of Flycast, is affiliated; and
. entities affiliated with St. Paul Venture Capital, which purchased
1,127,820 shares of Series B Preferred Stock.
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In January 1998, Flycast granted a nonstatutory stock option to purchase
50,000 shares of common stock to Michael D. Solomon, a director of Flycast,
with an exercise price of $0.13 per share. The shares under this option vest
over a four-year period. The vesting under this option accelerates on the same
terms as the common stock held by him.
In September 1998, in connection with Larry M. Levine's early exercise of his
option to purchase shares of common stock at $1.25 per share, Mr. Levine,
Flycast's former Vice President, Sales entered into a restricted stock purchase
agreement that provided for the issuance of 187,000 shares of common stock to
Mr. Levine. The restricted stock purchase agreement provides for payment to
Flycast in the form of a full recourse promissory note bearing interest at
5.54% per annum, compounded annually, with principal and interest due upon the
earlier of termination of Mr. Levine's employment or consulting relationship,
nine months after the closing of an initial public offering of Flycast's common
stock or in September 2003. Mr. Levine's employment with Flycast terminated
effective January 20, 1998. In March 1999, Flycast canceled $175,312.50 of
indebtedness due from Mr. Levine in connection with its repurchase of 140,250
shares of common stock from Mr. Levine and Mr. Levine concurrently repaid the
remaining $64,930.11, including interest, due under the promissory note. See
"--Employment and Severance Agreements."
In September 1998, in connection with George R. Garrick's early exercise of
his nonstatutory option to purchase shares of common stock at $1.25 per share,
Mr. Garrick, Flycast's Chairman of the Board, Chief Executive Officer and
President, entered into a restricted stock purchase agreement that provided for
the issuance of 170,000 shares of common stock to Mr. Garrick. The restricted
stock purchase agreement provides for payment to Flycast in the form of a
promissory note bearing interest at 5.54% per annum, compounded annually, with
principal and interest due upon the earliest of:
. nine months after the closing of an initial public offering of Flycast's
common stock;
. in September 2003; or
. the termination of Mr.Garrick's service provider relationship with
Flycast. Seventy-five percent of the principal amount of the promissory
note is non-recourse and the remaining 25% of the principal amount and
any accrued interest are full recourse. The amount currently outstanding
under the promissory note is $212,500, plus accrued interest at March 31,
1999.
In December 1998, Flycast issued promissory notes that bear interest at 14%
per annum, compounded semi-annually to Bessemer Venture Partners IV LP in the
principal amount of $1,555,136, Charles River Partnership VIII, A Limited
Partnership, in the principal amount of $1,528,040, St. Paul Venture Capital in
the amount of $916,819 and Comdisco in the amount of $500,000. These notes were
converted into shares of Series C Preferred Stock and warrants to purchase
Series C Preferred Stock.
In December 1998 and January 1999, Flycast issued and sold 1,994,132 shares
of Series C Preferred Stock at a purchase price of $9.04 per share and warrants
to purchase 132,840 shares of Series C Preferred Stock at an exercise price of
$9.04 per share in private placement transactions with various entities and
individuals. The purchasers of these shares included, among others:
. entities affiliated with Bessemer Venture Partners, which converted
$1,555,136 of outstanding debt into 172,028 shares of Series C Preferred
Stock and received warrants to purchase 45,908 shares of Series C Pre-
ferred Stock, including 3,236 shares and warrants to purchase 863 shares
purchased by David J. Cowan;
. Charles River Partnership VIII, A Limited Partnership, which converted
$1,528,040 of outstanding debt into 169,030 shares of Series C Preferred
Stock and received warrants to purchase 45,108 shares of Series C Pre-
ferred Stock; and
. entities affiliated with St. Paul Venture Capital, which converted
$916,819 outstanding debt into 101,418 shares of Series C Preferred Stock
and received warrants to purchase 27,064 shares of
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Series C Preferred Stock. In January 1999, Flycast issued and sold
442,477 shares of Series C Preferred Stock at a purchase price of $9.04
per share in a private placement transaction with Intelligent Media
Ventures, Inc., an entity in which Gary L. Prophitt, a director of
Flycast, is an executive officer.
In January 1999, Flycast granted nonstatutory stock options to purchase
20,000 shares of common stock to Howard C. Draft, a director of Flycast, with
an exercise price of $8.75 per share. This option vests over a four-year
period. DF LLC, an entity in which Mr. Draft is managing partner, also
purchased 5,531 shares of Series C Preferred Stock at a purchase price of
$9.04 per share in January 1999.
For additional information regarding the grant of stock options to executive
officers and directors, see "Management" and "Principal Stockholders."
Registration Rights Agreement
Some holders of common stock, preferred stock and warrants have registration
rights with respect to their shares of common stock, including common stock
issuable upon exercise of their warrants and conversion of their preferred
stock. See "Description of Capital Stock--Registration Rights."
Employment and Severance Agreements
In May 1998, Flycast entered into a letter agreement with George R. Garrick,
the Company's President and Chief Executive Officer, which entitles Mr. Garrick
to continued salary and benefits in the event of his termination without cause
by Flycast or its successor for a period that is the greater of (1) six months
or (2) the time between the date of termination and the first anniversary of
Mr. Garrick's initial date of employment. In addition, the agreement also
provides that, in the event that Flycast enters into a change of control
transaction, 70% of the "unvested" shares acquired or acquirable from the
exercise of options granted to Mr. Garrick on June 30, 1998 will accelerate and
become immediately vested upon the closing of a change of control transaction,
unless this acceleration would prevent "pooling of interests" accounting
treatment of the change of control transaction.
In connection with the termination of the employment of David Roth, a co-
founder of Flycast, in February 1998, Flycast reached an oral agreement with
Mr. Roth that he would receive a severance payment and three months accelerated
vesting of his stock in consideration for the execution of a Settlement
Agreement and Mutual Release. Following this agreement, Flycast attempted on
numerous occasions to contact Mr. Roth to arrange for the execution and
exchange of the appropriate documents. Mr. Roth either rejected or ignored all
attempts to consummate the agreement. Mr. Roth, under the terms of a common
stock purchase agreement dated July 8, 1997, had purchased 330,000 shares of
common stock at a price per share of $0.10 by means of a Promissory Note dated
July 7, 1997 in the principal amount of $33,000. Under the agreement reached
with Mr. Roth, he would have been vested in 226,875 of these shares. After Mr.
Roth's failure to execute the agreement, Flycast foreclosed on 264,560 shares
of common stock previously issued to Mr. Roth in satisfaction of Mr. Roth's
obligations to Flycast under the note using a fair market value of $0.13 per
share, which was the fair market value as of the date of his termination of
employment. In connection with this foreclosure, Flycast issued to Mr. Roth a
certificate for his remaining 65,440 shares of common stock.
Flycast and Miles Walsh entered into an Employment Agreement on October 1997
under which Flycast agreed to pay Mr. Walsh $180,000 on an annualized basis in
exchange for Mr. Walsh's agreement to serve as Flycast's Chief Executive
Officer. In connection with the termination of Mr. Walsh's employment as Chief
Executive Officer in May 1998, Flycast entered into a Separation Agreement and
Mutual Release that provided for a severance payment equal to six months'
salary ($90,000) and for the employment of Mr. Walsh as Flycast's Vice
President of Business Planning at a salary of $25,000 for the period of one
month. At the time of Mr. Walsh's termination, he was vested
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as to 188,317 shares of common stock out of 349,011 shares of common stock he
purchased in July 1997 at a price of $0.10 per share under a common stock
purchase agreement. The remaining 160,694 shares of common stock were
repurchased by Flycast. In addition, Mr. Walsh retained 35,000 shares of
Flycast's common stock that he purchased at an exercise price of $0.13 per
share in May 1998 from his exercise of an option that was immediately
exercisable and fully vested when granted in January 1998. In January 1999, Mr.
Walsh was granted an additional nonstatutory stock option to purchase 5,000
shares at an exercise price of $8.75 per share that was fully vested. See
"Management--Executive Compensation".
In connection with the termination of Edwin Videki's employment with Flycast
in December 1998, Flycast and Mr. Videki entered into a Severance Agreement and
Mutual Release. In consideration for the release of any and all claims, Flycast
agreed to pay Mr. Videki a severance payment equal to four months salary
($43,332) and provide standard employee-related benefits for four months from
Mr. Videki's date of termination. At the time of the termination of Mr.
Videki's employment, he was vested as to 23,333 shares under an option with an
exercise price of $0.13. In addition, Flycast accelerated vesting for a portion
of the unvested shares subject to an option with an exercise price of $1.40
held by Mr. Videki such that, at the time of his termination, he was deemed
vested in 1,667 of these shares. The remaining shares subject to options held
by Mr. Videki were canceled. See "Management--Executive Compensation" and "--
Option Grants".
In June 1998, Flycast entered into a letter agreement with Larry M. Levine
that entitled Mr. Levine to continued salary and medical benefits in the event
of his termination without cause by Flycast or its successor for a period of
six months. In addition, the agreement provided that, in the event Flycast
enters into a change of control transaction prior to the 12-month anniversary
of Mr. Levine's date of commencement of employment, 25% of the "unvested"
shares acquired or acquirable by Mr. Levine at the time of the closing of the
transaction would accelerate and become immediately vested, unless acceleration
would prevent "pooling of interests" accounting treatment for the transaction.
The agreement also provided that 50% of the "unvested" shares would accelerate
in the event that a change of control transaction occurred after Mr. Levine's
first full year of employment, unless acceleration would prevent "pooling of
interests" accounting treatment for the transaction.
Subsequent to the termination of Mr. Levine's employment with Flycast in
January 1999, Flycast and Mr. Levine entered into a Severance and Consulting
Agreement with Flycast. Under the terms of this agreement, the 187,000 shares
purchased by Mr. Levine pursuant to his early exercise of the option granted to
him continue to vest at the rate of 1/48th per month until the termination of
the consulting relationship. Flycast also paid to Mr. Levine $87,500 as
consideration for these consulting services. Mr. Levine is prohibited from
working for a competitor during the term of the consulting relationship. In
March 1999, Flycast repurchased 140,250 shares held by Mr. Levine which were
subject to a repurchase option. See "Management--Executive Compensation" and
"--Option Grants."
In March 1999, Flycast entered into a letter agreement with Greg Stuart, the
Company's Vice President, Business Development, which entitles Mr. Stuart to
continued salary and benefits in the event of his termination without cause by
Flycast or its successor.
In March 1999, Flycast entered into a letter agreement with Scott W. Grafft,
the Company's Vice President, Direct Marketing, which entitles Mr. Grafft to
continued salary and benefits for six months following the date of termination
in the event of his termination without cause by Flycast or its successor. In
addition, the agreement provides that, in the event that Flycast enters into a
change of control transaction, 25% of the "unvested" shares acquired or
acquirable from the exercise of options initially granted to Mr. Grafft will
accelerate and become immediately vested upon the closing of this transaction,
unless this acceleration would prevent "pooling of interests" accounting
treatment for the transaction.
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In March 1999, Flycast entered into a letter agreement with John Yung, the
Company's Vice President, Network Operations, which entitles Mr. Yung to
continued salary and benefits for six months following the date of termination
in the event of his termination without cause by Flycast or its successor.
