<PAGE>
As filed with the Securities and Exchange Commission on September 24, 1999.
Registration No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LIFEMINDERS.COM, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 7311 52-1990403
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
---------------
1110 Herndon Parkway
Herndon, VA 20170
(703) 707-8261
(Address, including zip code, and telephone number, including area code,of
registrant's principal executive offices)
---------------
Stephen R. Chapin, Jr.
President and Chief Executive Officer
LifeMinders.com, Inc.
1110 Herndon Parkway
Herndon, VA 20170
(703) 707-8261
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
John L. Sullivan, III Stephen A. Riddick
Donald P. Creston Brobeck, Phleger & Harrison LLP
James P. Dvorak, Jr. 701 Pennsylvania Avenue
Venable, Baetjer and Howard, LLP Suite 220
2010 Corporate Ridge Washington, DC 20004
Suite 400 (202) 220-6000
McLean, VA 22102
(703) 760-1600
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, 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. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Title of Each Class of Proposed Maximum Aggregate
Securities to be Registered Offering Price(2) Amount of Registration Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, par value $0.01 per share........ $57,500,000 $15,985
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of common stock which may be purchased by the
underwriters to cover over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
---------------
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 that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+Underwriters may not confirm sales of 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 it is not +
+soliciting offers to buy these securities in any jurisdiction where the offer +
+or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 1999
PROSPECTUS
Shares
LIFEMINDERS.COM, INC.
[LOGO]
Common Stock
This is an initial public offering of common stock by LifeMinders.com, Inc.
The estimated initial public offering price will be between $ and $ per
share.
------------
Prior to this offering, there has been no public market for the common stock.
LifeMinders.com has applied to have the common stock approved for quotation on
the Nasdaq National Market under the symbol "LMIN."
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................ $ $
Underwriting discounts and commissions....................... $ $
Proceeds to LifeMinders.com, Inc., before expenses........... $ $
</TABLE>
LifeMinders.com has granted the underwriters an option for a period of 30
days to purchase up to additional shares of common stock.
Investing in the common stock involves a high degree of risk.
See "Risk Factors" beginning on page 6.
------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Hambrecht & Quist
Thomas Weisel Partners LLC
PaineWebber Incorporated
Wit Capital Corporation
, 1999
<PAGE>
[LifeMinders.com will insert a three page, four-color gatefold which will
reinforce the brand's positioning and identity, and briefly describe the
Company's business model. It will include a headline and body copy which
communicates the life management system that LifeMinders.com provides its
members. The layout will include an e-mail template, corresponding copy and the
Company's logo and tagline.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 17
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Information........................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 32
Management............................................................... 44
Certain Transactions..................................................... 52
Principal Stockholders................................................... 54
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 58
Underwriting............................................................. 60
Legal Matters............................................................ 63
Experts.................................................................. 63
Additional Information................................................... 63
Index to Financial Statements............................................ F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" and our financial statements and
the notes to those statements, before making an investment decision.
LIFEMINDERS.COM
We are a leading online direct marketing company that provides personalized
content and advertisements via e-mail to a loyal community of members. Our e-
mail messages contain helpful reminders and tips that enable our members to
better organize and manage their busy lives. Our proprietary member information
and highly-precise targeting capabilities provide our advertising partners the
opportunity to more effectively reach their target markets. As of August 31,
1999, we had approximately 2.7 million members, creating more than 12.1 million
profiles. As of the same date, we had 52 advertising partners. The value of our
service to our members is also evidenced by our growth: we have added almost
all of our members and profiles since January 1, 1999, when we had 15,800
members and 41,000 profiles.
Members can create profiles in one or more of our ten e-mail categories
including family, entertainment, home, personal events, pet, automotive,
health, personal finance, travel and shopping. On average each member creates
profiles in four e-mail categories and receives an average of eight e-mails per
month. We gather member profile data from several sources, including
information provided by our members during the sign up process and through
member preferences and buying habits automatically collected through
interaction with our e-mail messages. We also supplement our profile data with
information obtained from third party sources. Our proprietary matching process
correlates member profile data to uniquely tagged content that we personalize
and deliver to each member via e-mail. Using our direct marketing expertise and
our proprietary member database we create highly-targeted e-mail messages that
enable our advertising partners to reach a receptive audience. We generate
revenue primarily through advertising, opt-in services and sponsorships.
The Online Direct Marketing Opportunity
According to the Direct Marketing Association, advertising expenditures in
the United States totaled $285.2 billion in 1998, of which approximately $162.7
billion or 57% was spent on direct marketing and 43% on brand advertising.
Traditional advertisers and direct marketers face numerous challenges,
primarily the inability to accurately target consumers resulting in low return
on advertising investments. While the Internet offers advertisers a number of
advantages over traditional media, there remain significant challenges to
realizing the full potential of online advertising. Click rates for the top
banner advertisements averaged approximately 0.6% during the month of August
1999, as reported by Nielsen//NetRatings. Furthermore, large, unsolicited e-
mail message campaigns or "spamming," have met with considerable negative
consumer reaction and low response rates. As a result of the limitations in
both online advertising and direct marketing, businesses continue to seek more
effective approaches to deliver highly-targeted advertisements in a more
personalized and content-rich editorial environment from which advertisers
receive real-time feedback.
At the same time, many Internet users seeking greater personalized content
have increasingly migrated from broadbased, untargeted portals and search sites
to vertically-oriented portals and online communities which were designed to
provide an improved platform for Internet users with similar interests to
obtain relevant information. We believe that these sites continue to provide a
poor context for users to discover customized and individual content because
users lack the affinity and opportunity to relate personally to their online
experiences. Accordingly, we believe that Internet users have a significant and
growing need for a trusted online service that can automatically provide
relevant, personalized and timely information.
1
<PAGE>
Our Solution
Our solution offers the following benefits to both our members and our
advertising partners:
Benefits to Members
. Highly targeted and relevant content that becomes more personalized and
useful as our members continue to interact with our e-mail messages
. Enhanced personalization and user efficiency that enables our members to
avoid the mass of extraneous information received through untargeted e-
mails and obtained from most portals and search engines
. Access to e-commerce opportunities that are delivered within our relevant
and timely e-mail messages and highlight useful and appropriate products
and services based on each member's profile
. Member trust and confidence developed by providing content that our
members consider valuable without compromising their privacy
Benefits to Advertising Partners
. Large and targeted member base of approximately 2.7 million members who
have created more than 12.1 million profiles and have generated extensive
demographic, behavioral and performance information
. Detailed real-time reporting and proprietary data mining technology that
provides our advertising partners the ability to immediately determine
the effectiveness of a given advertising campaign and to precisely target
their marketing messages
. Enhanced targeting capability and increased return on advertising
investment based on our ability to target members on numerous variables
resulting in high click through rates and low delivery costs
Our Strategy
Our objective is to be the leading online direct marketing company that
provides personalized content and advertisements via e-mail to a loyal
community of users. The key elements of this strategy include:
. Aggressively and cost-effectively expanding our member base
. Improving member experience and retention
. Expanding and pursuing multiple revenue streams
. Enhancing advertiser effectiveness
. Increasing awareness and understanding of the LifeMinders.com brand
. Pursuing strategic acquisitions and alliances
We were incorporated in Maryland on August 9, 1996 and reincorporated in
Delaware on July 2, 1999. Our principal executive offices are located at 1110
Herndon Parkway, Herndon, Virginia 20170 and our telephone number is (703) 707-
8261.
We maintain a Web site on the World Wide Web at www.lifeminders.com. The
information on our Web site is not part of this prospectus. We have filed
trademark applications for "LifeMinders.com," "LifeMinders," "backslashSanity"
and the LifeMinders.com logo. All brand names and trademarks appearing in this
prospectus are the property of their respective holders.
2
<PAGE>
THE OFFERING
Common stock offered by shares
LifeMinders.com........................
Common stock to be outstanding after shares
this offering..........................
Underwriters' over-allotment option..... shares
Use of proceeds......................... Primarily for general corporate
purposes, including working
capital, marketing, member
acquisition activities, capital
expenditures, and potential
strategic acquisitions or
investments. See "Use of Proceeds."
Proposed Nasdaq National Market LMIN
Symbol.................................
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Period from
August 9,
1996 (date of Year Ended Six Months Ended
inception) to December 31, June 30,
December 31, ----------------------- ------------------------
1996 1997 1998 1998 1999(1)
------------- ---------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ -- $ 67,126 $ 56,750 $ -- $ 1,442,221
Gross margin (loss)..... -- 29,877 (2,722) (11,774) 1,196,308
Loss from operations.... (35,073) (485,078) (1,971,721) (802,308) (6,676,232)
Net loss................ (35,073) (479,100) (1,947,206) (788,735) (6,608,009)
Net loss available to
common stockholders.... (35,073) (479,100) (2,104,243) (848,698) (6,839,631)
Basic and diluted net
loss per common share.. $ (0.05) $ (0.24) $ (0.80) $ (0.32) $ (2.61)
======== ========== =========== ========== ===========
Weighted average common
shares outstanding
(basic and diluted).... 638,576 2,024,183 2,620,000 2,620,000 2,620,083
======== ========== =========== ========== ===========
Pro forma basic and
diluted net loss per
common share........... $ (0.51) $ (0.95)
=========== ===========
Pro forma weighted
average common shares
and common share
equivalents (basic and
diluted)............... 4,161,667 7,179,206
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1999
---------------------------------------------
Actual Pro Forma Pro Forma As Adjusted
----------- ---------- ---------------------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....... $ 7,036,864 $7,036,864
Working capital................. 7,110,846 7,110,846
Total assets.................... 9,775,211 9,775,211
Long term debt, including
current maturities............. 161,986 161,986
Mandatorily redeemable
convertible preferred stock.... 16,704,114 --
Stockholders' equity (deficit).. (8,946,197) 7,757,917
</TABLE>
3
<PAGE>
(1) Summary Statement of Operations Data for the Three Month Periods Ended
March 31, and June 30, 1999 and for the Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ----------------
March 31, June 30, June 30,
1999 1999 1999
----------- ----------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Revenue............................ $ 23,322 $ 1,418,899 $ 1,442,221
Gross margin (loss)................ (75,192) 1,271,500 1,196,308
Loss from operations............... (1,647,525) (5,028,707) (6,676,232)
Net loss........................... (1,624,745) (4,983,264) (6,608,009)
Net loss available to common
stockholders...................... $(1,724,791) $(5,114,840) $(6,839,631)
</TABLE>
The "pro forma" basic and diluted net loss per common share is computed
using the weighted average number of common shares outstanding giving effect to
the automatic conversion of the Series A, B, C and D mandatory redeemable
convertible preferred stock into shares of our common stock upon the
consummation of this offering. The "pro forma" summary balance sheet data as of
June 30, 1999 reflects the events described above as if such events had
occurred as of June 30, 1999. The "pro forma as adjusted" summary balance sheet
as of June 30, 1999 reflects the sale of shares of our common stock at an
assumed initial offering price of $ per share and reflects the sale of and
conversion into common stock of 2,791,993 shares of our Series E mandatorily
redeemable convertible preferred stock at $8.09 per share, and our receipt of
the estimated net proceeds of those offerings.