In March 1999, Flycast entered into a letter agreement with Thomas L. Marcus,
the Company's Executive Vice President, Finance, Administration and Corporate
Development, which entitles Mr. Marcus to continued salary and benefits in the
event of his termination without cause by Flycast or its successor. In
addition, the agreement provides that, in the event that Flycast enters into a
change of control transaction, 25% of the "unvested" shares acquired or
acquirable from the exercise of options initially granted to Mr. Marcus will
accelerate and become immediately vested upon the closing of this transaction,
unless this acceleration would prevent "pooling of interests" accounting
treatment for the transaction.
Other Agreements
Flycast has entered into or will enter into Indemnification Agreements with
each of its officers and directors containing provisions that may require
Flycast, among other things, to indemnify its officers and directors against
liabilities that may arise by reason of their status or service as officers or
directors, other than liabilities arising from willful misconduct of a culpable
nature, and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. See "Management--Limitation
of Liability and Indemnification Matters."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership
of Flycast's common stock as of March 31, 1999 and as adjusted to reflect the
sale of the common stock offered by Flycast under this prospectus by:
. each of Flycast's directors and Named Officers;
. all directors and executive officers as a group; and
. each person who is known by Flycast to own beneficially more than 5% of
its common stock.
Except as otherwise noted, the address of each person listed in the table is
c/o Flycast Communications Corporation, 181 Fremont Street, San Francisco, CA
94105. The table includes all shares of common stock issuable within 60 days of
March 31, 1999 upon the exercise of options and other rights beneficially owned
by the indicated stockholders on that date. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to shares. To the knowledge
of Flycast, except under applicable community property laws or as otherwise
indicated, the persons named in the table have sole voting and sole investment
control with respect to all shares beneficially owned. The applicable
percentage of ownership for each stockholder is based on 11,108,995 shares of
common stock outstanding as of March 31, 1999, together with applicable options
for that stockholder. Shares of common stock issuable upon exercise of options
and other rights beneficially owned are deemed outstanding for the purpose of
computing the percentage ownership of the person holding those options and
other rights, but are not deemed outstanding for computing the percentage
ownership of any other person.
<TABLE>
<CAPTION>
Percentage of
Shares
Number of Outstanding
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
David J. Cowan
Entities affiliated with Bessemer Venture
Partners(1).................................. 2,130,968 19.2% 15.1%
1400 Old Country Rd., Suite 407
Westbury, NY 11590
Ted R. Dintersmith
Entities affiliated with Charles River
Partnership(2)............................... 2,093,837 18.9 14.8
1000 Winter Street, Suite 3300
Waltham, MA 02154
Entities affiliated with St. Paul Venture
Capital(3).................................... 1,256,302 11.3 8.9
8500 Normandale Lake Blvd., Suite 1940
Bloomington, MN 55437
Richard L. Thompson(4)......................... 1,030,000 9.3 7.3
George R. Garrick(5)........................... 720,000 6.2 4.9
Lawrence G. Braitman(6)........................ 606,000 5.5 4.3
Peter D. Olson(7).............................. 599,872 5.4 4.3
992 South DeAnza Boulevard
San Jose, CA 95129
Gary L. Prophitt(8)............................ 442,477 4.0 3.1
Miles Walsh(9)................................. 223,317 2.0 1.6
Michael D. Solomon............................. 140,000 1.3 1.0
Peter T. Nicas(10)............................. 120,000 1.1 *
Larry M. Levine(11)............................ 46,750 * *
Edwin Videki................................... 25,000 * *
Howard C. Draft(12)............................ 5,531 * *
All current directors and officers as a group
(17 persons)(13).............................. 7,413,813 62.5 49.9
</TABLE>
59
<PAGE>
- --------
* Less than one percent of the outstanding shares of common stock.
(1) Represents:
. 746,713 shares of outstanding common stock and 15,142 shares of com-
mon stock that the stockholder has the right to acquire pursuant to
warrants exercisable within 60 days of March 31, 1999 held by Bessec
Ventures IV, L.P.;
. 205,171 shares of outstanding common stock and 4,591 shares of com-
mon stock that the stockholder has the right to acquire pursuant to
warrants exercisable within 60 days of March 31, 1999 held by Besse-
mer Venture Investors, L.P.;
. 746,711 shares of outstanding common stock and 15,141 shares of com-
mon stock that the stockholder has the right to acquire pursuant to
warrants exercisable within 60 days of March 31, 1999 held by Besse-
mer 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 March 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 March 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 March 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 this entity,
and disclaims beneficial ownership of those shares in which he has no pe-
cuniary interest.
(2) Represents:
. 2,011,637 shares of outstanding common stock and 44,291 shares of
common stock that the stockholder has the right to acquire pursuant
to a warrant exercisable within 60 days of March 31, 1999 held by
Charles River Partnership VIII, A Limited Partnership; and
. 37,092 shares of outstanding common stock and 817 shares of common
stock that the stockholder has the right to acquire pursuant to a
warrant exercisable within 60 days of March 31, 1999 held by Charles
River VIII-A, LLC.
Mr. Dintersmith, a director of Flycast, is a General Partner of Charles
River Partnership VIII, A Limited Partnership and disclaims beneficial
ownership of the shares in which he has no pecuniary interest.
(3) Represents 33,804 shares of outstanding common stock and 744 shares of
common stock that the stockholder has the right to acquire pursuant to a
warrant exercisable within 60 days of March 31, 1999 held by St. Paul
Venture Capital Affiliates Fund I, LLC and 1,195,434 shares of outstanding
common stock and 26,320 shares of common stock that the stockholder has
the right to acquire pursuant to a warrant exercisable within 60 days of
March 31, 1999 held by St. Paul Venture Capital IV, LLC.
(4) Represents:
. 80,000 shares of outstanding common stock held by Richard L. Thomp-
son (in the name of his individual retirement account); and
. 950,000 shares of outstanding common stock held by Mr. Thompson.
(5) Includes 160,000 shares of common stock issuable within 60 days of March
31, 1999 upon the exercise of an incentive stock option, all of which will
have vested, and 390,000 shares of common stock issuable upon the exercise
of nonstatutory stock options within 60 days of March 31, 1999, none of
which will have vested.
60
<PAGE>
(6) Represents,
. 60,000 shares of common stock held by Lawrence G. Braitman (in the
name of his individual retirement account) and
. 546,000 shares of common stock held by Mr. Braitman.
(7) Includes 3,994 shares of outstanding common stock and 19,549 shares of
common stock that the stockholder has the right to acquire pursuant to a
warrant exercisable within 60 days of March 31, 1999 held by Peter D.
Olson (in the name of his individual retirement account). Also includes
570,069 shares of outstanding common stock and 6,260 shares of common
stock that Mr. Olson has the right to acquire pursuant to a warrant
exercisable within 60 days of March 31, 1999.
(8) Represents 442,477 shares of common stock held by Intelligent Media
Ventures, Inc., an entity of which Mr. Prophitt is an executive officer.
Mr. Prophitt disclaims beneficial ownership of these shares except to the
extent he has pecuniary interest in these shares.
(9) Represents 218,317 shares of common stock held by the Walsh/Emerson Family
Trust and 5,000 shares of common stock issuable to Mr. Walsh within 60
days of March 31, 1999 upon the exercise of stock options, all of which
would have vested.
(10) Includes 70,000 shares of common stock issuable within 60 days of March
31, 1999 upon the exercise of stock options, 10,625 shares of which will
have vested.
(11) Flycast may repurchase a portion of these shares of common stock upon
termination of Mr. Levine's consulting relationship with Flycast.
(12) Represents 5,531 shares of common stock held in the name of DF LLC, an
Illinois limited liability company in which Mr. Draft is a managing
partner.
(13) Represents shares listed as to all current directors and executive
officers, notwithstanding the fact that some directors or executive
officers may disclaim beneficial ownership of these shares, and includes
745,000 shares of common stock issuable within 60 days of March 31, 1999
upon the exercise of outstanding options and 91,016 shares of common stock
issuable within 60 days of March 31, 1999 upon the exercise of outstanding
warrants. See "Management--Executive Compensation."
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, Flycast will be authorized to issue
50,000,000 shares of common stock, $0.0001 par value per share, and 2,000,000
shares of undesignated preferred stock, $0.0001 par value per share. All
currently outstanding shares of preferred stock will be converted into common
stock upon the closing of this offering.
Common Stock
As of March 31, 1999, there were 11,108,995 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
into common stock and the exercise of warrants to purchase 165,792 shares of
common stock and preferred stock that terminate on the effective date of this
offering, held of record by 123 stockholders. Options to purchase 3,747,454
shares of common stock were also outstanding. There will be 14,108,995 shares
of common stock outstanding, assuming no exercise of the underwriters' over-
allotment option or exercise of outstanding options under Flycast's stock
option plans after March 31, 1999, after giving effect to the sale of the
shares offered hereby.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably any dividends as may be
declared by the Board out of funds legally available for that purpose. See
"Dividend Policy." In the event of liquidation, dissolution or winding up of
Flycast, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to the prior
distribution rights of any outstanding preferred stock. The common stock has no
preemptive or conversion rights or other subscription rights. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into 8,234,470 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 series, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series.
The issuance of preferred stock might have the effect of delaying, deferring
or preventing a change in control of Flycast without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
might also adversely affect the voting power of the holders of common stock. An
issuance of preferred stock could have the effect of decreasing the market
price of the common stock. As of the closing of this offering, no shares of
preferred stock will be outstanding. Flycast currently has no plans to issue
any shares of preferred stock.
Warrants
At March 31, 1999, there were warrants outstanding to purchase 165,792 shares
of common and preferred stock which will expire upon the consummation of this
offering, 7,500 shares of Series A Preferred Stock that will expire in June
2002, 33,834 shares of Series B Preferred Stock that will expire in April 2002
and 127,733 shares of Series C Preferred Stock that will expire two years from
the effective date of this offering. The warrants to purchase shares of
preferred stock that survive the
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<PAGE>
closing of this offering will convert into warrants to purchase shares of
common stock on the closing of this offering on a one-to-one basis. Generally,
each warrant contains provisions for the adjustment of the exercise price and
the number of shares issuable upon the exercise of the warrant upon the
occurrence of events such as stock dividends, stock splits, reorganizations,
reclassifications, consolidations and dilutive issuances of securities at
prices below the then existing warrant exercise price.
Registration Rights
The holders of 10,081,928 shares of common stock and warrants to purchase
169,067 shares of common stock or their transferees are entitled to rights with
respect to the registration of these shares under the Securities Act. These
rights are provided under the terms of an agreement between Flycast and the
holders of these securities. Subject to limitations in the agreement, the
holders of at least 20% of these securities then outstanding may require, on
two occasions beginning at least six months after the date of this prospectus,
that Flycast use its best efforts to register their shares of common stock for
public resale if Form S-3 is not available. If Flycast registers any of its
common stock either for its own account or for the account of other security
holders, the holders of these securities are entitled to include their shares
of common stock in that registration, subject to the ability of the
underwriters to limit the number of shares included in the offering. The
holders of at least 20% of the described securities entitled to registration
rights then outstanding may also require Flycast, not more than twice in any 12
month period, to register all or a portion of their securities entitled to
registration rights on Form S-3 when use of this form becomes available to
Flycast, provided, among other limitations, that the proposed selling price,
net of any underwriters' discounts or commissions, is at least $1,000,000.
Flycast will be responsible for paying all registration expenses, and the
holders selling their shares will be responsible for paying all selling
expenses.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
Provisions of Delaware law and Flycast's charter documents could make the
acquisition of Flycast and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of Flycast to negotiate with it first. Flycast believes that
the benefits of increased protection of its potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to acquire or
restructure Flycast outweigh the disadvantages of discouraging these proposals
because, among other things, negotiation of these proposals could result in an
improvement of their terms.
Flycast is subject to the provisions of Section 203 of the Delaware law. In
general, the statute prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless, subject to exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior, did
own, 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change in control of Flycast
without further action by the stockholders.
Flycast's Amended and Restated Certificate of Incorporation provides that
stockholder action can be taken only at an annual or special meeting of
stockholders and may not be taken by written consent. The Amended and Restated
Certificate of Incorporation also provides that directors of Flycast will be
elected without the application of cumulative voting. The Bylaws provide that
special meetings
63
<PAGE>
of stockholders can be called only by the Board, the Chairman of the Board, if
any, the President and holders of 50% of the votes entitled to be cast at a
meeting. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the business brought before the meeting
by the Board, the Chairman of the Board, if any, the President or any 50%
holder. The Bylaws set forth an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board, of candidates for
election as directors and with regard to business to be brought before a
meeting of stockholders.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is U.S. Stock Transfer
Corporation. The Transfer Agent's address is 1745 Gardena Avenue, Glendale, CA
91204 and its phone number at this location is (818) 502-1404.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for Flycast common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Furthermore, since only a limited
number of shares will be available for sale shortly after this offering because
of contractual and legal restrictions on resale, sales of substantial amounts
of Flycast common stock in the public market after the restrictions lapse could
adversely affect the prevailing market price and Flycast's ability to raise
equity capital in the future.
Upon completion of this offering, Flycast will have outstanding 14,108,995
shares of common stock. Of these shares, the 3,000,000 shares sold in the
offering, plus any shares issued upon exercise of the underwriters' over-
allotment option, will be freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of Flycast, which generally
includes officers, directors or 10% stockholders as that term is defined in
Rule 144 under the Securities Act.
The remaining 11,108,995 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 8,845,481 shares will be eligible for sale pursuant to
Rules 144, 144(k) and 701.
. An additional 2,263,514 shares will become eligible for sale pursuant to
Rule 144 beginning on December 30, 1999. Shares eligible to be sold by
affiliates pursuant to Rule 144 are subject to volume restrictions as
described below.
In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements, which is 180 days after the effective
date of the registration statement, a person, or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of: (1) one percent of the number of shares of
common stock then outstanding, which will equal approximately 141,090 shares
immediately after the offering; or (2) the average weekly trading volume of the
common stock during the four calendar weeks preceding the sale. Sales under
Rule 144 are also subject to manner of sale provisions and notice requirements
and to the availability of current public information about Flycast. Under Rule
144(k), a person who is not deemed to have been an affiliate of Flycast at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell
these shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
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<PAGE>
The holders of approximately 10,081,928 shares of common stock and warrants
to purchase 169,067 shares of common stock or their transferees are also
entitled to certain rights with respect to registration of their shares of
common stock for offer or sale to the public. If the holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, the sales could have a material adverse effect on
the market price for Flycast's common stock.
As a result of the lock-up agreements, persons holding stock options may not
sell shares acquired upon exercise until 180 days after the effective date of
the offering. Beginning 180 days after the effective date, any employee,
officer or director of or consultant to Flycast who purchased shares pursuant
to a written compensatory plan or contract may be entitled to rely on the
resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule
701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may
sell shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
In addition, Flycast intends to file registration statements under the
Securities Act on or as promptly as possible after the effective date to
register shares to be issued pursuant to Flycast's employee benefit plans. As a
result, any options exercised under the 1997 Option Plan, 1999 Option Plan or
any other benefit plan after the effectiveness of any registration statement
will also be freely tradable in the public market, except that shares held by
affiliates will still be subject to the volume limitation, manner of sale,
notice and public information requirements of Rule 144 unless otherwise
resalable under Rule 701. As of March 31, 1999, there were outstanding options
under the 1997 Stock Option Plan and 1999 Stock Option Plan for the purchase
3,747,454 shares. No shares have been issued to date under Flycast's Purchase
Plan or Directors' Plan. In addition, as of March 31, 1999, there are warrants
to purchase 169,067 shares of common stock that are exercisable following this
offering. See "Risk Factors--Virtually all of our shares will be eligible for
sale shortly after the offering, and that could result in a decline in our
stock price," "Management--Stock Plans" and "Description of Capital Stock--
Registration Rights."
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<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..............................................
Wit Capital Corporation............................................
---------
Total............................................................ 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
Underwriters to purchase the shares of common stock offered hereby are subject
to conditions. The Underwriters are obligated to purchase all of the shares of
common stock offered hereby, other than those covered by the over-allotment
option described below, if any of these shares are purchased.
The Underwriters propose to offer the shares of common stock to the public at
the public offering price set forth on the cover page of this prospectus and to
dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and these
dealers may re-allow, a concession not in excess of $ per share to other
dealers. After the initial public offering, the offering price and other
selling terms may be changed by the representatives of the Underwriters.
A prospectus in electronic format is being made available on a Web site
maintained by Wit Capital.
Flycast has granted to the Underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 450,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
Underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered hereby. To the extent that
the Underwriters exercise the option, each of the Underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of common stock as the number of shares of common stock to
be purchased by it in the above table bears to 3,000,000. Flycast will be
obligated, pursuant to the option, to sell these shares to the Underwriters to
the extent the option is exercised. If any additional shares of common stock
are purchased, the Underwriters will offer additional shares on the same terms
as those on which the 3,000,000 shares are being offered.
Flycast has agreed to indemnify the Underwriters against some specified types
of liabilities, including liabilities under the Securities Act.
Each of Flycast's officers, directors and stockholders has agreed not to
offer, sell, contract to sell or otherwise dispose of, or enter into any
transaction that is designed to, or could be expected to, result in the
disposition of any portion of, any common stock for a period of 180 days after
the
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<PAGE>
effective date of the registration statement of which this prospectus is a part
without the prior written consent of BT Alex. Brown Incorporated. This consent
may be given at any time without public notice. Flycast has entered into a
similar agreement.
The representatives of the Underwriters have advised Flycast that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
An investment partnership and four individuals affiliated with BT Alex. Brown
are the beneficial owners of a total of 104,977 shares of Flycast common stock.
Pursuant to the rules of the National Association of Securities Dealers, Inc.,
their interest in 54,977 of these shares is presumed to be underwriting
compensation. Accordingly, 54,977 of these shares shall not be sold,
transferred, assigned, pledged or hypothecated by any person for a period of
one year after the effective date of this offering, except to officers or
partners of the Underwriters and members of the selling group and their
officers or partners.
In order to facilitate the offering of the common stock, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the common stock. Specifically, the Underwriters may over-allot shares
of the common stock in connection with this offering, thus creating a short
position in the common stock for their own account. Additionally, to cover
these over-allotments or to stabilize the market price of the common stock, the
Underwriters may bid for, and purchase, shares of the common stock in the open
market. Finally, the representatives, on behalf of the Underwriters, also may
reclaim selling concessions allowed to an Underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that Underwriter or
dealer. Any of these activities may maintain the market price of the common
stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At the request of Flycast, the Underwriters have reserved for sale, at the
initial public offering price, up to 375,000 shares for Flycast's vendors,
employees, family members of employees and other third parties. The number of
shares of common stock available for sale to the general public will be reduced
to the extent these reserved shares are purchased. Any reserved shares that are
not purchased will be offered by the Underwriters to the general public on the
same basis as the other shares offered by this prospectus.
Pricing of this Offering
Prior to this offering, there has been no public market for Flycast's common
stock. Consequently, the initial public offering price for Flycast's common
stock will be determined by negotiation among Flycast and the representatives
of the Underwriters. Among the factors to be considered in determining the
public offering price will be:
. prevailing market conditions;
. Flycast's results of operations in recent periods;
. the present stage of Flycast's development;
. the market capitalizations and stages of development of other companies
that Flycast and the representatives of the Underwriters believe to be
comparable to Flycast; and
. estimates of Flycast's business potential.
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<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Flycast by Venture Law Group, A Professional Corporation, Menlo Park,
California. Jeffrey Y. Suto, a director of Venture Law Group, is the Secretary
of Flycast. Legal matters in connection with this offering will be passed upon
for the underwriters by Fenwick & West LLP, Palo Alto, California. As of the
date of this prospectus, a director of Venture Law Group owns 7,518 shares of
Flycast's Series B Preferred Stock, which shares will convert into 7,518 shares
of Flycast's common stock upon the completion of this offering, and an
investment partnership associated with Venture Law Group owns 11,278 shares of
Flycast's Series B Preferred Stock, which shares will convert into 11,278
shares of Flycast's common stock upon the completion of this offering.
EXPERTS
The financial statements as of December 31, 1997 and December 31, 1998, and
for the period from April 14, 1996 (inception) to December 31, 1996 and for
each of the years in the two year period ended December 31, 1998 included in
the prospectus and the related financial statement schedule included elsewhere
in the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
CHANGE IN ACCOUNTANTS
On December 29, 1998, Flycast dismissed KPMG LLP and subsequently appointed
Deloitte & Touche LLP as its principal accountants. There were no disagreements
with the former accountants during the period from inception to December 31,
1998 or during any subsequent interim period preceding their replacement on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements, if not resolved to the
former accountants' satisfaction, would have caused them to make reference to
the subject matter of the disagreement in connection with their reports. The
former accountants issued an unqualified opinion on the financial statements as
of and for the year ended March 31, 1998 and the period from inception to March
31, 1997. Flycast did not consult with Deloitte & Touche LLP on any accounting
or financial reporting matters in the periods prior to their appointment. The
change in accountants was approved by the Board.
69
<PAGE>
ADDITIONAL INFORMATION
Flycast has filed with the Securities and Exchange Commission ("SEC") a
Registration Statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedule. For further information with respect to Flycast and the common stock
offered hereby, reference is made to the Registration Statement and to the
exhibits and schedule. Statements made in this prospectus concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement and the exhibits and schedule may be
inspected without charge at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the SEC located at Seven World Trade Center, 13th Floor, New York,
New York 10048, and the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any part of the
Registration Statement may be obtained from the SEC's offices upon payment of
fees prescribed by the SEC. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
70
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Common Stockholders' Equity (Deficit)........................ F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Flycast Communications Corporation:
We have audited the accompanying balance sheets of Flycast Communications
Corporation (the "Company") as of December 31, 1997 and 1998, and the related
statements of operations, common stockholders' equity (deficit) and cash flows
for the period from April 14, 1996 (inception) to December 31, 1996 and for
each of the two years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Flycast Communications Corporation as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from April 14, 1996 (inception) to December 31, 1996 and
for each of the two years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 3, 1999
(March 30, 1999 as to the last paragraph of Note 8)
F-2
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
BALANCE SHEETS
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.