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. You should also refer to the other information in this
prospectus, including our financial statements and the related notes. The risks
and uncertainties described below are not the only ones potentially affecting
our company. Additional risks and uncertainties that we are unaware of or that
we currently deem immaterial also may become important factors that affect our
company. If any of the following risks occur, our business, results of
operations or financial condition could be materially harmed. As a result, the
trading price of our common stock could decline, and you may lose all or part
of your investment.
Risks Related to Our Business
We have a history of losses and expect continued losses for the foreseeable
future.
We have not achieved profitability in any previous quarter, and given our
planned level of operating expenses, we expect to continue to incur operating
losses for the foreseeable future. Our accumulated deficit as of June 30, 1999
was approximately $8.9 million. We incurred net losses of $1.9 million for the
year ended December 31, 1998 and $6.6 million for the six months ended June 30,
1999. We plan to increase our operating expenses as we continue to acquire new
members, build infrastructure and create brand awareness. If our revenue growth
is slower than we anticipate or our operating expenses exceed our expectations,
our losses will significantly increase. Even if we were to achieve
profitability, we may not be able to sustain or increase our profitability on a
quarterly or annual basis.
If we are unable to manage our expansion and expected growth effectively, our
business, results of operations, financial condition and cash flows would
suffer.
Our success will depend in part on our ability to manage our growth and
expansion effectively. Our ability to successfully offer our services and
implement our business strategy requires an effective planning and management
process. We continue to increase the scope of our operations and have increased
the number of our employees substantially. In addition, we have only recently
engaged several key members of our executive management team. We plan to expand
our technology, sales, administrative and marketing organizations. These
factors have placed and will continue to place a significant strain on our
management systems and resources. We will need to continue to improve our
operational, financial and managerial controls and reporting systems and
procedures to expand, train and manage our workforce.
We have operated our business only for a short period of time and our online
direct marketing business model is unproven.
We have only a limited operating history upon which to evaluate our business
and prospects. In addition, the potential profitability of our business model
is unproven. The online direct marketing industry is relatively new and rapidly
evolving. This presents many uncertainties that could require us to further
refine or change our business model. We may not successfully execute our
business strategy. As a result, we may not sustain revenue growth or achieve or
sustain profitability. Before buying our common stock, you should carefully
consider the risks and difficulties that are frequently encountered by early-
stage companies in the e-commerce and direct marketing industries. These risks
and difficulties include any:
. inability to add new members to our program or retain members;
. failure by advertisers, marketers or consumers to adopt and accept online
direct marketing;
. failure to maintain, expand and develop relationships with advertisers,
marketers, partners, third-party Web sites and merchants;
5
<PAGE>
. inability to increase awareness of the LifeMinders.com brand;
. inability to expand the breadth and depth of services we offer;
. inability to develop and upgrade our technology to keep pace with the
demands of the e-commerce and direct marketing industries;
. failure to enforce and protect our intellectual property rights;
. inability to hire or retain key employees;
. inability to adapt to the changing advertising, marketing and Internet
markets; and
. inability to predict accurately future results of operations.
If we are unsuccessful in addressing these risks and uncertainties, our
business, results of operations and financial condition may be harmed. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" for detailed information on our historical operating results and
cash flows.
The unpredictability of our quarterly results of operations and seasonal
fluctuations in advertising and direct marketing activities makes it difficult
to predict our financial performance.
Our quarterly results of operations are likely to vary significantly from
quarter to quarter. A number of factors are likely to cause these variations,
some of which are outside of our control. These factors include:
. changes in revenue levels resulting from the advertising and marketing
budget requirements of individual advertisers and marketers;
. changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for Internet advertising and marketing generally;
. our ability to attract and retain advertising sales personnel;
. changes in advertising and marketing costs that we incur to attract and
retain members;
. our rate of member acquisition and the level of activity of new and
existing members;
. the introduction of new products and services by us or by our
competitors;
. unexpected costs and delays resulting from the expansion of our
operations; and
. the occurrence of technical difficulties or unscheduled system downtime.
We believe that our revenue will be subject to seasonal fluctuations as a
result of general patterns of retail advertising and marketing, and consumer
purchasing, which are typically higher during the fourth calendar quarter and
lower in the following quarter. In addition, expenditures by advertisers and
marketers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns. Consequently, our results of operations could be
harmed by a downturn in the general economy or a shift in consumer buying
patterns.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful and you should not
rely upon them as an indication of our future performance. Our operating
expenses are based on expected future revenue and are relatively fixed in the
short term. If our revenue is lower than expected, we would incur greater than
expected losses. In addition, during future periods our operating results
likely will fall below the expectations of public market analysts and
investors. In this event, the market price of our common stock likely would
decline.
6
<PAGE>
Our business will suffer if the acceptance of online advertising and direct
marketing does not continue.
We expect to derive a substantial portion of our revenue from online
advertising and direct marketing, including both e-mail and Web-based programs.
If these services do not continue to achieve market acceptance, we may not
generate sufficient revenue to support our continued operations. The Internet
has not existed long enough as an advertising medium to demonstrate its
effectiveness relative to traditional advertising. Advertisers and advertising
agencies that have historically relied on traditional advertising may be
reluctant or slow to adopt online advertising. Many potential advertisers have
limited or no experience using e-mail or the Web as an advertising medium. They
may have allocated only a limited portion of their advertising budgets to
online advertising, or may find online advertising to be less effective for
promoting their products and services than traditional advertising media. If
the market for online advertising fails to develop or develops more slowly than
we expect, our business would be harmed.
The market for e-mail advertising in general is vulnerable to the negative
public perception associated with unsolicited e-mail, known as "spam." Public
perception, press reports or governmental action related to spam could reduce
the overall demand for e-mail advertising in general, which could harm our
business, results of operations, financial condition and cash flows.
Our success depends on our ability to maintain and expand our member base.
Our revenue is primarily derived from advertisers seeking targeted member
groups in order to increase their return on advertising investments. If we are
unable to maintain and expand our member base, advertisers could find our
audience less attractive and effective for promoting their products and
services and our business, results of operations and financial condition will
be harmed. To date we have relied on referral-based marketing activities to
attract a portion of our members and will continue to do so for the foreseeable
future. This type of marketing is largely outside of our control and there can
be no assurance that it will generate rates of growth in our member base
comparable to what we have experienced to date.
We would also be unable to grow our member base if a significant number of
our current members stopped using our service. Members may discontinue using
our service if they object to having their online activities tracked or they do
not find our content useful. In addition, our service allows our members to
easily unsubscribe at any time.
We rely on our editorial staff and third parties to develop and maintain
relevant and appealing content.
Relevant content is critical to attracting and maintaining our member base.
Our editorial staff identifies and develops substantially all of our content
utilizing content from third parties. If our editorial staff is unable to
accurately and effectively identify and develop content that is relevant and
appealing to our members, our business would suffer. Additionally, we license a
small percentage of our content from third parties. The loss of or increase in
cost of our licensed content may impair our ability to assimilate and maintain
consistent, appealing content in our e-mail messages or maintain and improve
the services we offer to consumers. We intend to continue to strategically
license a portion of our content for our e-mails from third parties, including
content that is integrated with internally developed content. These third party
content licenses may be unavailable to us on commercially reasonable terms, and
we may be unable to integrate third party content successfully. The inability
to obtain any of these licenses could result in delays in product development
or services until equivalent content can be identified, licensed and
integrated. Any such delays in product development or services could negatively
impact our business.
If we are unable to establish the LifeMinders.com brand, our business will be
harmed.
Developing a strong brand identity is critical to our business. The
reputation of the LifeMinders.com brand will largely depend on our ability to
promote and provide a high-quality experience for our members and
7
<PAGE>
advertisers. We intend to build our brand through expanded consumer and trade
advertising, including national print, outdoor and broadcast placements,
continued public relations campaigns, direct mail, participation in strategic
industry events and sustained consumer communications campaigns. We have
minimal practical experience with building our brand through these channels.
Any advertising partner, member or merchant dissatisfaction with our online
direct marketing program for reasons within or outside of our control could
damage our reputation. Any damage to our reputation could harm our business,
results of operations and financial condition and cash flows. If we expend
additional resources to build the LifeMinders.com brand and do not generate a
corresponding increase in revenue as a result of our branding efforts, or if we
otherwise fail to promote our brand successfully, our business, results of
operations, financial condition and cash flows would be harmed.
We face intense competition, and the failure to compete effectively could
adversely affect our market share and results of operations.
We face intense competition from both traditional and online advertising and
direct marketing businesses. We expect competition to increase due to the lack
of significant barriers to entry for online business generally. As we expand
the scope of our product and service offerings, we may compete with a greater
number of media companies across a wide range of advertising and direct
marketing services. Our ability to generate significant revenue from
advertisers will depend on our ability to differentiate ourselves through the
technology and online direct marketing services we provide and to obtain
adequate participation from consumers in our online direct marketing programs.
The attractiveness of our program to current and potential members depends in
large part on the attractiveness of the services that we offer. Currently,
several companies offer competitive e-mail direct marketing services, including
coolsavings.com, MyPoints.com, PostMasterDirect.com and YesMail.com. We also
expect to face competition from online content providers, list aggregators as
well as established online portals and community Web sites that engage in
direct marketing programs. Additionally, we may face competition from
traditional advertising agencies and direct marketing companies that may seek
to offer online products or services.
Many of our current competitors and potential new competitors have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These advantages may allow them to respond more quickly to new or emerging
technologies and changes in customer requirements. It may also allow them to
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies, and make more
attractive offers to potential employees, strategic partners and advertisers.
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 our
prospective advertisers and advertising agency customers. As a result, it is
possible that new competitors may emerge and rapidly acquire significant market
share. Increased competition may result in price reductions, reduced gross
margins and loss of our market share. We may not be able to compete
successfully, and competitive pressures may harm our business, results of
operations, financial condition and cash flows.
If we fail to adapt to rapid change in the online direct marketing industry or
our internally developed systems cannot be modified properly for increased
traffic or volume, our services may become obsolete.
The online direct marketing industry is characterized by rapid change. The
introduction of products and services embodying new technologies, the emergence
of new industry standards and changing consumer needs and preferences could
render our existing services obsolete and unmarketable. Our future success will
depend in part on our ability to respond effectively to rapidly changing
technologies, industry standards and customer requirements by adapting and
improving the performance features and reliability of our services. We may
experience technical difficulties that could delay or prevent the successful
development, introduction or marketing of new products and services. In
addition, any new enhancements to our products and services must meet the
requirements of our current and prospective users. We could incur substantial
costs to modify our services or infrastructure to adapt to rapid change in our
industry.
8
<PAGE>
We rely on our intellectual property rights and may be unable to protect these
rights.
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we seek to protect
through a combination of patent, copyright, trade secret and trademark law. We
have one patent registered in the United States. We have entered into
confidentiality or license agreements with our employees and consultants, and
corporate and strategic partners and generally seek to control access to and
distribution of our documentation and other proprietary information. Despite
these precautions, it may be possible for third parties to copy or otherwise
obtain and use our proprietary information without authorization or to develop
similar technology independently. We pursue the registration of our trade and
service marks in the United States and internationally. We have registered
trademarks for "HomeMinder," "Mindersoft," "EntertainmentMinder" and
"GrowthMinder" in the United States and have filed 21 trademark applications in
the United States, including applications for "backslashSanity,"
"LifeMinders.com" and the LifeMinders.com logo. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our services are distributed or made available through the
Internet, and policing unauthorized use of our proprietary information is
difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving. The future viability or value of our proprietary
rights is uncertain. In addition, the steps taken by us to protect our
proprietary rights may not prevent misappropriation or infringement of our
proprietary information. Any infringement or misappropriation of our
proprietary information could harm our business, results of operations,
financial condition and cash flows.