During 1997, the Company issued common stock options at exercise prices equal
to the fair value of its common stock. Accordingly, no stock-based compensation
was recorded for that period.
Stock Option Activity
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
Weighted
Average
Outstanding Exercise
Options Price
----------- --------
<S> <C> <C>
Balance, January 1, 1997.................................
Granted................................................ 497,125 $0.11
Exercised.............................................. (68,020) 0.10
Canceled............................................... (27,605) 0.10
---------
Balance, December 31, 1997 (68,503 shares vested at a
weighted average exercise price of $0.11)............... 401,500 0.11
Granted................................................ 2,547,250 1.61
Exercised.............................................. (686,076) 0.73
Canceled............................................... (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.
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
Additionally, on January 28, 1999, the Board of Directors adopted, subject to
stockholder approval, the 1999 Employee Stock Purchase Plan (the "Purchase
Plan"). Under the Purchase Plan, eligible employees are allowed to have salary
withholdings of up to 10% of their base compensation to purchase shares of
common stock at a price equal to 85% of the lower of the market value of the
stock at the beginning or end of defined purchase periods. The initial purchase
period commences upon the effective date for the initial public offering of the
Company's common stock. The Company has initially reserved 350,000 shares of
common stock for issuance under this plan, and the number of shares reserved
will increase for each of the next five years by the lesser of 75,000 shares or
0.5% of the shares of common stock outstanding at the beginning of the year.
On January 28, 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Directors' Stock Option Plan (the "Directors' Plan"). Under
the Directors' Plan, each person who becomes a nonemployee director after the
effective date of the Directors' Plan may be granted nonstatutory stock
options. A total of 200,000 shares of common stock have initially been reserved
for issuance under the Directors' Plan.
On January 28, 1999, the Board of Directors approved, subject to stockholder
approval, the reincorporation of the Company in the State of Delaware and the
associated exchange of one share of common stock or preferred stock of the
Company for every share of common stock or preferred stock, as the case may be,
of the Company's California predecessor. Such reincorporation and stock
exchange will become effective prior to the effective date of the initial
public offering contemplated by the Company.
On January 4, 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Stock Option Plan (the "1999 Stock Plan"). The 1999 Stock
Plan will serve as the successor equity incentive program to the Company's
existing 1997 Stock Option Plan. A total of 2,000,000 shares of common stock
were initially reserved for issuance under the 1999 Stock Plan. On March 30,
1999, the Board of Directors adopted an amendment to the 1999 Stock Plan that
increased the shares of common stock reserved for issuance to 3,500,000. The
number of shares reserved will increase for each of the next five years by the
lesser of 1,000,000 shares or 3% of the number of shares of common stock
outstanding at the beginning of the year.
F-17
<PAGE>
Title: Advertising partners
Subtitle: Flycast maintains marketing relationships with leading advertisers
and agencies such as...
Series of rectangular Web banner advertisements under heading "Advertiser",
including:
* Text reading "30 Minutes Free Calling Per Month" and "10 cents a Minute
AnyTime.'' In lower right corner: "Sprint Sense AnyTime(TM) click here!"
Sprint Logo. Agency: Agency.com.
* GOTO.com logo on left. Text reading: ...and you'll GoTo It!" above rectangular
box. Find It! circle on right. Text reading: "Idealab." Agency: In-House.
* Picture of smiling woman on left. Text reading: "Search more than 4,000 Mutual
Funds." E*Trade logo. Agency: In-House
* Text reading: "Click here to bid for coins." eBay logo on right. Agency:
In-House.
* Insweb logo on left. Text reading: "The one stop shop for free
auto insurance quotes" above rectangular box. Agency: Bozell Worldwide.
* Text reading: Shop@Toyota. Picture of car on right. Agency: Saatchi & Saatchi.
-----------
* Text reading: "Get the latest browser, email and address book all in one.
Free." "New Netscape Communicator 4.5 -- Click Here" and "Install Now."
Netscape logo on right. Agency: iBalls.
* Scroll bar on left. Text reading: "Shop @Online.com." Agency: Interactive
Agency.
* Smiling woman on left. Text reading: "SWF seeking music club without
commitment" and "Get 12 CDs when you buy 1." Agency: In-House.
* Picture of star with Macy's logo on left. Text reading: "Click here to shop
online." Macys.com logo. Picture balloon. Agency: Left Field.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in the
prospectus. Neither the delivery of this prospectus nor sale of common stock
means that information contained in this prospectus is correct after the date
of this prospectus. This prospectus is not an offer to sell or solicitation of
an offer to buy these shares in any circumstances under which the offer or so-
licitation is unlawful.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 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
Related Party Transactions............................................... 52
Principal Stockholders................................................... 58
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 64
Underwriting............................................................. 66
Legal Matters............................................................ 68
Experts.................................................................. 68
Change in Accountants.................................................... 68
Additional Information................................................... 69
Index to Financial Statements............................................ F-1
</TABLE>
----------
Until , 1999 (25 days after the date of this prospectus), all deal-
ers that buy, sell or trade in these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. Deal-
ers are also obligated to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 Shares
[FLYCAST LOGO]
Common Stock
------------
PROSPECTUS
------------
BT Alex. Brown
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Hambrecht & Quist
Wit Capital Corporation
as e-Manager(TM)
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee............................................. $ 16,305
NASD filing fee.................................................. 6,365
Nasdaq National Market listing fee............................... 83,500
Printing and engraving expenses.................................. 200,000
Legal fees and expenses.......................................... 325,000
Accounting fees and expenses..................................... 200,000
NASD and Blue Sky qualification fees and expenses................ 1,000
Transfer Agent and Registrar fees................................ 5,000
Miscellaneous fees and expenses.................................. 162,830
----------
Total......................................................... $1,000,000
==========
</TABLE>
- --------
* 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
indemnification under specific circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). The Registrant's Bylaws (Exhibit 3.5 hereto)
provide for indemnification of the Registrant's directors, officers, employees
and other agents to the maximum extent permitted by Delaware Law. In addition,
the Registrant will enter into Indemnification Agreements (Exhibit 10.1 hereto)
with its officers and directors. The Underwriting Agreement (Exhibit 1.1) also
provides for cross-indemnification among the Registrant and the Underwriters.
Item 15. Recent Sales of Unregistered Securities
Since January 1996, the Registrant has sold and issued the following
securities:
(1) In June 1996, the Registrant issued promissory notes in the total principal
amount of $300,000 to a total of five investors. In July 1997, the
principal amounts of these notes were converted into 300,000 shares of
Series A Preferred Stock at a conversion price of $1.00 per share in
connection with the Series A Preferred Stock financing discussed in item
(7).
(2) In February 1997, the Registrant issued to four investors promissory notes
in the total principal amount of $291,633 that were convertible into shares
of Series B Preferred Stock and warrants exercisable to purchase an
additional number of shares of Series B Preferred Stock equal in value to
20% of the notes' total principal amount. In July and August 1997, the
principal amounts of these notes were converted into shares of Series B
Preferred Stock at a conversion
II-1
<PAGE>
price of $1.33 per share and warrants exercisable at $1.33 per share to
purchase shares of Series B Preferred Stock in connection with the Series B
Preferred Stock financing discussed in item (8).
(3) In April 1997, the Registrant issued a promissory note to a bank in the
amount of $300,000 and a warrant to purchase shares of the Registrant's
stock, the class and exercise price of which was contingent upon the value
and timing of the Registrant's next financing. In July 1997, it was
determined that the warrant would be exercisable to purchase 33,834 shares
of Series B Preferred Stock at an exercise price of $1.33 per share.
(4) In June 1997, the Registrant issued a promissory note in the principal
amount of $400,000 and a warrant to purchase 33,333 shares of common stock
at an exercise price per share of $0.01 to an investor.
(5) In June 1997, the Registrant issued a warrant to purchase 7,500 shares of
Series A Preferred Stock at an exercise price per share of $1.00 to an
investor in connection with the investor's agreement to extend the terms of
the note described in item (3) above.
(6) In July 1997, the Registrant issued and sold a total of 2,284,011 shares of
common stock to a total of nine individuals, including five officers and
directors and one consultant, at a purchase price of $0.10 per share. Sales
to officers and directors of the Registrant were made pursuant to
restricted stock purchase agreements which provided for payment to the
Registrant for this stock in the form of promissory notes, with interest,
due upon the earlier of nine months after the closing of an initial public
offering of the Registrant's common stock, July 2002 or termination of the
purchaser's service provider relationship with the Registrant.
(7) In July 1997, the Registrant issued 611,295 shares of Series A Preferred
Stock to one director in connection with a stock recapitalization pursuant
to which all shares of common stock held by this individual were exchanged
for 611,295 shares of Series A Preferred Stock.
(8) In July and August 1997, the Registrant issued and sold 5,324,532 shares of
Series B Preferred Stock to 44 investors, including those investors who
converted their notes as described in item (2) above, at a total purchase
price of $7,081,628, of which $291,633 represented conversion of debt and
the remainder was paid in cash. In conjunction with this financing and in
connection with loan arrangements, the Registrant also issued warrants,
including the warrant described in item (3) above, to purchase a total of
77,688 shares of Series B Preferred Stock at an exercise price of $1.33 per
share to six investors.
(9) In April 1998, the Registrant entered into a financing agreement with a
preferred stock shareholder and lender for $2,500,000 due in April 2002
with interest at 11% per annum. In May 1998, the Registrant, in connection
with this financing, issued warrants to purchase 55,409 shares of Series C
Preferred Stock at $4.51 per share. In August 1998, the Registrant entered
into a financing agreement with the same preferred stock shareholder and
lender for $5,000,000, due in August 2001 with interest at 14% per annum.
In September 1998, the Registrant, in connection with this financing,
issued warrants to purchase 72,324 shares of Series C Preferred Stock at
$4.42 per share. As of December 31, 1998, $3,000,000 was available for
future borrowing.
(10) In September 1998, the Registrant issued warrants to purchase a total of
7,143 shares of common stock at an exercise price per share of $1.40 to
three entities and individuals in connection with an executive search
agreement.
(11) In December 1998 and January 1999, the Registrant issued and sold a total
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 a total 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 this financing and the
issuance of the convertible debt, the Registrant also issued warrants to
purchase a total of 132,840 shares of Series C Preferred Stock at an
exercise price of $9.04 per share to thirty-five investors.
(12) In January and February 1999, 18,045 shares of Series B Preferred Stock
were issued pursuant to the exercise of warrants by three investors.
II-2
<PAGE>
(13) In March 1999, 33,333 shares of common stock were issued pursuant to the
exercise of a warrant by one investor.
(14) From March 1997, when the 1997 Stock Option Plan was adopted, to March 31,
1999, 869,531 shares of common stock have been issued pursuant to
exercises of options by forty-one employees and consultants at a weighted
average exercise price of $0.71 by cash and promissory notes.
(15) From January 1999, when the 1999 Stock Option Plan was adopted, to March
31, 1999, 30,251 shares of common stock have been issued pursuant to
exercises of options by twelve consultants at a weighted average exercise
price of $9.00.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) or Regulation
D of the Securities Act as transactions by an issuer not involving any public
offering. In addition, issuances described in Items 6 and 12 were deemed exempt
from registration under the Securities Act in reliance upon Rule 701
promulgated under the Securities Act. The recipients of securities in each
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in these transactions. All recipients had
adequate access, through their relationships with the Registrant, to
information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement (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, as amended, and form of option agreement.