We may have to litigate in the future to enforce our intellectual property
rights, protect our trade secrets or determine the validity and scope of the
proprietary rights of others. Such litigation would result in substantial costs
and diversion of resources and management attention and could harm our
business, results of operations, financial condition and cash flows.
We have licensed, and may license in the future, elements of our trademarks
and similar proprietary rights to third parties. Such partners may take actions
that could reduce the value of our proprietary rights or diminish our
reputation.
We may be subject to infringement claims based on intellectual property rights
of others that may be time consuming and expensive to defend.
There is a substantial risk of litigation regarding intellectual property
rights in Internet-related businesses. Our business activities may infringe
upon the proprietary rights of others, and other parties may assert
infringement claims against us. These claims and any resultant litigation may
subject us to significant liability for damages, may result in invalidation of
our proprietary rights and would be time-consuming and expensive to defend,
even if not meritorious, and would result in the diversion of management time
and attention. Any of these factors could harm our business, results of
operations, financial condition and cash flows.
Our business could suffer due to a failure of our network infrastructure.
Our success depends on the capacity, reliability and security of our
networking hardware, software and telecommunications infrastructure. The
hardware infrastructure on which our system operates is located at PSINet in
Reston, Virginia. Despite precautions taken by us, our system is susceptible to
natural and man-made disasters such as earthquakes, fires, floods, power loss
and vandalism. Further, telecommunications failures, computer viruses,
electronic break-ins or other similar disruptive problems could adversely
affect the operation of our systems. Our insurance policies may not adequately
compensate us for any losses that may occur due to any damages or interruptions
in our systems. Accordingly, we could be required to make capital expenditures
in the event of unanticipated damage. We do not currently have fully redundant
systems or a formal disaster recovery plan.
9
<PAGE>
In addition, our members depend on Internet service providers, or ISPs, for
access to our Web site. Due to the rapid growth of the Internet, ISPs and Web
sites have experienced significant system failures and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems. These problems could harm our business, results of operations,
financial condition and cash flows.
Our management team has only worked together for a short period of time and may
not function effectively.
Many of our executive officers, including our Chief Financial Officer, Chief
Technology Officer, Vice President, Marketing and Communications, and Vice
President, Strategic Planning have joined our company in 1999. We may not
successfully assimilate our recently hired officers and may not be able to
successfully locate, hire, assimilate and retain qualified key management
personnel. Our business is largely dependent on the personal efforts and
abilities of our senior management, including Stephen R. Chapin, Jr., our
President, Chief Executive Officer and Chairman of the Board, and other key
personnel. Many of our officers or employees can terminate his or her
employment relationship at any time. The loss of these key employees or our
inability to attract or retain other qualified employees could seriously harm
our business.
We may not be able to hire or retain key employees.
Our future success will depend, in part, on our ability to attract and
retain highly skilled employees, particularly management, sales and technical
personnel. Competition for employees in high technology industries is intense.
We may be unable to retain our key employees or to attract 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. If we are
unable to hire or retain key employees, our business, results of operations,
financial condition and cash flows will be harmed.
We may face risks and costs associated with potential future acquisitions.
As part of our business strategy, we intend to focus on acquiring, or making
significant investments in, additional companies, products and technologies
that complement our business. The successful implementation of this strategy
depends on our ability to identify suitable acquisition candidates, acquire
those companies on acceptable terms and integrate their operations successfully
with our business. Such acquisitions may not be available at the times or on
terms acceptable to us, or at all. We do not have any present understanding,
nor are we having any discussions, relating to any significant acquisition or
investment. Acquiring businesses, products, services or technologies involves
many potential risks, including:
. difficulty in assimilating them into our operations;
.disruption of our ongoing business and distraction of our management and
employees;
. negative effects on reported results of operations due to acquisition-
related charges and amortization of acquired technology and other
intangibles; and
. potential dilutive issuances of equity or equity-linked securities.
Any of these acquisition-related risks or costs could harm our business.
We may need more working capital to expand our business, and our prospects for
obtaining additional financing are uncertain.
We currently anticipate that our available cash resources, combined with the
net proceeds from this offering will be sufficient to meet our anticipated
capital expenditures and working capital requirements for the forseeable
future. However, we may need to raise additional funds sooner to fund more
rapid expansion, to develop new or enhance existing services or products, to
respond to competitive pressures or to acquire
10
<PAGE>
complementary products, businesses, or technologies. If we raise additional
funds through the issuance of equity or equity-linked securities, the
percentage ownership of our stockholders would be reduced. In addition, these
securities may have rights, preferences or privileges senior to those of our
stockholders. Additional financing may not be available on terms favorable to
us, or at all. If adequate funds are not available or are not available on
acceptable terms, our ability to fund our expansion, take advantage of
potential opportunities, develop or enhance services or products, or otherwise
respond to competitive pressures would be significantly limited. Our business,
results of operations and financial condition could be harmed by this
limitation. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" for a discussion of
working capital and capital expenditures.
We may have difficulty executing our business strategy in international
markets.
An element of our growth strategy is to introduce our services in
international markets. Our participation in international markets will be
subject to a number of risks, including relative low levels of Internet usage
in foreign countries, foreign government regulations, export license
requirements, tariffs and taxes, fluctuations in currency exchange rates,
introduction of the European Union common currency, difficulties in managing
foreign operations and political and economic instability. To the extent our
potential international members are impacted by currency devaluations, general
economic crises or other negative economic events, the ability of our members
to utilize our services could be diminished.
We may have liability for negligence, defamation or other matters for content
contained in our e-mails.
Because we distribute content to our members, we may be liable for
defamation, negligence, copyright or trademark infringement or other matters.
These types of claims have been brought, sometimes successfully, against online
services in the past. Others could also sue us for the content that is
accessible from our e-mails through links to other Web sites. Such claims might
include, among others, that by directly or indirectly hosting the Web sites of
third parties, we are liable for copyright or trademark infringement or other
wrongful actions by such third parties through such Web sites. It is also
possible that if any third-party content provided to our members contains
errors, third parties could make claims against us for losses incurred in
reliance on such information. Our general liability insurance may not cover
claims of these types or may not be adequate to indemnify us for all liability
that may be imposed. Any imposition of liability, particularly liability that
is not covered by insurance or is in excess of insurance coverage, could
negatively impact our reputation.
We also enter into agreements with certain e-commerce partners under which
we may be entitled to receive a share of certain revenue generated from the
purchase of goods and services through direct links to our e-commerce partners
from our e-mails. These agreements may expose us to additional legal risks and
uncertainties, including potential liabilities to consumers of those products
and services by virtue of our involvement in providing access to those products
or services, even if we do not provide those products or services. Any
indemnification provided to us in our agreements with these parties, if
available, may not adequately protect us.
Risks Related to the Internet Industry
If we are unable to securely maintain and expand our member database, our
business could be harmed.
An important feature of our program is our ability to develop and maintain
individual member profiles. Security and privacy concerns may cause consumers
to resist providing the personal data necessary to support this profiling
capability. As a result of these security and privacy concerns, we may incur
significant costs to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Use of our services could decline
if any compromise of security occurred. In addition, if unauthorized third
parties gain access to our system and alter or destroy information in our
database, our ability to target direct marketing
11
<PAGE>
offers to members would be harmed. We could also be subject to legal claims
from members. Any public perception that we engaged in unauthorized release of
member information would adversely affect our ability to attract and retain
members. Any of these events could harm our business, results of operations,
financial condition and cash flows.
We maintain a database containing personal information about our members.
Our database may be accessed by unauthorized users accessing our systems
remotely. If we experience a security breach, the integrity of our database may
be jeopardized.
If the Internet infrastructure fails to develop or be adequately maintained,
our business would be harmed because members may not be able to access our
services.
We depend on the Internet infrastructure to provide the performance,
capacity and reliability needed to support the anticipated expansion of e-
commerce on the Internet. If Internet usage grows, the Internet infrastructure
may not be able to support the demands placed on it by this growth, and its
performance and reliability may decline. Among other things, continued
development of the Internet infrastructure will require a reliable network
backbone with necessary speed, data capacity and security. Currently, there are
regular failures of the Internet network infrastructure, and there are likely
to be more in the future. These failures may undermine our advertising
partners' and our members' confidence in the Internet as a viable commercial
medium. Any actual or perceived degradation in the performance of the Internet
as a whole could undermine the benefits of our services. In addition, the
Internet could lose its viability as a commercial medium due to delays in the
development or adoption of new technology required to accommodate increased
levels of Internet activity or due to government regulation. If outages or
delays occur frequently in the future, e-commerce and the use of our services
could grow more slowly than expected or decline, which could harm our business,
results of operations, financial condition and cash flows.
We may be vulnerable to unauthorized access, computer viruses and other
disruption problems that could adversely affect us.
Our networks may be vulnerable to unauthorized and illegal access, computer
viruses and other disruptive problems. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to our members, which could harm our business, results of
operations, financial condition and cash flows. A party who is able to
circumvent security measures could misappropriate proprietary information or
cause interruptions in our Internet operations. ISPs and other online service
providers have in the past experienced, and may in the future experience,
interruptions in service as a result of the accidental or intentional actions
of Internet users, current and former employees or others. We may be required
to expend significant capital or other resources to protect against the threat
of security breaches or to alleviate problems caused by breaches. Although we
intend to continue to implement security measures, we cannot be certain that
measures implemented by us will not be circumvented in the future.
Our business is subject to risks regarding secure transmission of confidential
information over public networks.
A necessity of online commerce and communications is the secure transmission
of confidential information over public networks. We rely on encryption and
authentication technology licensed from third parties to provide the security
and authentication technology to effect secure transmission of confidential
information, including customer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography or other
developments may result in a compromise or breach of the technology used by us
to protect customer transaction data. Any such compromise of our security could
harm our reputation and, therefore, our business.
12
<PAGE>
Government regulation and legal uncertainties of doing business on the Internet
could negatively impact our business.
Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could affect the
cost of communicating on the Internet and negatively affect the demand for our
direct marketing solutions or otherwise harm our business. Recently, the United
States Congress enacted Internet legislation regarding children's privacy,
copyright 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 Internet generally and decrease the acceptance of the Internet as a
communications, commercial and direct marketing medium. In addition, the
growing use of the Internet 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 ISPs and
other online service providers in a manner similar to long distance carriers.
The European Union recently adopted a directive addressing data privacy that
may result in limits on the collection and use of member 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 could suffer with the adoption or modification of laws
or regulations relating to the Internet, or the application of existing laws to
the Internet. For additional discussion of potential governmental intervention,
please see "Business-Government Regulation."
Sweepstakes regulation may limit our ability to conduct sweepstakes and other
contests, which could negatively impact our business.