10.4 1999 Employee Stock Purchase Plan, as amended, and form of
subscription agreement.
10.5** 1999 Directors' Stock Option Plan.
10.7** Amended and Restated Investors' Rights Agreement dated December 30,
1998 between the Registrant and certain holders of the Registrant's
securities.
10.11** Standard Office Lease dated February 1, 1998 between the Registrant
and Ray Corporation.
10.12** Master Lease Agreement dated December 30, 1997, as amended, between
the Registrant and Comdisco, Inc.
10.13** Subordinated Loan and Security Agreement dated May 22, 1998, as
amended, between the Registrant and Comdisco, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ --------------------------------------------------------------------
<C> <S>
10.14** Warrant Agreement to Purchase Shares of the Series C Preferred Stock
of Flycast Communications Corporation between the Registrant and
Comdisco, Inc. dated May 22, 1998.
10.15** Warrant Agreement to Purchase Shares of the Series C Preferred Stock
of Flycast Communications Corporation between the Registrant and
Comdisco, Inc. dated September 29, 1998.
16.1 Letter re Change in Certifying Accountant.
23.1 Independent Auditors' Consent.
23.2** Consent of Counsel (included in Exhibit 5.1).
24.1** Power of Attorney (see page II-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 to the financial statements.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in
denominations as required by the underwriters and registered in names as
required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. In the event that a claim for indemnification
against liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by a director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of this issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of these securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San
Francisco, State of California on April 14, 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:
<TABLE>
<S> <C>
Signature Title Date
/s/ George R. Garrick Chairman of the April 14, 1999
- ------------------------------------ Board, Chief
George R. Garrick Executive Officer
and President
(Principal
Executive Officer)
* Chief Financial April 14, 1999
- ------------------------------------ Officer and
Ralph J. Harms Assistant
Secretary
(Principal
Financial and
Accounting
Officer)
* Director April 14, 1999
- ------------------------------------
David J. Cowan
* Director April 14, 1999
- ------------------------------------
Ted R. Dintersmith
* Director April 14, 1999
- ------------------------------------
Howard Draft
* Director April 14, 1999
- ------------------------------------
Gary Prophitt
* Director April 14, 1999
- ------------------------------------
Michael D. Solomon
/s/ George R. Garrick April 14, 1999
*By:________________________________
George R. Garrick
Attorney-in-fact
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Flycast Communications Corporation
Our audits of the financial statements of Flycast Communications Corporation
for the period from April 14, 1996 (inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 also include the financial statement
schedule of Flycast Communications Corporation, listed in Item 16 (b). The
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 3, 1999
(March 30, 1999 as to the last paragraph of Note 8)
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, as amended, and form of option agreement.
10.4 1999 Employee Stock Purchase Plan, as amended, and form of
subscription agreement.
10.5** 1999 Directors' Stock Option Plan.
10.7** Amended and Restated Investors' Rights Agreement dated December 30,
1998 between the Registrant and certain holders of the Registrant's
securities.
10.11** Standard Office Lease dated February 1, 1998 between the Registrant
and Ray Corporation.
10.12** Master Lease Agreement dated December 30, 1997, as amended, between
the Registrant and Comdisco, Inc.
10.13** Subordinated Loan and Security Agreement dated May 22, 1998, as
amended, between the Registrant and Comdisco, Inc.
10.14** Warrant Agreement to Purchase Shares of the Series C Preferred Stock
of Flycast Communications Corporation between the Registrant and
Comdisco, Inc. dated May 22, 1998.
10.15** Warrant Agreement to Purchase Shares of the Series C Preferred Stock
of Flycast Communications Corporation between the Registrant and
Comdisco, Inc. dated September 29, 1998.
16.1 Letter re Change in Certifying Accountant.
23.1 Independent Auditors' Consent.
23.2** Consent of Counsel (included in Exhibit 5.1).
24.1** Power of Attorney (see page II-6).
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Represents exhibits previously filed.
<PAGE>
EXHIBIT 10.3
FLYCAST COMMUNICATIONS CORPORATION
1999 STOCK OPTION PLAN
----------------------
(AS AMENDED MARCH 30, 1999)
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business. Options
granted under the Plan may be either Incentive Stock Options (as defined under
Section 422 of the Code) or Nonstatutory Stock Options, as determined by the
Administrator at the time of grant of an Option and subject to the applicable
provisions of Section 422 of the Code and the regulations promulgated
thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "ADMINISTRATOR" means the Board or its Committee appointed
-------------
pursuant to Section 4 of the Plan.
(b) "AFFILIATE" means an entity other than a Subsidiary (as defined
---------
below) in which the Company owns an equity interest or which, together with the
Company, is under common control of a third person or entity.
(c) "APPLICABLE LAWS" means the legal requirements relating to the
---------------
administration of stock option plans under applicable U.S. state corporate laws,
U.S. federal and applicable state securities laws, the Code, any Stock Exchange
rules or regulations and the applicable laws of any other country or
jurisdiction where Options are granted under the Plan, as such laws, rules,
regulations and requirements shall be in place from time to time.
(d) "BOARD" means the Board of Directors of the Company.
-----
(e) "CHANGE OF CONTROL" means a sale of all or substantially all of
-----------------
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation in which the holders of
more than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
----
(g) "COMMITTEE" means one or more committees or subcommittees of the
---------
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
(g) "COMMON STOCK" means the Common Stock of the Company.
------------
<PAGE>
(h) "COMPANY" means FlyCast Communications Corporation, a California
-------
corporation.
(i) "CONSULTANT" means any person, including an advisor, who is
----------
engaged by the Company or any Parent, Subsidiary or Affiliate to render services
and is compensated for such services, and any director of the Company whether
compensated for such services or not.
(j) "CONTINUOUS SERVICE STATUS" means the absence of any interruption
-------------------------
or termination of service as an Employee or Consultant to the Company or a
Parent, Subsidiary or Affiliate. Continuous Service Status shall not be
considered interrupted in the case of (i) sick leave; (ii) military leave; (iii)
any other leave of absence approved by the Administrator, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Parent(s), Subsidiaries, Affiliates or their respective successors.
Unless otherwise determined by the Administrator or the Company, a change in
status from an Employee to a Consultant or from a Consultant to an Employee will
not constitute a termination of Continuous Service Status.
(k) "CORPORATE TRANSACTION" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(l) "DIRECTOR" means a member of the Board.
--------
(m) "EMPLOYEE" means any person (including, if appropriate, any Named
--------
Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
------
price for such stock (or the closing bid, if no sales were reported) as quoted
on such system or exchange on the date of determination (or if no trading or
bids occurred on the date of determination, on the last trading day prior to the
date of determination), as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the date
of determination (or if no bids occurred on the date of determination, on the
last trading day prior to the date of determination); or
-2-
<PAGE>
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(p) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written Option Agreement.
(q) "LISTED SECURITY" means any security of the Company that is listed
---------------
or approved for listing on a national securities exchange or designated or
approved for designation as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
(r) "NAMED EXECUTIVE" means any individual who, on the last day of the
---------------
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(s) "NONSTATUTORY STOCK OPTION" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(t) "OFFICER" means a person who is an officer of the Company within
-------
the meaning of Section 16(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "OPTION" means a stock option granted pursuant to the Plan.
------
(v) "OPTION AGREEMENT" means a written document, the form(s) of which
----------------
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(w) "OPTION EXCHANGE PROGRAM" means a program approved by the
-----------------------
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(x) "OPTIONED STOCK" means the Common Stock subject to an Option.
--------------
(y) "OPTIONEE" means an Employee or Consultant who receives an Option.
--------
(z) "PARENT" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
-3-
<PAGE>
(aa) "PLAN" means this 1999 Stock Option Plan.
----
(bb) "REPORTING PERSON" means an Officer, Director or greater than 10%
----------------
shareholder of the Company within the meaning of Rule 16a-2 of the Exchange Act,
who is required to file reports pursuant to Rule 16a-3 of the Exchange Act.
(cc) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as amended from time to time, or any successor provision.
(dd) "SHARE" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "STOCK EXCHANGE" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(ff) "SUBSIDIARY" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
(gg) "TEN PERCENT HOLDER" means a person who owns stock representing
------------------
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of shares that may be sold under the Plan
is 3,500,000 Shares of Common Stock, plus an annual increase on the first day of
each of the Company's fiscal years beginning in 2000, 2001, 2002, 2003 and 2004
equal to the lesser of (i) 1,000,000 Shares, (ii) three percent (3%) of the
Shares outstanding on the last day of the immediately preceding fiscal year,
or (iii) such lesser number of Shares as the Board shall determine. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the Plan
has been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock that are retained by the Company upon
exercise of an Option in order to satisfy the exercise price for such Option, or
any withholding taxes due with respect to such exercise, shall be treated as not
issued and shall continue to be available under the Plan. Shares issued under
the Plan and later repurchased by the Company pursuant to any repurchase right
that the Company may have shall not be available for future grant under the
Plan.
4. ADMINISTRATION OF THE PLAN.
--------------------------
(a) GENERAL. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Optionees and, if permitted by the
-4-
<PAGE>
Applicable Laws, the Board may authorize one or more officers (who may (but need
not) be Officers) to grant Options to Employees and Consultants.
(b) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS. With respect to
------------------------------------------------
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) COMMITTEE COMPOSITION. If a Committee has been appointed pursuant
---------------------
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(o) of the Plan;
(ii) to select the Employees and Consultants to whom Options may
from time to time be granted;
(iii) to determine whether and to what extent Options are
granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted;
(v) to approve forms of Option Agreement for use under the
Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise price, the time or times
when an Option may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Optioned Stock, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to determine when and under what circumstances an Option
may be settled in cash under Section 10(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have
-5-
<PAGE>
declined since the date the Option was granted and to make any other amendments
or adjustments to any Option that the Administrator determines, in its
discretion and under the authority granted to it under the Plan, to be necessary
or advisable, provided however that no amendment or adjustment to an Option that
would materially and adversely affect the rights of any Optionee shall be made
without the prior written consent of the Optionee;
(ix) to initiate an Option Exchange Program;
(x) to construe and interpret the terms of the Plan and awards
granted under the Plan; and
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to Optionees who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
(e) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. ELIGIBILITY.
-----------
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options may be granted
--------------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees, provided however that Employees of an Affiliate shall not be eligible
to receive Incentive Stock Options. An Employee or Consultant who has been
granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options.
(b) TYPE OF OPTION. Each Option shall be designated in the Option
--------------
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year (under
all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such
excess Options shall be treated as Nonstatutory Stock Options. For purposes of
this Section 5(b), Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall
be determined as of the time the Option with respect to such Shares is granted.
(c) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any Optionee
--------------------
any right with respect to continuation of employment or consulting relationship
with the Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 19 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 15 of the Plan.
-6-
<PAGE>
7. TERM OF OPTION. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided however that the term of an Option shall be no
more than ten (10) years from the date of grant thereof or such shorter term as
may be provided in the Option Agreement and provided further that, in the case
of an Incentive Stock Option granted to a person who at the time of such grant
is a Ten Percent Holder, the term of such Incentive Stock Option shall be five
(5) years from the date of grant thereof or such shorter term as may be provided
in the Option Agreement.