The conduct of sweepstakes, lotteries and similar contests, including by
means of the Internet, is subject to extensive federal, state and local
regulation, which may restrict our ability to offer contests and sweepstakes in
some geographic areas or altogether. Any restrictions on these promotions could
adversely affect our ability to attract and retain members.
We face a number of unknown risks associated with the Year 2000 problem, any of
which may harm our business.
We are in the process of testing our internal information technology, or IT,
and non-IT systems for Year 2000 compliance. Based on the testing we have
performed, we believe that our software is Year 2000 compliant. In addition,
based upon an initial evaluation of our broader list of software and hardware
providers, we believe that all of these providers are in the process of
reviewing and implementing their own Year 2000 compliance programs. We depend
heavily on the uninterrupted availability of the Internet infrastructure to
conduct our business. We are dependent upon the success of the Year 2000
compliance efforts of third party providers of hardware and software and third
party network providers. If we, third party providers of hardware and software
or our third party network providers fail to remedy any Year 2000 issues, the
result could be lost revenue, increased operating costs, the loss of customers
and other business interruptions, any of which could harm our business.
Moreover, the failure to adequately address Year 2000 compliance issues in our
products and systems could result in claims of mismanagement, misrepresentation
or breach of contract and related litigation, which could be costly and time
consuming to defend. A more detailed description of our Year 2000 compliance is
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
13
<PAGE>
Risks Related to the Offering
After the offering, our executive officers and directors will retain
substantial voting control which will allow them to influence the outcome of
matters submitted to stockholders for approval.
We anticipate that our executive officers, our directors and entities
affiliated with them will, in the aggregate, beneficially own approximately %
of our outstanding common stock following the completion of this offering, or
% assuming exercise of the underwriters option to purchase additional shares.
As a result, these stockholders will retain substantial control over matters
requiring approval by our stockholders, such as 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. See
"Principal Stockholders" for more information relating to the ownership
positions of our executive officers and directors.
The substantial number of shares that will be eligible for sale in the near
future may cause the market price of our common stock to decline.
A substantial number of shares of common stock will be available for sale in
the public market following this offering, which could adversely affect the
market price for our common stock. See "Shares Eligible for Future Sale" for a
more detailed description of the eligibility of shares of our common stock for
future sale.
A public market for our securities may not develop or be sustained.
There has not been a public market for our common stock. 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 negotiations
between us and the representatives of the underwriters and may not be
indicative of prices that will prevail in the trading market. You may not be
able to resell your shares at or above the initial public offering price.
Our stock price could be volatile following this offering which could lead to
class action litigation.
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly Internet-related
companies, have been highly volatile. In the past, securities class action
litigation has often been instituted against a company following periods of
volatility in that company's stock price. This type of litigation could result
in substantial costs and could divert our management's attention and resources,
which could harm our business.
You will experience an immediate and substantial dilution in the book value of
your investment.
The initial public offering price of our common stock is substantially
higher than what the net tangible book value per share of the common stock will
be immediately after this offering. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $ in the net
tangible book value per share of our common stock from the price you pay for
our common stock based upon an assumed initial public offering price of $ per
share. The exercise of outstanding options and warrants may result in further
dilution.
Our management will have broad discretion in using the proceeds of this
offering and we cannot assure you that we will effectively utilize the
proceeds.
We intend to use the net proceeds from the sale of the common stock for
general corporate purposes, including working capital, marketing, member
acquisition activities, capital expenditures, and for potential acquisitions or
investments. Our management has not determined how it will allocate the
proceeds
14
<PAGE>
among the anticipated uses. Accordingly, our management will have significant
flexibility in applying the net proceeds of this offering and you will not have
the opportunity, as part of your investment decision, to assess whether
management is using the proceeds appropriately. Management has flexibility to
use the net proceeds for corporate purposes and cannot assure that the proceeds
will be expended effectively. Until the proceeds are needed, we plan to invest
them in investment-grade, interest-bearing securities. The failure of
management to apply these funds effectively could harm our business.
Anti-takeover provisions in our charter documents and Delaware law could
prevent or delay a change in control of our company.
Our Restated Certificate of Incorporation and Bylaws may discourage, delay
or prevent a merger or acquisition that a stockholder may consider favorable by
authorizing the issuance of "blank check" preferred stock and providing for a
classified board of directors with staggered, three-year terms. Certain
provisions of Delaware law may also discourage, delay or prevent someone from
acquiring or merging with us. For a detailed description of the anti-takeover
provisions in our charter documents, see "Description of CapitalStock--Anti-
takeover Effects of Provision of the Restated Certificate of Incorporation,
Bylaws and Delaware Law."
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or
the negative of such terms or other comparable terminology. These statements
are only predictions. Actual events or results may differ materially. In
evaluating these statements, you should specifically consider various factors,
including the risks outlined under "Risk Factors." Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of such statements. We are under no duty to
update any of the forward-looking statements after the date of this prospectus
to conform such statements to actual results.
15
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of shares of common stock
we are offering will be approximately $ million ($ million if the
underwriters exercise their over-allotment option in full) at an assumed
initial public offering price of $ and after deducting estimated offering
expenses of $ and underwriting discounts and commissions payable by us.
We expect to use the net proceeds for general corporate purposes, including
working capital, marketing, member acquisition activities and capital
expenditures. A portion of the net proceeds may also be used to acquire or
invest in businesses, or technologies, that are complementary to our business.
We have no current agreements or commitments with respect to any such
acquisitions or investments. Our management will have broad discretion
concerning the use of the net proceeds of the offering. Pending these uses, we
intend to invest the net proceeds of this offering in investment-grade,
interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or
other securities and do not currently anticipate paying cash dividends in the
foreseeable future. Our credit facilities with Imperial Bank currently prohibit
the payment of dividends.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
. On an actual basis;
. On a "pro forma" basis to reflect the automatic conversion of all
outstanding shares of our mandatorily redeemable convertible preferred
stock into 6,873,247 shares of our common stock upon the consummation of
this offering; and
. On a "pro forma as adjusted" basis to reflect the sale of shares of
our common stock at an assumed initial public offering price of $ per
share and reflects the sale and conversion into common stock of 2,791,993
shares of our Series E mandatorily redeemable convertible preferred stock
at $8.09 per share and our receipt of the estimated net proceeds of those
offerings.
The information below assumes an initial public offering price of $ as
reduced for underwriting discounts, commissions and expenses incurred in
connection with the offering. The following table does not reflect 1,083,906
shares of common stock issuable upon exercise of options outstanding as of June
30, 1999 at a weighted average exercise price of $1.20 per share.
This information should be read in conjunction with our consolidated
financial statements and the notes appearing at the end of the financial
statements included in this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
------------------------------------
Actual Pro Pro Forma
(unaudited) Forma As Adjusted
----------- ---------- -----------
<S> <C> <C> <C>
Cash and cash equivalents................ $ 7,036,864 $7,036,864
=========== ==========
Long-term debt, including current
portion................................. 161,986 161,986
----------- ----------
Mandatorily redeemable convertible
preferred stock, $0.01 par value;
1,000,000 Series A shares, 1,000,000
Series B shares, 2,620,373 Series C
shares, 2,252,874 Series D shares
authorized, issued and outstanding
(actual); no shares authorized, issued
and outstanding (pro forma and pro forma
as adjusted)............................ 16,704,114 --
----------- ----------
Stockholders' equity (deficit):
Common stock, $.01 par value,
20,000,000 shares authorized,
2,627,500 issued and outstanding
(actual); 9,500,747 shares issued and
outstanding on a pro forma basis;
shares issued and outstanding on a pro
forma as adjusted basis............... 26,275 95,007
Additional paid-in capital............. 1,410,253 18,045,635
Deferred compensation.................. (1,313,337) (1,313,337)
Accumulated deficit.................... (9,069,388) (9,069,388)
----------- ----------
Total stockholders' (deficit) equity..... (8,946,197) 7,757,917
----------- ----------
Total capitalization..................... $ 7,919,903 $7,919,903
=========== ==========
</TABLE>
17
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $7,757,917, or
approximately $0.82 per share of common stock. Pro forma net tangible book
value per share represents the amount of our total assets less total
liabilities, divided by the number of shares of common stock outstanding after
giving effect to the conversion of each share of Series A, Series B, Series C
and Series D mandatorily redeemable convertible preferred stock into one share
of common stock upon completion of this offering. After giving effect to the
sale of the shares of common stock offered hereby at an assumed initial
public offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses, the pro
forma net tangible book value as of June 30, 1999 would have been $ , or
approximately $ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders and an
immediate dilution in net tangible book value of $ per share to new investors
of common stock in this offering. Based upon the midpoint of the offering price
range, new investors will pay $ per share and the net tangible book value per
share is expected to be $ immediately after the offering. The net tangible
book value per share represents the per share value of our tangible assets
after subtracting our liabilities. Further, investors in this offering will
contribute approximately % of our net tangible assets, but will own
approximately % of our company. The following table illustrates this dilution
on a per share basis:
<TABLE>
<S> <C>
Assumed initial public offering price per share......................... $
Pro forma net tangible book value per share as of June 30, 1999........ $0.82
Increase per share attributable to new investors....................... $
Pro forma net tangible book value per share after the offering.......... $
Dilution per share to new investors..................................... $
</TABLE>
The following table summarizes as of June 30, 1999, on the pro forma basis
described above, the number of shares of capital stock purchased from us, the
total consideration paid to us and the average price per share paid by existing
stockholders and by investors purchasing shares of common stock in this
offering at an assumed initial public offering price of $ , before deducting
the estimated underwriting discount and commissions and estimated offering
expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- ---------------------- Price
Number Percent Amount Percent Per Share
-------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New investors...........
-------- -------- --------- ---------
Total................. 100% $ 100%
======== ======== =========
</TABLE>
The table above excludes options and warrants to purchase 1,083,906 shares
of common stock at a weighted average exercise price of $1.20 per share issued
and outstanding as of June 30, 1999 under our stock option plan. In addition,
as of June 30, 1999, there were 544,650 shares available for issuance under our
stock option plan. To the extent that any of these outstanding options and
warrants are exercised, there will be further dilution to new investors.
18
<PAGE>
SELECTED FINANCIAL INFORMATION
We present below selected financial information for our company. The summary
historical balance sheet data as of December 31, 1997 and 1998, and the summary
historical statement of operations data for the period from August 9, 1996
(Date of Inception) to December 31, 1996 and for each of the years ended
December 31, 1997 and 1998, and have been derived from our audited financial
statements that are included elsewhere in this prospectus. The summary
historical balance sheet data as of December 31, 1996 has been derived from our
audited financial statements that are not included in this prospectus.
PricewaterhouseCoopers LLP has audited the financial statements for the period
from August 9, 1996 (Date of Inception) to December 31, 1996 and for the years
ended December 31, 1997 and 1998. The summary historical balance sheet data as
of June 30, 1999 and the summary historical statement of operations for the six
months ended June 30, 1998 and 1999 have been derived from our unaudited
financial statements that are included elsewhere in this prospectus. The
unaudited financial statements include, in the opinion of our management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
presentation of the information set forth.