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as provided
---------------------------------
in Section 13 below, the maximum number of Shares which may be subject to
Options granted to any one Employee under this Plan for any fiscal year of the
Company shall be 1,000,000.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
---------------------------------------
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be such price as is determined by
the Administrator and set forth in the Option Agreement, but shall be subject to
the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of grant is a
Ten Percent Holder, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to a person who is at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant if required by the Applicable
Laws and, if not so required, shall be such price as is determined by the
Administrator;
(B) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant if such
Option is intended to qualify as performance-based compensation under Section
162(m) of the Code; or
(C) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to any person other than a Named Executive or a
Ten Percent Holder, the per Share exercise price shall be no less than 85% of
the Fair Market Value per Share on the date of grant if required by Applicable
Law and, if not so required, shall be such price as is determined by the
Administrator.
-7-
<PAGE>
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporation transaction.
(b) PERMISSIBLE CONSIDERATION. The consideration to be paid for the
-------------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash; (2) check; (3) delivery of Optionee's promissory note with such
recourse, interest, security and redemption provisions as the Administrator
determines to be appropriate; (4) cancellation of indebtedness; (5) other Shares
that (x) in the case of Shares acquired upon exercise of an Option either have
been owned by the Optionee for more than six months on the date of surrender or
were not acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which the Option is exercised; (6) authorization from the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised; (7) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect exercise of the Option and prompt delivery
to the Company of the sale or loan proceeds required to pay the exercise price
and any applicable withholding taxes; (8) any combination of the foregoing
methods of payment; or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under the Applicable Laws. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company and the Administrator may refuse to
accept a particular form of consideration at the time of any Option exercise if,
in its sole discretion, acceptance of such form of consideration is not in the
best interests of the Company at such time.
10. EXERCISE OF OPTION.
------------------
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, consistent with the terms of the Plan, and
reflected in the Option Agreement, including vesting requirements and/or
performance criteria with respect to the Company and/or the Optionee; provided
however that, if required by the Applicable Laws, any Option granted prior to
the date, if any, upon which the Common Stock becomes a Listed Security shall
become exercisable at a rate of at least 20% per year over five years from the
date the Option is granted. In the event that any of the Shares issued upon
exercise of an Option (which exercise occurs prior to the date, if any, upon
which the Common Stock becomes a Listed Security) should be subject to a right
of repurchase in the Company's favor, such repurchase right shall, if required
by the Applicable Laws, lapse at the rate of at least 20% per year over five
years from the date the Option is granted. Notwithstanding the above, in the
case of an Option granted to an officer (including but not limited to Officers),
Director or Consultant, the Option may become exercisable, or a repurchase
right, if any, in favor of the Company shall lapse, at any time or during any
period established by the Administrator. The Administrator shall have the
discretion
-8-
<PAGE>
to determine whether and to what extent the vesting of Options shall be tolled
during any unpaid leave of absence; provided however that in the absence of such
determination, vesting of Options shall be tolled during any such leave.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 13 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. In the event
--------------------------------------------------
of termination of an Optionee's Continuous Service Status, such Optionee may,
but only within three (3) months (or such other period of time, not less than
thirty (30) days, as is determined by the Administrator, with such determination
in the case of an Incentive Stock Option being made at the time of grant of the
Option) after the date of such termination (but in no event later than the date
of expiration of the term of such Option as set forth in the Option Agreement),
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. To the extent that the Optionee was not
entitled to exercise the Option at the date of such termination, or if the
Optionee does not exercise the Option to the extent so entitled within the time
specified above, the Option shall terminate and the Optioned Stock underlying
the unexercised portion of the Option shall revert to the Plan. Unless otherwise
determined by the Administrator or the Company, no termination shall be deemed
to occur and this Section 10(b) shall not apply if (i) the Optionee is a
Consultant who becomes an Employee, or (ii) the Optionee is an Employee who
becomes a Consultant.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 10(b) above, in
----------------------
the event of termination of an Optionee's Continuous Service Status as a result
of his or her total and permanent disability (as defined in Section 22(e)(3) of
the Code), such Optionee may, but only within twelve (12) months (or such other
period of time as is determined by the Administrator, with such determination in
the case of an Incentive Stock Option being made at the time of grant of the
Option) from the date of such termination (but in no event later than the date
of expiration of the term of such Option as set forth in the Option Agreement),
-9-
<PAGE>
exercise the Option to the extent he or she was entitled to exercise it at the
date of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of termination, or if the Optionee does not
exercise the Option to the extent so entitled within the time specified above,
the Option shall terminate and the Optioned Stock underlying the unexercised
portion of the Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee
-----------------
during the period of Continuous Service Status since the date of grant of the
Option, or within 30 days following termination of the Optionee's Continuous
Service Status, the Option may be exercised at any time within twelve (12)
months following the date of death (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement) by such
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or, if earlier, the date of termination of the
Optionee's Continuous Service Status. To the extent that the Optionee was not
entitled to exercise the Option at the date of death or termination, as the case
may be, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified above, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan.
(e) EXTENSION OF EXERCISE PERIOD. The Administrator shall have full
----------------------------
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Service
Status from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in
the Option Agreement to such greater time as the Board shall deem appropriate,
provided that in no event shall such Option be exercisable later than the date
of expiration of the term of such Option as set forth in the Option Agreement.
(f) BUY-OUT PROVISIONS. The Administrator may at any time offer to
------------------
buy out for a payment in cash or Shares an Option previously granted under the
Plan based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time such offer is made.
11. TAXES.
-----
(a) As a condition of the exercise of an Option granted under
the Plan, the Optionee (or in the case of the Optionee's death, the person
exercising the Option) shall make such arrangements as the Administrator may
require for the satisfaction of any applicable federal, state, local or foreign
withholding tax obligations that may arise in connection with the exercise of
Option and the issuance of Shares. The Company shall not be required to issue
any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from the Optionee's compensation an amount sufficient to
satisfy such tax obligations from the next payroll payment otherwise payable
after the date of an exercise of the Option.
-10-
<PAGE>
(c) This Section 11(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of an Optionee
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Optionee shall be deemed to have
elected to have the Company withhold from the Shares to be issued upon exercise
of the Option that number of Shares having a Fair Market Value determined as of
the applicable Tax Date (as defined below) equal to the amount required to be
withheld. For purposes of this Section 11, the Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined under the Applicable Laws (the "Tax Date").
--------
(d) If permitted by the Administrator, in its discretion, an Optionee
may satisfy his or her tax withholding obligations upon exercise of an Option by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (ii) have a Fair Market Value determined as
of the applicable Tax Date equal to the amount required to be withheld.
(e) Any election or deemed election by an Optionee to have Shares
withheld to satisfy tax withholding obligations under Section 11(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by an Optionee under Section 11(d) above must be made on or prior
to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
12. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold,
------------------------------
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution; provided that, after the
date, if any, upon which the Common Stock becomes a Listed Security, the
Administrator may in its discretion grant transferable Nonstatutory Stock
Options pursuant to Option Agreements specifying (i) the manner in which such
Nonstatutory Stock Options are transferable and (ii) that any such transfer
shall be subject to the Applicable Laws. The designation of a beneficiary by an
Optionee will not constitute a transfer. An Option may be exercised, during the
lifetime of the Optionee, only by the Optionee or a transferee permitted by this
Section 12.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, CORPORATE
-----------------------------------------------------
TRANSACTIONS AND CERTAIN OTHER TRANSACTIONS.
- -------------------------------------------
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
-------------------------
the shareholders of the Company, the number of shares of Common Stock covered by
each
-11-
<PAGE>
outstanding Option, the number of Shares set forth in Sections 3(a)(i) and 8
above, and the number of shares of Common Stock that have been authorized for
issuance under the Plan but as to which no Options have yet been granted or that
have been returned to the Plan upon cancellation or expiration of an Option, as
well as the price per Share of Common Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination, recapitalization or reclassification
of the Common Stock (including any change in the number of Shares of Common
Stock effected in connection with a change of domicile of the Company), or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Administrator, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of Shares of Common Stock subject
to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each outstanding Option shall
terminate immediately prior to the consummation of the transaction, unless
otherwise provided by the Administrator.
(c) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of a
-----------------------------------------
Corporate Transaction, each outstanding Option shall be assumed or an equivalent
option shall be substituted by the successor corporation or a Parent or
Subsidiary of such successor corporation (such entity, the "Successor
---------
Corporation"), unless the Successor Corporation does not agree to assume the
- -----------
outstanding Options or to substitute equivalent options, in which case such
Options shall terminate upon the consummation of the transaction.
Notwithstanding the preceding sentence, in the event of a Change of Control, the
Administrator shall, as to outstanding Options, either (i) provide that such
Options shall be assumed by the Successor Corporation or that the Successor
Corporation shall substitute with respect to such Options equivalent options;
(ii) provide upon notice to Optionees that all Options, to the extent then
exercisable or to be exercisable as a result of the Change of Control, must be
exercised on or before a specified date (which date shall be at least five (5)
days from the date of the notice), after which the Options shall terminate; or
(iii) terminate each Option in its entirety in exchange for a payment of cash,
securities and/or other property 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 consummation of the transaction over the aggregate exercise price
thereof.
For purposes of this Section 12(c), an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon a Corporate Transaction or a Change of Control, as the case
may be, each Optionee would be entitled to receive upon exercise of the Option
the same number and kind of shares of stock or the same amount of property, cash
or securities as such holder would have been entitled to receive upon the
occurrence of the transaction if the holder had been, immediately prior to such
transaction,
-12-
<PAGE>
the holder of the number of Shares of Common Stock covered by the Option at such
time (after giving effect to any adjustments in the number of Shares covered by
the Option as provided for in this Section 13); provided however that if the
consideration received in the transaction is not solely common stock of the
Successor Corporation, the Administrator may, with the consent of the Successor
Corporation, provide for the consideration to be received upon exercise of the
Option to be solely common stock of the Successor Corporation equal to the Fair
Market Value of the per Share consideration received by holders of Common Stock
in the transaction.
(d) CERTAIN DISTRIBUTIONS. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
14. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
------------------------
for all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator;
provided however that in the case of an Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
-------------------------
alter, suspend, discontinue or terminate the Plan, but no amendment, alteration,
suspension, discontinuance or termination (other than an adjustment made
pursuant to Section 13 above) shall be made that would materially and adversely
affect the rights of any Optionee under any outstanding grant, without his or
her consent. In addition, to the extent necessary and desirable to comply with
the Applicable Laws, the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such as degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or
----------------------------------
termination of the Plan shall materially and adversely affect Options already
granted and such Options shall remain in full force and effect as if this Plan
had not been amended or terminated, unless mutually agreed otherwise between the
Optionee and the Administrator, which agreement must be in writing and signed by
the Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel.
-13-
<PAGE>
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
17. RESERVATION OF SHARES. The Company, during the term of this
---------------------
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
18. OPTION AGREEMENT. Options shall be evidenced by Option
----------------
Agreements in such form as the Administrator shall from time to time approve.