<TABLE>
<CAPTION>
Period from
August 9, 1996
(Date of Year Ended Six Months Ended
Inception) to December 31, June 30,
December 31, ---------------------- ----------------------
1996 1997 1998 1998 1999(1)
-------------- --------- ----------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ -- $ 67,126 $ 56,750 $ -- $ 1,442,221
Cost of revenue......... -- 37,249 59,472 11,774 245,913
-------- --------- ----------- --------- -----------
Gross margin (loss)..... -- 29,877 (2,722) (11,774) 1,196,308
-------- --------- ----------- --------- -----------
Operating expenses:
Sales and marketing... 15,965 147,325 868,706 330,942 6,240,486
Research and
development.......... 9,800 240,498 373,788 192,064 525,432
General and
administrative....... 9,308 127,132 726,505 267,528 1,007,274
Stock-based
compensation......... -- -- -- -- 99,348
-------- --------- ----------- --------- -----------
Total operating
expenses........... 35,073 514,955 1,968,999 790,534 7,872,540
-------- --------- ----------- --------- -----------
Loss from operations.... (35,073) (485,078) (1,971,721) (802,308) (6,676,232)
Interest income, net.... -- 5,978 24,515 13,573 68,223
-------- --------- ----------- --------- -----------
Net loss................ (35,073) (479,100) (1,947,206) (788,735) (6,608,009)
Accretion on mandatorily
redeemable convertible
preferred stock........ -- -- (157,037) (59,963) (231,622)
-------- --------- ----------- --------- -----------
Net loss available to
common stockholders.... $(35,073) $(479,100) $(2,104,243) $(848,698) $(6,839,631)
======== ========= =========== ========= ===========
Basic and diluted net
loss per common share.. $ (0.05) $ (0.24) $ (0.80) $ (0.32) $ (2.61)
======== ========= =========== ========= ===========
Weighted average common
shares outstanding
(basic and diluted).... 638,576 2,024,183 2,620,000 2,620,000 2,620,083
======== ========= =========== ========= ===========
Pro forma basic and
diluted net loss per
common share(2)....... $ (0.51) $ (0.95)
=========== ===========
Pro forma weighted
average common shares
and common share
equivalents (basic and
diluted)(2)........... 4,161,667 7,179,200
=========== ===========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30, 1999
-------------------------------- -----------------------------------
Pro Forma
Actual Pro As
1996 1997 1998 (unaudited) Forma(3) Adjusted(4)
-------- --------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 163 $ 792,553 $ 232,073 $ 7,036,864 $7,036,864
Working capital
(deficit).............. (25,073) 744,067 (245,267) 7,110,846 7,110,846
Total assets............ 163 797,152 278,301 9,775,211 9,775,211
Mandatorily redeemable
convertible preferred
stock.................. -- 866,338 2,023,375 16,704,114 --
Stockholders' equity
(deficit).............. (25,073) (117,672) (2,222,414) (8,946,197) 7,757,917
</TABLE>
(1) Results of Operations for the Three Month Periods Ended March 31 and June
30, 1999 and the Six Month Period Ended June 30, 1999:
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31, June 30, Six Months Ended
1999 1999 June 30, 1999
----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... $ 23,322 $ 1,418,899 $ 1,442,221
Cost of revenue.............. 98,514 147,399 245,913
----------- ----------- -----------
Gross margin (loss).......... (75,192) 1,271,500 1,196,308
----------- ----------- -----------
Operating expenses:
Sales and marketing........ 1,081,501 5,158,985 6,240,486
Research and development... 220,075 305,357 525,432
General administrative..... 259,702 747,572 1,007,274
Stock based compensation... 11,055 88,293 99,348
----------- ----------- -----------
Total operating
expenses................ 1,572,333 6,300,207 7,872,540
----------- ----------- -----------
Loss from operations......... (1,647,525) (5,028,707) (6,676,232)
Interest income, net......... 22,780 45,443 68,223
----------- ----------- -----------
Net loss..................... (1,624,745) (4,983,264) (6,608,009)
Accretion on mandatorily re-
deemable convertible pre-
ferred stock................ (100,046) (131,576) (231,622)
----------- ----------- -----------
Net loss available to common
stockholders................ $(1,724,791) $(5,114,840) $(6,839,631)
=========== =========== ===========
</TABLE>
(2) The calculation of pro forma basic and diluted loss per share includes the
weighted average number of common shares outstanding and the conversion of
our mandatorily redeemable convertible preferred stock into our common
stock upon the consummation of our offering.
(3) The "pro forma" summary balance sheet data as of June 30, 1999 reflects the
automatic conversion of all outstanding shares of our mandatorily
redeemable convertible preferred stock into 6,873,247 shares of our common
stock upon the consummation of this offering.
(4) The "pro forma as adjusted" summary balance sheet as of June 30, 1999
reflects the sale of shares of our common stock at an assumed initial
offering price of $ per share and reflects the sale and conversion into
common stock of 2,791,993 shares of our Series E mandatorily redeemable
convertible preferred stock at $8.09 per share, and our receipt of the
estimated net proceeds of those offerings.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with the financial statements and
the related notes. This discussion contains forward-looking statements based
upon current expectations that involve risks and uncertainties, such as our
plans, objectives, expectations and intentions. Our actual results and the
timing of certain events could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors," "Business" and elsewhere in this
prospectus. See "Forward-Looking Statements."
Overview
We are a leading online direct marketing company that provides personalized
content and advertisements via e-mail to a loyal community of members. Our e-
mail messages contain helpful reminders and tips that enable our members to
better organize and manage their busy lives. Our proprietary member information
and highly-precise targeting capabilities provide our advertising partners to
more effectively reach their target audiences.
We were incorporated in Maryland on August 9, 1996 ("Date of Inception")
under the name of MinderSoft, Inc. In January 1999, we changed our name to
LifeMinders.com, Inc. We reincorporated in Delaware on July 2, 1999. From 1996
to 1998, we entered into arrangements with national retailers to distribute our
reminder products in software form on disk. In late 1998, we revised our
strategy to become an online direct marketing company that provides
personalized content and advertisements via e-mail to a loyal community of
members. Given this significant shift in strategy in late 1998, the historical
financial condition and results of operations prior to 1999 do not necessarily
reflect our business as it is currently being conducted and are not material.
See "Business" for a more comprehensive discussion.
We had approximately 2.7 million registered members who created more than
12.1 million profiles as of August 31, 1999. As of December 31, 1998, we had
approximately 15,800 registered members representing 41,000 profiles.
Revenue
Since the beginning of calendar year 1999, we have generated revenue
primarily through advertising, opt-in services and sponsorships. Our
advertising revenue is subject to the effects of seasonality. If purchasing
patterns or timing of purchasing by advertisers were to change, our operations
and quarter-to-quarter comparisons could be materially affected.
Advertising
Our advertising arrangements consist primarily of banner advertisements that
we display within our e-mails. Advertisers pay us for the number of
advertisements displayed, the number of times members click on advertisements
or based on other criteria. We derive advertising revenue primarily from
advertising contracts with average terms of one to six months. In these
contracts, we typically guarantee a minimum number of e-mails delivered
containing an advertisement directed at a specific group on a per e-mail basis.
We recognize advertising revenue ratably in the period in which the
advertisement is displayed, provided that there are no significant obligations
remaining.
Advertising revenue also includes barter transactions, where we exchange
advertising space on our e-mails for reciprocal advertising space or traffic on
other Web sites. Revenue from these barter transactions are recorded at the
estimated fair value of the advertisements delivered, and are recognized when
the advertisements are included in our e-mails. No gain or loss results from
these barter transactions as the revenue recognized equals the advertising
costs incurred. For the six month period ended June 30, 1999, barter revenue
was less than 10% of our revenue. We did not enter into barter transactions
prior to 1999.
21
<PAGE>
Opt-in Services
We derive revenue from our opt-in services through fees that our opt-in
partners pay, based on the number of affirmative member responses to the
newsletters and other promotions offered during our sign up process. We
recognize revenue at the time we invoice our opt-in partners for the number of
affirmative member responses. We record revenue net of estimated duplicate
member responses to our opt-in partners' newsletters and other promotions. For
the six month period ended June 30, 1999, revenue was recorded net of
approximately $56,500 for estimated duplicate member responses to our opt-in
partners' newsletters and other promotions.
Sponsorship
We offer sponsorship arrangements to advertising partners that provide the
opportunity to display banners in a fixed position within a specific e-mail
category. Sponsorship revenue is derived principally from contracts of less
than one year. Sponsorship agreements typically include the delivery of
advertisements that enhance broad marketing objectives of the sponsor. The
portion of sponsorship revenue related to the delivery of advertisements is
recognized ratably in the period in which the advertisement is displayed
provided none of our obligations remain. The portion of sponsorship revenue
related to the up-front customized design work, as specified in the contract,
is recognized in the period in which the design work is performed.
Expenses
Cost of Revenue
Cost of revenue consists of salaries, employee benefits and related expenses
of our Member Experience personnel, fees paid to freelance writers of our
content and depreciation of the computer equipment necessary to run our
service. We believe that a significant increase in these expenses will be
necessary as we expand the number of e-mail categories offered to our members.
Sales and Marketing
Sales and marketing expenses include salaries, sales commissions, employee
benefits, travel and related expenses of our direct sales force, advertising
and promotional expenses, marketing, and sales support functions. In an effort
to increase our revenue, member base and brand awareness, we expect to increase
significantly the amount of spending on sales and marketing over the next year.
Marketing costs associated with increasing our member base, which to date have
been minimal, are expensed in the period incurred.
Research and Development
Research and development costs include expenses for the development of new
or improved technologies designed to enhance the performance of our service,
including the salaries and related expenses for our engineering department, as
well as costs for contracted services, content facilities and equipment. We
believe that a significant level of product development activity is necessary
for our business and intend to increase significantly the amount of spending to
fund this activity.
General and Administrative
General and administrative expenses include salaries, employee benefits and
expenses for our executive, finance, legal and human resources personnel. In
addition, general and administrative expenses include fees for professional
services and occupancy costs. We expect general and administrative expenses to
increase in absolute dollars, in part due to the costs associated with being a
public company.
We do not currently anticipate that inflation will have a material impact on
our cash flows or results of operations.
22
<PAGE>
Stock-Based Compensation
In connection with the grant of stock options to employees during the six
month period ended June 30, 1999, we recorded total deferred compensation of
approximately $1.4 million as a reduction to stockholders' equity (deficit).
This deferred compensation represented the difference between the estimated
fair value of our common stock and the exercise price of these options at the
date of grant. We are amortizing this amount over the vesting periods of the
applicable options resulting in an expense of approximately $99,000 for the six
month period ended June 30, 1999. Annual amortization of deferred stock
compensation for stock options granted as of June 30, 1999, is approximately
$276,000, $353,000, $353,000, $353,000 and $77,000 for the years ending
December 31, 1999, 2000, 2001, 2002, and 2003, respectively.
Results of Operations
Results of Operations for the Three Month Periods Ended March 31 and June 30,
1999
<TABLE>
<CAPTION>
March 31, June 30,
1999 1999
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue...................... $ 23,322 $ 1,418,899
Cost of revenue.............. 98,514 147,399
----------- -----------
Gross margin (loss).......... (75,192) 1,271,500
----------- -----------
Operating expenses:
Sales and marketing........ 1,081,501 5,158,985
Research and development... 220,075 305,357
General and
administrative............ 259,702 747,572
Stock based compensation... 11,055 88,293
----------- -----------
Total operating
expenses................ 1,572,333 6,300,207
----------- -----------
Loss from operations......... (1,647,525) (5,028,707)
Interest income, net......... 22,780 45,443
----------- -----------
Net loss..................... (1,624,745) (4,983,264)
Accretion on mandatorily re-
deemable convertible pre-
ferred stock................ (100,046) (131,576)
----------- -----------
Net loss available to common
stockholders................ $(1,724,791) $(5,114,840)
=========== ===========
</TABLE>
Three Months Ended June 30, 1999 Compared to Three Months Ended March 31, 1999
Revenue. Revenue increased 5,984.0% from approximately $23,000 for the three
months ended March 31, 1999 to approximately $1.4 million for the three months
ended June 30, 1999. The increase was primarily attributable to an increase in
sales of banner advertisements.
Cost of revenue. Cost of revenue increased 49.6% from approximately $99,000
for the three months ended March 31, 1999 to approximately $147,000 for the
three months ended June 30, 1999. The increase was primarily attributable to an
increase in personnel in our Member Experience department, which is responsible
for identifying, composing and editing the content delivered in our e-mails.
Sales and marketing. Sales and marketing expenses increased 377.0% from
approximately $1.1 million for the three months ended March 31, 1999 to
approximately $5.2 million for the three months ended June 30, 1999. This
increase was primarily the result of expanded efforts to acquire new members
through the purchase of banner advertisements and similar services on the Web,
an increase in sales and marketing staff and an increase in sales commissions
related to the increase in revenue.
Research and development. Research and development expenses increased 38.8%
from approximately $220,000 for the three months ended March 31, 1999 to
approximately $305,000 for the three months ended June 30, 1999. The increase
was primarily due to the hiring of additional technical personnel and related
recruiting fees.
23
<PAGE>
General and administrative. General and administrative expenses increased
187.9% from approximately $260,000 for the three months ended March 31, 1999 to
approximately $748,000 for the three months ended June 30, 1999. This increase
was primarily the result of our rapid growth and expansion, requiring
additional managerial and other personnel and related fringe benefit expenses.
We also incurred increased professional and consulting expenses.
Interest income, net. Interest income consists of earnings on our cash and
cash equivalents. Interest expense consists primarily of interest expense on
capital equipment financing. Interest income, net increased 99.5% from interest
income, net of approximately $23,000 in the three months ended March 31, 1999
to approximately $45,000 for the three months ended June 30, 1999. The increase
was primarily attributable to interest income on the $10.5 million in net
proceeds from our Series D preferred stock financing in May 1999.
Interest expense for the three month periods ended June 30, and March 31,
1999 was immaterial.
Income taxes. No income tax benefits have been recorded for any of the
periods presented. We have provided a full valuation allowance on our deferred
tax assets, consisting primarily of net operating loss carryforwards, because
of the uncertainty regarding their realizability.
Accretion on mandatorily redeemable convertible preferred stock. Accretion
on mandatorily redeemable convertible preferred stock was approximately
$132,000 for the three months ended June 30, 1999 and approximately $100,000
for the three months ended March 31, 1999. The preferred stock carrying value
for cumulative dividends and a portion of direct issuance costs on Series A,
Series B, Series C and Series D preferred stock resulted in the increase.
During the three months ended March 31, 1999, only shares of Series A, Series B
and Series C preferred stock were outstanding. During the three months ended
June 30, 1999, shares of Series A, Series B, Series C and Series D preferred
stock were all outstanding.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenue. Our revenue for the six months ended June 30, 1999 was
approximately $1.4 million. We had no revenue during the first six months of
1998. Our revenue for the six months ended June 30, 1999 primarily consisted of
advertising revenue. The increase in revenue was the result of our decision to
revise our strategy from entering into arrangements with national retailers as
distributors of our software-based product to an online direct marketing
service that provides personalized content and advertisements via e-mail.
Cost of revenue. Cost of revenue increased 1,988.6% from approximately
$12,000 in the first six months ended June 30, 1998 to approximately $246,000
for the six months ended June 30, 1999. Our cost of revenue for the six months
ended June 30, 1999 primarily consisted of expenses related to the maintenance
of existing member profiles and the expansion of e-mail categories. The
increase in cost of revenue was the result of our decision to revise our
strategy from entering into arrangements with national retailers as
distributors of our software-based online direct marketing service that
provides personalized content and advertisements via e-mail.
Sales and marketing. Sales and marketing expenses increased 1,785.7% from
approximately $331,000 for the six months ended June 30, 1998 to approximately
$6.2 million for the six months ended June 30, 1999. This increase was
primarily the result of a major expansion in our efforts to acquire new members
of our service through the purchase of banner advertisements and similar
services on the Web and the increase in our sales and marketing staff.
Research and development. Research and development expenses increased 173.6%
from approximately $192,000 for the six months ended June 30, 1998 to
approximately $525,000 for the six months ended June 30, 1999. This increase
was attributable to our continued research and development of our service and
expansion of personnel.
General and administrative. General and administrative expenses increased
276.5% from approximately $268,000 for the six months ended June 30, 1998 to
approximately $1.0 million for the six months ended June 30, 1999. This
increase is primarily the result of our rapid growth and expansion, requiring
additional personnel and related fringe benefit expenses, rent, legal services
and other administrative support expenses.
24
<PAGE>
Stock based compensation. In connection with the grant of stock options to
employees during the six month period ended June 30, 1999, we recorded total
deferred compensation of approximately $1.4 million as a reduction of
stockholders' equity (deficit). This deferred compensation represented the
difference between the estimated fair value of our common stock and the
exercise price of these options at the date of grant. We are amortizing this
amount over the vesting periods of the applicable options resulting in an
expense of approximately $99,000 for the six month period ended June 30, 1999.
Annual amortization of deferred stock compensation for stock options granted at
June 30, 1999, is approximately $276,000, $353,000, $353,000, $353,000 and
$77,000, for the years ending December 31, 1999, 2000, 2001, 2002 and 2003,
respectively.
Interest income, net. Interest income, net, increased 402.6% from
approximately $14,000 for the six months ended June 30, 1998 to approximately
$68,000 for the six months ended June 30, 1999. This increase was due primarily
to an increase in available funds for investment in short term investments
during the first six months of 1999 as compared to the first six months in
1998. The amount of interest income fluctuates based upon the amount of funds
available for investment and prevailing interest rates.
Interest expense for the six month periods ended June 30, 1998 and 1999 was
immaterial.
Income taxes. No income tax benefits have been recorded for any of the
periods presented. We have provided a full valuation allowance on our deferred
tax assets, consisting primarily of net operating loss carryforwards, because
of our ability to realize such benefits.
Accretion on mandatorily redeemable convertible preferred stock. Accretion
on mandatorily redeemable convertible preferred stock was approximately $60,000
for the six months ended June 30, 1998 and approximately $232,000 for the six
months ended June 30, 1999. The preferred stock carrying value for cumulative
dividends and a portion of direct issuance costs on Series A, Series B, Series
C and Series D preferred stock resulted in the increase. During the first six
months of 1998, only shares of Series A and Series B preferred stock were
outstanding. During the six months ended June 30, 1999, shares of Series A,
Series B, Series C and Series D preferred stock were all outstanding.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue. Our revenue decreased 15.5% from approximately $67,000 for the year
ended December 31, 1997 to approximately $57,000 for the year ended December
31, 1998. Revenue during these periods was generated from our software-based
products. The decrease in revenue was also the result of our decision to revise
our strategy from entering into arrangements with national retailers as
distributors of our software based product to an online direct marketing
service that provides personalized content and advertisements via e-mail.
Cost of revenue. Cost of revenue increased 59.7%, from approximately $37,000
for the year ended December 31, 1997 to approximately $59,000 for the year
ended December 31, 1998. This increase was primarily the result of expenses
incurred to continue to develop the content of our software-based product.
Sales and marketing. Sales and marketing expenses increased 489.7% from
approximately $147,000 for the year ended December 31, 1997 to approximately
$869,000 for the year ended December 31, 1998. This increase was primarily the
result of our expansion of sales and marketing personnel and related travel,
commission and contractor expenses.
Research and development. Research and development expenses increased 55.4%
from approximately $240,000 for the year ended December 31, 1997 to
approximately $374,000 for the year ended December 31, 1998. This increase was
primarily attributable to growth in the number of research and development
personnel and the use of an outside vendor to house and maintain the host
servers that support our Web site.
25
<PAGE>
General and administrative. General and administrative expenses increased
471.5% from approximately $127,000 for the year ended December 31, 1997 to
approximately $727,000 for the year ended December 31, 1998. Representative of
our growth and expansion, this increase resulted from increases in rent,
utilities, employee fringe benefit expenses and office supplies and the
establishment of an administrative support and finance function in the company.
Interest income, net. Interest income, net increased 310.1% from
approximately $6,000 for the year ended December 31, 1997 to approximately
$25,000 for the year ended December 31, 1998. This increase was due primarily
to an increase in available funds for investment in short term investments
during 1998 as compared to 1997. As discussed in the notes to the financial
statements, we raised $1 million in preferred stock private financing during
November 1997 and an additional $1 million in June 1998 from the exercise of
preferred stock warrants. The amount of interest income fluctuates based upon
the amount of funds available for investment and prevailing interest rates.
Accretion on mandatorily redeemable convertible preferred stock. Accretion
on mandatorily redeemable convertible preferred stock increased approximately
$157,000, or 100% from the year ended December 31, 1997 as a result of the
increase in the preferred stock carrying value for cumulative dividends and a
portion of direct issuance costs on Series A and Series B preferred stock.