19. SHAREHOLDER APPROVAL. If required by the Applicable Laws,
--------------------
continuance of the Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months before or after the date the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.
20. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. Prior to
-----------------------------------------------------
the date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial statements
at least annually to each Optionee and to each individual who acquired Shares
pursuant to the Plan, during the period such Optionee or purchaser has one or
more Options outstanding, and in the case of an individual who acquired Shares
pursuant to the Plan, during the period such individual owns such Shares. The
Company shall not be required to provide such information if the issuance of
Options under the Plan is limited to key employees whose duties in connection
with the Company assure their access to equivalent information.
-14-
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
1999 STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
((Optionee))
You have been granted an option to purchase Common Stock of FlyCast
Communications Corporation, (the "Company") as follows:
-------
<TABLE>
<S> <C>
Board Approval Date: ((Grant Date))
Date of Grant (Later of Board
Approval Date or Commencement of
Employment/Consulting): ((Grant Date))
Exercise Price Per Share: ((Price Per Share))
Total Number of Shares Granted: ((Number of Shares))
Total Price of Shares Granted: ((Total Exercise Price))
Type of Option: ((No Shares ISO)) Incentive Stock Option
-------------
((No Shares NSO)) Nonstatutory Stock Option
-------------
Term/Expiration Date: ((Expiration))
Vesting Commencement Date: ((Vesting Commencement))
Vesting Schedule: ((Vesting Schedule))
Termination Period: Option may be exercised for a period of
90 days after termination of employment
or consulting relationship except as set
out in Sections 7 and 8 of the Stock
Option Agreement (but in no event later
than the Expiration Date).
</TABLE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the FlyCast Communications Corporation 1999 Stock Option
Plan and the Stock Option Agreement, all of which are attached and made a part
of this document.
((OPTIONEE)) FLYCAST COMMUNICATIONS
CORPORATION
By:_________________________
________________________
Signature
Address:________________ Title:______________________
________________________
-1-
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
STOCK OPTION AGREEMENT
----------------------
1. GRANT OF OPTION. FlyCast Communications Corporation, a Delaware
---------------
corporation (the "Company"), hereby grants to the Optionee named in the Notice
-------
of Stock Option Grant attached to this Agreement ("Optionee"), an option (the
--------
"Option") to purchase the total number of shares of Common Stock (the "Shares")
------ ------
set forth in the Notice of Stock Option Grant, at the exercise price per share
set forth in the Notice of Stock Option Grant (the "Exercise Price") subject to
--------------
the terms, definitions and provisions of the 1999 Stock Option Plan (the "Plan")
----
adopted by the Company, which is incorporated in this Agreement by reference.
In the event of a conflict between the terms of the Plan and the terms of this
Agreement, the terms of the Plan shall govern. Unless otherwise defined in this
Agreement, the terms used in this Agreement shall have the meanings defined in
the Plan.
To the extent designated an Incentive Stock Option in the Notice of Stock
Option Grant and except as provided in Section 2(a)(iv) below, this Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") and, to the extent
----
not so designated, this Option is intended to be a Nonstatutory Stock Option.
2. EXERCISE OF OPTION. This Option shall be exercisable during its term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Sections 9 and 10 of the Plan as follows:
(a) RIGHT TO EXERCISE.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitations contained in paragraphs
(iii) and (iv) below.
(iii) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Stock Option
Grant.
(iv) If designated an Incentive Stock Option in the Notice of
Stock Option Grant, in the event that the Shares subject to this Option (and all
other Incentive Stock Options granted to Optionee by the Company or any Parent
or Subsidiary) that vest in any calendar year have an aggregate fair market
value (determined for each Share as of the Date of Grant of the option covering
such Share) in excess of $100,000, the Shares in excess of $100,000 shall be
treated as subject to a Nonstatutory Stock Option, in accordance with Section 5
of the Plan.
(b) METHOD OF EXERCISE.
------------------
(i) This Option shall be exercisable by delivering to the
Company a written notice of exercise (in the form attached as Exhibit A) which
---------
shall state the election to exercise the Option, the number of Shares in respect
of which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such Shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
shall be accompanied by payment of the Exercise Price. This Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
<PAGE>
(ii) As a condition to the exercise of this Option, Optionee
agrees to make adequate provision for federal, state or other tax withholding
obligations, if any, which arise upon the exercise of the Option or disposition
of Shares, whether by withholding, direct payment to the Company, or otherwise.
(iii) No Shares will be issued pursuant to the exercise of an
Option unless such issuance and such exercise shall comply with all relevant
provisions of law and the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
--------------
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
an investment representation statement in customary form, a copy of which is
available for Optionee's review from the Company upon request.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination of the following, at the election of Optionee:
(a) cash; (b) check; (c) surrender of other Shares of Common Stock of the
Company that (i) either have been owned by Optionee for more than six (6) months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (d) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised; or (e) if there is a
public market for the Shares and they are registered under the Securities Act,
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds required to pay the exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
------------
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
6. TERMINATION OF RELATIONSHIP. In the event of termination of
---------------------------
Optionee's Continuous Service Status, Optionee may, to the extent otherwise so
entitled at the date of such termination (the "Termination Date"), exercise this
----------------
Option during the Termination Period set out in the Notice of Stock Option
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified in the Notice of Stock Option Grant, the Option shall
terminate.
7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's Continuous Service Status as a
result of total and permanent disability (as defined in Section 22(e)(3) of the
Code), Optionee may, but only within twelve (12) months from the date of
termination of employment (but in no event later than the date of expiration of
the term of this Option
<PAGE>
as set forth in Section 10 below), exercise the Option to the extent otherwise
so entitled at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified in this Agreement, the Option shall terminate.
8. DEATH OF OPTIONEE. In the event of the death of Optionee (a)
-----------------
during the term of this Option and while an Employee of the Company and having
been in Continuous Status as an Employee or Consultant since the date of grant
of the Option, or (b) within thirty (30) days after the termination of
Optionee's Continuous Service Status, the Option may be exercised, at any time
within twelve (12) months following the date of death (but in no event later
than the date of expiration of the term of this Option as set forth in Section
10 below), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued had accrued at the date of death or
termination, as applicable. To the extent that Optionee was not entitled to
exercise this Option at the date of death or termination, as applicable, or if
Optionee's estate or the person who acquired the right to exercise the Option as
a result of Optionee's death does not exercise this Option within the time
specified in the Notice of Stock Option Grant, the Option shall terminate
9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution.
The designation of a beneficiary does not constitute a transfer. An Option may
be exercised during the lifetime of Optionee only by Optionee or a transferee
permitted by this section. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of Optionee.
10. TERM OF OPTION. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
11. NO ADDITIONAL EMPLOYMENT RIGHTS. Optionee understands and agrees that
-------------------------------
the vesting of Shares pursuant to the Vesting Schedule is earned only by
continuing as an Employee or Consultant at the will of the Company (not through
the act of being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement, nor in the Plan which is incorporated in this Agreement by reference,
shall confer upon Optionee any right with respect to continuation as an Employee
or Consultant with the Company, nor shall it interfere in any way with his or
her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
12. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the
----------------
brief summary set forth below of certain federal tax consequences of exercise of
this Option and disposition of the Shares under the law in effect as of the date
of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND
THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS
OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option is an
----------------------------------
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price will be
treated as an item of alternative minimum taxable income for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year of
exercise.
<PAGE>
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, Optionee may incur regular federal income
tax liability upon the exercise of the Option. Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price. In addition, if Optionee is an employee of
the Company, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) DISPOSITION OF SHARES. If this Option is an Incentive Stock
---------------------
Option and if Shares transferred pursuant to the Option are held for more than
one year after exercise and more than two years after the Date of Grant, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an Incentive
Stock Option are disposed of before the end of either of such two holding
periods, then any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the lesser of (i) the fair market value of the Shares on the
date of exercise, or (ii) the sales proceeds, over the Exercise Price. If this
Option is a Nonstatutory Stock Option, then gain realized on the disposition of
Shares will be treated as long-term or short-term capital gain depending on
whether or not the disposition occurs more than one year after the exercise
date. In the case of either an Incentive Stock Option or a Nonstatutory Stock
Option, the long-term capital gain will be taxed for federal income tax and
alternative minimum tax purposes as a maximum rate of 20% if the Shares are held
more than one year after exercise.
(d) NOTICE OF DISQUALIFYING DISPOSITION. If the Option granted to
-----------------------------------
Optionee in this Agreement is an Incentive Stock Option, and if Optionee sells
or otherwise disposes of any of the Shares acquired pursuant to the Incentive
Stock Option on or before the later of (i) the date two years after the Date of
Grant, or (ii) the date one year after transfer of such Shares to Optionee upon
exercise of the Incentive Stock Option, Optionee shall notify the Company in
writing within thirty (30) days after the date of any such disposition.
Optionee agrees that Optionee may be subject to income tax withholding by the
Company on the compensation income recognized by Optionee from the early
disposition by payment in cash or out of the current earnings paid to Optionee.
13. SIGNATURE. This Stock Option Agreement shall be deemed executed by
---------
the Company and Optionee upon execution by such parties of the Notice of Stock
Option Grant attached to this Stock Option Agreement.
[Remainder of page left intentionally blank]
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: FlyCast Communications Corporation
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of FlyCast
Communications Corporation Common Stock, under and pursuant to the Company's
1999 Stock Option Plan and the Stock Option Agreement dated ___________, as
follows:
Grant Number: ______________________________
Date of Purchase: ______________________________
Number of Shares: ______________________________
Purchase Price: ______________________________
Method of Payment
of Purchase Price: ______________________________
Social Security No.: ________________________________
The shares should be issued as follows:
Name: _________________________
Address: _________________________
_________________________
_________________________
Signed: _________________________
Date: _________________________
<PAGE>
Exhibit 10.4
FLYCAST COMMUNICATIONS CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of FlyCast Communications Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Flycast Communications Corporation, a California
-------
corporation.
(e) "Compensation" means all regular straight time gross earnings and
------------
shall not include commissions or payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(i) "Designated Subsidiaries" means the Subsidiaries which have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the
<PAGE>
Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if the issuance of options to such
Subsidiary's Employees pursuant to the Plan would not cause the Company to incur
adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Offering Date" means the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" means a period of twenty-four (24) months
---------------
commencing on May 1 and November 1 of each year, except for the first Offering
Period as set forth in Section 4(a).
(n) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Plan" means this Employee Stock Purchase Plan.
----
(p) "Purchase Date" means the last day of each Purchase Period of the
-------------
Plan.
(q) "Purchase Period" means a period of six (6) months within an
---------------
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(r) "Purchase Price" means with respect to a Purchase Period an amount
--------------
equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a
Share of Common Stock on the Offering Date or on the Purchase Date, whichever is
lower; provided, however, that in the event (i) of any increase in the number of
Shares available for issuance under the Plan (including without limitation an
automatic increase pursuant to Section 13(a) below or as a result of a
shareholder-approved amendment to the Plan), and (ii) all or a portion of such
additional Shares are to be issued with respect to one or more Offering Periods
that are underway at the time of such increase ("Additional Shares"), and (iii)
-----------------
the Fair Market Value of a Share of Common Stock on the date of such increase
(the "Approval Date Fair Market Value") is higher than the Fair Market Value on
-------------------------------
the Offering Date for any such Offering Period, then in such instance the
Purchase Price with respect to Additional Shares shall be 85% of the Approval
Date Fair Market Value or the Fair Market Value of a Share of Common Stock on
the Purchase Date, whichever is lower.