26
<PAGE>
Quarterly Results of Operations
The following table sets forth unaudited quarterly statement of operations
data for the last two quarters of 1997, the four quarters of 1998 and the first
two quarters of 1999. We derived this data from unaudited financial statements,
and, in the opinion of our management, they include all adjustments, which
consist only of normal recurring adjustments, necessary to present fairly the
financial results for the periods. The results of operations for any quarter
are not necessarily indicative of the results of operations for any future
period.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30,
1997 1997 1998 1998 1998 1998 1999 1999
------------- ------------ --------- --------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........... $ 34,976 $ 10,000 $ -- $ -- $ 26,750 $ 30,000 $ 23,322 $ 1,418,899
Cost of revenue... 8,081 28,678 1,847 9,927 18,726 28,972 98,514 147,399
-------- --------- --------- --------- --------- --------- ----------- -----------
Gross margin
(loss)........... 26,895 (18,678) (1,847) (9,927) 8,024 1,028 (75,192) 1,271,500
-------- --------- --------- --------- --------- --------- ----------- -----------
Operating
expenses:
Sales and
marketing....... 18,554 121,627 82,242 248,700 260,417 277,347 1,081,501 5,158,985
Research and
development..... 78,175 147,397 77,208 114,856 93,720 88,004 220,075 305,357
General and
administrative.. 8,316 110,252 121,101 146,427 218,106 240,871 259,702 747,572
Stock based
compensation.... -- -- -- -- -- -- 11,055 88,293
-------- --------- --------- --------- --------- --------- ----------- -----------
Total operating
expenses........ 105,045 379,276 280,551 509,983 572,243 606,222 1,572,333 6,300,207
-------- --------- --------- --------- --------- --------- ----------- -----------
Loss from
operations....... (78,150) (397,954) (282,398) (519,910) (564,219) (605,194) (1,647,525) (5,028,707)
Interest income,
net.............. -- 5,978 8,043 5,530 8,977 1,965 22,780 45,443
-------- --------- --------- --------- --------- --------- ----------- -----------
Net loss.......... (78,150) (391,976) (274,355) (514,380) (555,242) (603,229) (1,624,745) (4,983,264)
Accretion on
mandatorily
redeemable
convertible
preferred stock.. -- -- (28,537) (31,426) (48,537) (48,537) (100,046) (131,576)
-------- --------- --------- --------- --------- --------- ----------- -----------
Net loss available
to common
stockholders..... $(78,150) $(391,976) $(302,892) $(545,806) $(603,779) $(651,766) $(1,724,791) $(5,114,840)
======== ========= ========= ========= ========= ========= =========== ===========
</TABLE>
Seasonality and Quarterly Fluctuations in Operating Results
We believe that our revenue will be subject to seasonal fluctuations as a
result of general patterns of retail advertising and marketing and consumer
purchasing, which are typically higher during the fourth calendar quarter and
lower in the following quarter. In addition, expenditures by advertisers and
marketers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns. Due to these and other factors, we believe that
quarter-to-quarter comparisons of our operating results may not be meaningful
and you should not rely upon them as an indication of our future performance.
Recent Events
On August 25, 1999, we entered into a large-scale distribution agreement
with Lycos that includes: banner advertisements across the Lycos network; co-
branding opportunities within selected Lycos properties; and data sharing
limitations.
On September 23, 1999, we issued 2,791,993 shares of Series E mandatorily
redeemable convertible preferred stock at $8.09 per share for cash proceeds of
approximately $22.6 million.
Liquidity and Capital Resources
We have funded our operations since the Date of Inception primarily through
the private placement of preferred equity securities, through which we have
raised net proceeds of $16.3 million through August 31, 1999. As discussed in
the Notes to the financial statements, we raised $866,000 in a preferred stock
private
27
<PAGE>
financing during November 1997 and an additional $1.0 million in June 1998 from
the exercise of preferred stock warrants. We raised an additional $3.9 million
in a preferred stock private financing in January 1999 and $10.5 million in a
preferred stock private financing in May 1999. We have also financed our
operations through equipment financing through Imperial Bank. As of June 30,
1999, we had approximately $7.0 million of cash and cash equivalents and had
outstanding equipment financing totaling approximately $162,000.
Net cash used in operating activities was approximately $35,000 for the
period from the Date of Inception to December 31, 1996, approximately $428,000
for the year ended December 31, 1997, approximately $1.5 million for the year
ended December 31, 1998 and approximately $7.1 million for the six months ended
June 30, 1999. Cash used in operating activities for the years ended December
31, 1996 and 1997 were primarily the result of net losses in those years. Cash
used in operating activities for the year ended December 31, 1998 was primarily
the result of net losses, which were partially offset by increases in deferred
revenue. Cash used in operating activities for the six months ended June 30,
1999 resulted from net losses and increases in accounts receivable and prepaid
expenses, which were partially offset by increases in accounts payable and
accrued expenses.
There was no net cash used in investing activities for the period from the
Date of Inception to December 31, 1996, approximately $5,000 for the year ended
December 31, 1997, approximately $50,000 for the year ended December 31, 1998
and approximately $762,000 for the six months ended June 30, 1999. Cash used in
investing activities was related to purchases of property and equipment for all
periods. The increase in the six months ended June 30, 1999 is attributable to
the purchase of substantial computer equipment needed to maintain our database
and deliver targeted e-mails to our rapidly growing member base.
Net cash provided by financing activities was approximately $35,000 for the
period from the Date of Inception to December 31, 1996, approximately $1.2
million for the year ended December 31, 1997, approximately $1.0 million for
the year ended December 31, 1998 and approximately $14.6 million for the six
months ended June 30, 1999. Cash provided by financing activities for the
period from the Date of Inception to December 31, 1996 resulted from the
purchase of common stock by the founders of the company at the Date of
Inception. Cash provided by financing activities for the years ended December
31, 1997 and 1998 and the six months ended June 30, 1999 resulted almost
entirely from sales of preferred stock.
While we do not have any commitments for capital expenditures, we anticipate
that we will continue to experience significant capital expenditures consistent
with our anticipated growth in our member base. We 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. Also, we anticipate substantial expenditures and use of
cash resources in our efforts to acquire new members of our service. We believe
that the net proceeds of this offering, together with our existing cash, cash
equivalents and available credit facilities, will be sufficient to meet our
anticipated cash needs for working capital, member acquisition expenses and
capital expenditures for the foreseeable future.
Recent Accounting Pronouncements
In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The statement requires the recognition of
all derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the planned use of the derivative and
the resulting designation. In July 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of Financial Accounting Standards No. 133" was issued. SFAS 137 deferred the
effective date of SFAS 133 from fiscal years beginning after June 15, 1999 to
all fiscal years beginning after June 15, 2000. Because we do not currently
hold any derivative instruments and do not engage in hedging activities, we
believe the impact of the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flows.
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Quantitative and Qualitative Disclosures About Market Risk
We do not currently hold any derivative instruments and do not engage in
hedging activities and currently do not enter into any transactions denominated
in a foreign currency. Thus, our exposure to foreign exchange fluctuations is
minimal.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. This could result in
system failures or miscalculations causing disruption of operations for any
company using such computer programs or hardware, including, among other
things, a temporary inability to process transactions, send or receive e-mail
messages, send invoices or engage in normal business activities. As a result,
many companies' computer systems may need to be upgraded or replaced in order
to avoid "Year 2000" issues.
We are a comparatively new enterprise, and, accordingly, the majority of
software and hardware we use to manage our business has all been purchased or
developed by us within the last 24 months. While this does not uniformly
protect us against Year 2000 exposure, we believe our exposure is limited
because the information technology, or IT, we use to mange our business is not
based upon legacy hardware and software systems. Generally, hardware and
software design within the current decade and the past several years in
particular has given greater consideration to Year 2000 issues. All of the
software code we have internally developed to manage our network and
infrastructure, is written with four digits to define the applicable year.
We are in the process of testing our internal IT and non-IT systems. The
testing we have completed has primarily been performed internally and, to date,
we have not retained any outside service or consultants to test or review our
systems for Year 2000 compliance. Based on the testing we have performed, we
believe that our software is Year 2000 compliant. We are testing our systems
for Year 2000 compliance and will continue to test these systems as development
of these systems progress.
In addition, we rely on software and hardware developed by third parties
both for our network and internal information systems and third party network
infrastructure providers to gain access to the Internet. To date, we have not
done any testing of third-party software or hardware to determine Year 2000
compliance. We have, however, reviewed certifications from our key suppliers of
hardware and networking equipment for our data centers that this hardware and
networking equipment are Year 2000 compliant. Additionally, we have reviewed
certifications from the providers of key software applications for our internal
operations that their software is Year 2000 compliant. Based upon an initial
evaluation of our broader list of software and hardware providers, we believe
that all of these providers are in the process of reviewing and implementing
their own Year 2000 compliance programs. We intend to work with these providers
to address the Year 2000 issue and continue to seek assurances from them that
their products are Year 2000 compliant.
As of August 31, 1999, we had incurred approximately $5,000 in expenses
related to the Year 2000 problem, and we anticipate that future costs
associated with our Year 2000 remediation efforts will not exceed $100,000.
However, if we, third party providers of hardware and software or our third
party network providers fail to remedy any Year 2000 issues, the result could
be lost revenue, increased operating costs, the loss of customers and other
business interruptions, any of which could harm our business. Moreover, the
failure to adequately address Year 2000 compliance issues in our products and
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time consuming to
defend.
We have engaged in an ongoing Year 2000 assessment, but have not yet
developed any contingency plans. The results of our 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.
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BUSINESS
Overview
We are a leading online direct marketing company that provides personalized
content and advertisements via e-mail to a loyal community of members. Our e-
mail messages contain helpful reminders and tips that enable our members to
better organize and manage their busy lives. Our proprietary member information
and highly-precise targeting capabilities provide our advertising partners the
opportunity to more effectively reach their target markets. As of August 31,
1999, we had approximately 2.7 million members, creating more than 12.1 million
profiles. As of the same date, we had 52 advertising partners. The value of our
service to our members is also evidenced by our growth: we have added almost
all of our members and profiles since January 1, 1999, when we had 15,800
members and 41,000 profiles.
Members can create profiles in one or more of our ten e-mail categories
including family, entertainment, home, personal events, pet, automotive,
health, personal finance, travel and shopping. On average each member creates
profiles in four e-mail categories and receives an average of eight e-mails per
month. We gather member profile data from several sources, including
information provided by our members during the sign up process and through
member preferences and buying habits automatically collected through
interaction with our e-mail messages. We also supplement our profile data with
information obtained from third party sources. Our proprietary matching process
correlates member profile data to uniquely tagged content that we personalize
and deliver to each member via e-mail. Using our direct marketing expertise and
our proprietary member database, we create highly-targeted e-mail messages that
enable our advertising partners to reach a receptive audience.
Industry Background
Traditional Direct Marketing and Advertising
The traditional advertising industry relies on two primary activities: brand
advertising and direct marketing. The Direct Marketing Association, or DMA,
estimates that, of the total $285.2 billion spent on advertising in the United
States in 1998, approximately $162.7 billion or 57% was spent on direct
marketing compared to 43% invested in brand advertising. The focus of
advertising is typically to build brand awareness by repeating messages with
high frequency through such traditional media as radio, television and print.
The purpose of direct marketing is to generate a specific consumer response or
action--generally the trial and purchase of a product or service. Direct
marketers typically use direct mail pieces, catalogs, magazine inserts and
telemarketing, aimed at specific and select consumers in an attempt to maximize
the number of desired responses per marketing dollar invested. However, in
order to do so, direct marketers must be able to accurately identify and reach
specific consumers and showcase products and services that are relevant to
those consumers. Direct marketers invest significant resources in obtaining and
analyzing critical data about consumers in order to assess and understand their
specific needs. Despite such efforts, average response rates for untargeted,
traditional direct marketing campaigns range between 1% to 2% according to
information gathered by the American Association of Advertising Agencies in
1999.
Direct marketers continue to experience major challenges and inefficiencies.
A significant challenge is the inability to target consumers with relevant
advertisements and products, resulting in low response rates, negative consumer
perceptions and low returns on investments. In addition, traditional direct
marketers are constrained by inherent response and analysis delays due to
extended production lead times and lengthy consumer and intermediary response
times.
Advent of the Internet and E-mail
The Internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business
electronically. International Data Corporation, or IDC, estimates that the
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number of Web users will grow from approximately 142.2 million worldwide in
1998 to approximately 502.4 million worldwide by the end of 2003. E-mail, one
of the most popular and widely used Internet applications, has broadened from a
simple messaging tool to a widely accepted form of communication for both
personal and business use. According to Electronic Mail & Messaging Systems
there were approximately 382 million electronic mailboxes worldwide as of March
31, 1999. IDC expects the number of Web sites, as indicated by total number of
Uniform Resource Locators, or URLs, to grow from 925 million in 1998 to 13.1
billion by 2003. We believe this increase represents a growing amount of unique
content on the Internet that can be targeted at a growing number of specific
user and interest groups.