(s) "Share" means a share of Common Stock, as adjusted in accordance
-----
with Section 19 of the Plan.
2
<PAGE>
(t) "Subsidiary" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible Employees
may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
-------------------------------------
(a) Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods of twenty-four (24) months' duration, with new Offering
Periods commencing on or about May 1 and November 1 of each year (or at such
other time or times as may be determined by the Board of Directors). The first
Offering Period shall commence on the beginning of the effective date of the
Registration Statement on Form S-1 for the initial public offering of the
Company's Common Stock (the "IPO Date") and continue until April 30, 2001. The
--------
Plan shall continue until terminated in accordance with Section 19 hereof. The
Board of Directors of the Company shall have the power to change the duration
and/or the frequency of Offering Periods with respect to future offerings
without shareholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected.
(b) Purchase Periods. Each Offering Period shall consist of four (4)
----------------
consecutive purchase periods of six (6) months' duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A
-------------
Purchase Period commencing on May 1 shall end on the next October 31. A
Purchase Period commencing on November 1 shall end on the next April 30. The
first Purchase Period shall commence on the IPO Date and shall end on October
31, 1999. The Board of Directors of the Company shall have the power to change
the duration and/or frequency of Purchase Periods with respect to future
purchases without shareholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Purchase Period to be
affected.
3
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
----------------------------------
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than ten percent (10%) (or such greater percentage as the Board may
establish from time to time before an Offering Date, which percentage shall not
exceed twenty percent (20%)) of such participant's Compensation on each payday
during the Offering Period. All payroll deductions made by a participant shall
be credited to his or her account under the Plan. A participant may not make
any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, on one occasion only during the Offering Period
may increase and on one occasion only during the Offering Period may decrease
the rate of his or her Contributions with respect to the Offering Period by
completing and filing with the Company a new subscription agreement authorizing
a change in the payroll deduction rate. The change in rate shall be effective
as of the beginning of the next calendar month following the date of filing of
the new subscription agreement, if the agreement is filed at least ten (10)
business days prior to such date and, if not, as of the beginning of the next
succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased during any Offering Period scheduled to end
during the current calendar year to 0% at such time that the aggregate of all
payroll deductions accumulated with respect to such Offering Period and any
other Offering Period ending within the same calendar year equal $21,250.
Payroll deductions shall re-commence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase
4
<PAGE>
Date a number of Shares of the Company's Common Stock determined by dividing
such Employee's Contributions accumulated prior to such Purchase Date and
retained in the participant's account as of the Purchase Date by the applicable
Purchase Price; provided however that the maximum number of Shares an Employee
may purchase during each Purchase Period shall be 2,000 Shares (subject to any
adjustment pursuant to Section 19 below), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
-----------------
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal. For purposes of the Offering Date under the first
-----------------------
Offering Period under the Plan, the Fair Market Value of a share of the Common
Stock of the Company shall be the Price to Public as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the Shares purchased upon exercise of
his or her option. Any payroll deductions accumulated in a participant's
account which are not sufficient to purchase a full Share shall be retained in
the participant's account for the subsequent Purchase Period or Offering Period,
subject to earlier withdrawal by the participant as provided in Section 10
below. Any other amounts left over in a participant's account after a Purchase
Date shall be returned to the participant.
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and
5
<PAGE>
his or her option for the current period will be automatically terminated, and
no further Contributions for the purchase of Shares will be made during the
Offering Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the Fair Market Value of the Shares on the
--------------------
first Purchase Date of an Offering Period is less than the Fair Market Value of
the Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period. Participants shall automatically be
withdrawn as of April 30, 1999 from the Offering Period beginning on the IPO
Date and re-enrolled in the Offering Period beginning on May 1, 1999 if the Fair
Market Value of the Shares on the IPO Date is greater than the Fair Market Value
of the Shares on April 29, 1999, unless a participant notifies the Administrator
prior to April 29, 1999 that he or she does not wish to be withdrawn and re-
enrolled.
12. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
350,000 Shares, plus an annual increase on the first day of each of the
Company's fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the
lesser of (i) 75,000 Shares, (ii) one-half of one percent (1/2%) of the Shares
outstanding on the last day of the immediately preceding fiscal year, or (iii)
such lesser number of Shares as is determined by the Board. If the Board
determines that, on a given Purchase Date, the number of shares with respect to
which options are to be exercised may exceed (i) the number of shares of Common
Stock that were available for sale under the Plan on the Offering Date of the
applicable Offering Period, or (ii) the number of shares available for sale
under the Plan on such Purchase Date, the Board may in its sole discretion
provide (x) that the
6
<PAGE>
Company shall make a pro rata allocation of the Shares of Common Stock available
for purchase on such Offering Date or Purchase Date, as applicable, in as
uniform a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Purchase Date, and continue all Offering Periods then in
effect, or (y) that the Company shall make a pro rata allocation of the shares
available for purchase on such Offering Date or Purchase Date, as applicable, in
as uniform a manner as shall be practicable and as it shall determine in its
sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Purchase Date, and terminate any or all Offering
Periods then in effect pursuant to Section 20 below. The Company may make pro
rata allocation of the Shares available on the Offering Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional Shares for issuance under the Plan by the Company's
shareholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
7
<PAGE>
16. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the shareholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the maximum number of shares of
--------
Common Stock which may be purchased by a participant in a Purchase Period, the
number of shares of Common Stock set forth in Section 13(a)(i) above, and the
price per Share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of Shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company; provided however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or
----------------------
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate
Transaction, each option outstanding under the Plan shall be assumed or an
equivalent option shall be substituted by the successor corporation or a parent
or Subsidiary of such successor corporation. In the event that the successor
corporation refuses to assume or substitute for outstanding options, each
Purchase Period and Offering Period then in progress shall be shortened and a
new Purchase Date shall be set (the "New Purchase Date"), as of which
-----------------
8
<PAGE>
date any Purchase Period and Offering Period then in progress will terminate.
The New Purchase Date shall be on or before the date of consummation of the
transaction and the Board shall notify each participant in writing, at least ten
(10) days prior to the New Purchase Date, that the Purchase Date for his or her
option has been changed to the New Purchase Date and that his or her option will
be exercised automatically on the New Purchase Date, unless prior to such date
he or she has withdrawn from the Offering Period as provided in Section 10. For
purposes of this Section 19, an option granted under the Plan shall be deemed to
be assumed, without limitation, if, at the time of issuance of the stock or
other consideration upon a Corporate Transaction, each holder of an option under
the Plan would be entitled to receive upon exercise of the option the same
number and kind of shares of stock or the same amount of property, cash or
securities as such holder would have been entitled to receive upon the
occurrence of the transaction if the holder had been, immediately prior to the
transaction, the holder of the number of Shares of Common Stock covered by the
option at such time (after giving effect to any adjustments in the number of
Shares covered by the option as provided for in this Section 19); provided
however that if the consideration received in the transaction is not solely
common stock of the successor corporation or its parent (as defined in Section
424(e) of the Code), the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its parent
equal in Fair Market Value to the per Share consideration received by holders of
Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
20. Amendment or Termination.
------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 19, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering Period is in the best interests of the Company and the shareholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change after the effective
date of the Plan in the generally accepted accounting rules applicable to the
Plan. Except as provided in Section 19 and in this Section 20, no amendment to
the Plan shall make any change in any option previously granted which adversely
affects the rights of any participant. In addition, to the extent necessary to
comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code
(or any successor rule or provision or any applicable law or regulation), the
Company shall obtain shareholder approval in such a manner and to such a degree
as so required.
9
<PAGE>
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of twenty (20) years
unless sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
10
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
NEW ELECTION ______
CHANGE OF ELECTION ______
1. I, ________________________, hereby elect to participate in the FlyCast
Communications Corporation 1999 Employee Stock Purchase Plan (the "Plan") for
----
the Offering Period ______________, ____ to _______________, ____, and subscribe
to purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 10% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions on one
occasion only with respect to any increase and one occasion only with respect to
any decrease during any Offering Period by completing and filing a new
Subscription Agreement with such increase or decrease taking effect as of the
beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least ten (10) business days prior to the
beginning of such month. Further, I may change the rate of deductions for
future Offering Periods by filing a new Subscription Agreement, and any such
change will be effective as of the beginning of the next Offering Period. In
addition, I acknowledge that, unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
-11-
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "FlyCast Communications Corporation 1999
Employee Stock Purchase Plan." I understand that my participation in the Plan
is in all respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
_____________________ _____________________________________
(Relationship) (Address)
_____________________________________
8. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the Purchase
Date, I will be treated for federal income tax purposes as having received
ordinary compensation income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares on the Purchase Date over
the price which I paid for the shares, regardless of whether I disposed of the
shares at a price less than their fair market value at the Purchase Date. The
remainder of the gain or loss, if any, recognized on such disposition will be
treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
------------------------------------------------------------------------
date of any such disposition, and I will make adequate provision for federal,
- -----------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
- ------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated to,
- -------------------------------
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase
-12-
<PAGE>
price which I paid for the shares under the option, or (2) 15% of the fair
market value of the shares on the Offering Date. The remainder of the gain or
loss, if any, recognized on such disposition will be treated as capital gain or
loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
SIGNATURE: ___________________________
SOCIAL SECURITY #: ___________________
DATE: ________________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
______________________________________
(Signature)
______________________________________
(Print name)
-13-
<PAGE>
FLYCAST COMMUNICATIONS CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the FlyCast Communications Corporation 1999 Employee Stock Purchase Plan (the
"Plan") for the Offering Period that began on _________ ___, _____. This
- -----
withdrawal covers all Contributions credited to my account and is effective on
the date designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________ _________________________________
Signature of Employee
_________________________________
Social Security Number
-14-
<PAGE>
EXHIBIT 16.1
March 30, 1999
Securities and Exchange Commission
Washington, D.C. 20549
Registration No. 333-71909
Ladies and Gentlemen:
We were previously principal accountants for Flycast Communications Corporation
and, under the date of May 22, 1998, except for note 8, which is as of September
29, 1998, we reported on the financial statements of Flycast Communications
Corporation as of and for the years ended March 31, 1998 and 1997. On December
29, 1998, our appointment as principal accountants was terminated. We have read
Flycast Communications Corporation's statements included in its S-1 under the
heading change in auditors, dated March 1, 1999 and we agree with such
statements, except that we are not in a position to agree or disagree with
Flycast Communications Corporation's statement that the change in accountants
was approved by the Board.
Very truly yours,
/s/ KPMG LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment 3 to Registration Statement No. 333-
71909 of Flycast Communications Corporation of our report dated February 3,
1999 (March 30, 1999 as to the last paragraph of Note 8), appearing in the
Prospectus, which is part of this Registration Statement, and of our report
dated February 3, 1999 (March 30, 1999 as to the last paragraph of Note 8)
relating to the financial statement schedule appearing elsewhere in this
Registration Statement.
We also consent to the references to us under the headings "Experts" and
"Change in Accountants" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
April 14, 1999