Growth of Internet-Based Direct Marketing and Advertising
The Internet has emerged as an attractive new medium for advertisers due to
unique features that are unavailable in traditional media. The interactive
nature of the Internet combined with its global reach and rapidly growing
audience enables advertisers to target specific types of users, receive direct
feedback on their advertisements and capture valuable data on user preferences.
Forrester Research estimates that total spending on Internet advertising in the
United States will grow from $2.8 billion in 1999 to $22.2 billion in 2004.
The Internet represents an even more attractive medium for direct marketers.
Online direct marketing has the potential to increase user response rates and
decrease costs per transaction by targeting campaigns to particular users based
on their demographic profile, interests and online behavior. In addition, the
Internet permits advertisers to receive immediate responses, effectively test
campaigns and direct consumers to a precise point-of-sale. Online direct
marketing is generally conducted through Web-based promotional offers or e-
mail, which has expanded from a simple personal messaging service to a powerful
and cost-effective business tool. The DMA estimates that Internet direct
marketing expenditures will rise from $603.2 million in 1998 to $5.3 billion by
2003.
Current Limitations of Internet-Based Direct Marketing and Advertising
While the Internet offers advertisers a number of advantages over
traditional media, there remain significant challenges to realizing the full
potential of online advertising. To date, advertisers have primarily employed
banner advertisements and sponsorships on heavily trafficked and broadbased
portals and other Web content sites, most of which do not have close and
trusted relationships with their users. These portals and content sites often
have the ability to reach wide audiences but are generally unable to offer
advertisers an effective means to identify their target audience largely
because they lack precise demographic, psychographic and navigational data.
During the month of August 1999, click rates for the top banner advertisements
averaged approximately 0.6% as reported by Nielsen//NetRatings. In response to
the poor advertising performance on broadbased portals, we believe advertisers
are increasingly turning to vertically-oriented portals, organized around
specific interests including finance, sports or women's issues, in search of
more targeted audiences and higher click through rates.
In addition, advertisers have expanded their efforts to reach consumers
using online direct marketing. These campaigns have focused primarily on the
mass mailing of unsolicited e-mail messages referred to as "spam." Spam
campaigns have met with considerable negative consumer reaction and low
response rates primarily because the offerings are unsolicited and are often
not relevant to consumers' lives. As a result of the limitations in both online
advertising and direct marketing, advertisers continue to seek more effective
approaches to deliver highly-targeted advertisements in a more personalized and
content-rich editorial environment from which they receive real-time feedback.
Challenges to the Internet User
Generally, Internet users have relied on broadbased portals or search
engines to navigate through the mass of information available on the Internet.
Although these portals and search sites have been useful for individuals
seeking to find aggregated Web content, Internet users attempting to locate
detailed, personalized information must navigate through a vast and often
irrelevant array of Web pages and sites. These portals and search sites have
not provided a platform for aggregating and disseminating the rapidly
increasing volume of personalized content on the Web or enabling users to
interact with content and service providers--unique characteristics that
distinguish the Internet from traditional print, radio and television media.
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Many Internet users seeking greater personalized content have increasingly
migrated to vertically-oriented portals and online communities. These online
portals and communities were designed to provide a platform for Internet users
with similar interests to more easily obtain relevant content and to share
experiences and ideas. However, we believe these sites provide a poor context
for Internet users to discover customized and individual content because
Internet users lack the affinity and opportunity to relate personally to their
online experiences. Accordingly, we believe that Internet users have a
significant and growing need for a trusted online service that can
automatically provide relevant, personalized and timely information.
The LifeMinders.com Solution
We are a leading online direct marketing company that provides personalized
content and advertisements via e-mail to a loyal community of members. Our e-
mail messages contain helpful reminders and tips that enable our members to
better organize and manage their busy lives. Our proprietary member information
and highly-precise targeting capabilities provide our advertising partners the
opportunity to more effectively reach their target audiences.
Our solution offers the following benefits to both our members and our
advertising partners:
Benefits to Members
. Highly targeted and relevant content. We deliver highly personalized e-
mail messages containing useful and relevant information across ten e-
mail categories. Our proprietary content matching process correlates
uniquely tagged content with individual member profiles in an automated
manner. The more our members interact with us through our e-mail
service, the more targeted and personalized our e-mails become, thereby
enhancing the value of our service to our members. We gather profile
data about each member from several sources including information
provided by the members during the sign up process and through member
preferences and buying habits collected through interaction with our e-
mail messages. We also supplement the data with information obtained
from third party sources.
. Enhanced personalization and user efficiency. We compose, edit and
customize each targeted message we send with specific member profile
data. Our automated and timely messages provide reminders of important
personal information and events, such as birthdays, a child's
developmental milestones and car maintenance. Our personalized, content-
rich e-mails on specific interests enable our members to avoid the mass
of extraneous information received through untargeted e-mails and
obtained from most search engines and portals. We deliver each message
in a brief, user-friendly e-mail format, either text or HTML, that we
determine is most appropriate for each member. Our targeted messages
contain imbedded URLs that link directly to full-text articles and
helpful information. These links supplement the content within the
messages and provide easily accessible information to our members
without requiring lengthy and potentially unproductive Web searches.
. Access to e-commerce opportunities. Our proprietary database management
capabilities and timely, targeted content allow us to deliver highly
relevant e-commerce opportunities to our members. For example, if a
member has a child nearing his or her second birthday, then shortly
before that birthday we might deliver an e-mail that outlines a two-year
old child's developmental milestones. In addition, we might include an
offer to purchase an age and developmentally appropriate learning tool
and display advertisements for other relevant products. Members have
also benefitted from the availability of high-quality offers from our
leading brand advertising and sponsorship partners such as The Home
Depot, PETsMART.com, PC Flowers & Gifts and SmarterKids.com.
. Member trust and confidence. By developing close relationships with our
members and providing content they consider valuable, we become a
trusted ally. As a matter of corporate policy, we do not sell members'
personal information to third parties without permission. We are
certified by TRUSTe, a leading, independent, non-profit organization
whose mission is to build Internet users' trust and
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confidence in the Internet by promoting the principles of disclosure and
informed consent. Our policy is not to disseminate personal information
and our members choose the level of data that they feel comfortable
inputting into our database. As a result, our members are able to
exercise a significant amount of control over their experience and tend
to provide us with more information over time. Our service also allows
members to easily unsubscribe at any time.
Benefits to Advertising Partners
. Large and targeted member base. As of August 31, 1999, we had
approximately 2.7 million members who have created more than 12.1
million profiles. Using our direct marketing expertise and our
proprietary member database, which contains extensive demographic,
behavioral and performance information, we create highly-targeted e-mail
messages that enable our advertising partners to reach a large receptive
audience.
. Detailed real-time reporting and proprietary data mining technology. Our
capabilities include sophisticated data mining techniques and real-time
reporting technology to evaluate and assess the results of our
advertising partners' marketing campaigns as they occur. We also
actively engage in testing on subsets of our member base to determine
which members are not likely to respond based on shared profile
characteristics. Based on our capabilities, we offer our advertising
partners the ability to immediately determine the effectiveness of a
given advertising campaign and the opportunity to refine their marketing
messages.
. Enhanced targeting capability and increased return on advertising
investment. We offer our advertising partners a cost-effective means to
deliver targeted online advertisements to consumers. We provide the
ability to target members on numerous variables that are typically
unavailable through other direct marketing means. Because of our
continually improving testing, targeting and profiling capabilities, our
members typically open their e-mail over 30% of the time, and members
that open our e-mails click through one or more of the four or five
content or advertising links contained in each e-mail at rates of
approximately 20%. This highly targeted advertising opportunity results
in low delivery costs and high response rates, generating a return on
advertising investment that is higher than that achieved by traditional
direct response media and offline advertising and compares favorably to
other online alternatives.
The LifeMinders.com Strategy
Our objective is to be the leading online direct marketing company that
provides personalized content and advertisements via e-mail to a loyal
community of members. The key elements of this strategy include:
Aggressively and Cost-Effectively Expanding Our Member Base
We intend to continue to rapidly increase our member base. By aggregating a
large audience, we plan to take advantage of economies of scale, increase our
attractiveness to advertisers and enhance our ability to enter into strategic
marketing arrangements. We intend to achieve this objective by:
. continuing to establish distribution partnerships with leading online
sites, such as Lycos, whereby we become an automated component of the
sign up process within such sites;
. continuing to invest in large scale, online member acquisition
activities, such as purchasing highly targeted banner ads and opt-in
lists from selected vertically-oriented portals that correspond to our
members' interests;
. expanding our offline advertising and promotional activities, including
national print, outdoor and broadcast placements;
. expanding our success in viral marketing, whereby existing members refer
new members through increasing incentives, such as cash and merchandise
rewards; and
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. introducing new e-mail categories and services on a regular basis that
will appeal to our existing and potential members.
We will also continue to reduce new member acquisition costs by developing
financial models at the individual level and analyzing behavior to determine
the exact characteristics of a valuable member. In doing this, we will be able
to target the most cost-effective channels to acquire active and valuable
members.
Improving Member Experience and Retention
We will continue our efforts to enhance our member experience by constantly
monitoring member interaction, thereby improving the quality of our content.
Our marketing analysis and data mining team will continue to enhance our
service to our members by evaluating behavior related to consumer preferences
and buying habits in support of our efforts to personalize future content
offerings. Our category managers will continually track and analyze member data
in order to better identify and develop relevant and compelling content. We
believe these efforts will continue to result in increased click through rates
and higher customer satisfaction as we enhance our relationships. Information
that has received positive responses from existing members will be distributed
to new members as they join.
We will further differentiate ourselves with the introduction of each new e-
mail category. As a result, we will not only improve existing member experience
and retention, but will also enhance the LifeMinders.com brand and attract
additional members. We will continue to monitor and survey our members for new
areas of interest and prioritize our new categories based on their direct and
indirect input. We introduced LifeMinders Health in August 1999 and LifeMinders
Travel and LifeMinders Shopping in September 1999, and we intend to roll out a
number of new categories each quarter covering a variety of areas, including
sports & recreation, cooking and crafts & hobbies.
Expanding and Pursuing Multiple Revenue Streams
Our unique business model allows us the opportunity to pursue revenue from
diverse sources. Advertisers and businesses currently pay us for placement of
advertisements and sponsorships within our e-mail messages, as well as for
advertising messages placed on our sign up pages. We also intend to pursue
other revenue sources, such as various e-commerce and content licensing
opportunities, which leverage our unique technology infrastructure, our
extensive database of personalized member information, and our expertise in
data analysis and direct marketing. In addition, we will expand our existing
revenue streams by continuing to develop new and creative advertising
opportunities within our e-mail messages.
Enhancing Advertiser Effectiveness by Expanding our Marketing Analysis and
Data Mining Capabilities
We will continue to use sophisticated tools and our proprietary technologies
to:
. increase the efficacy of our advertising partners' marketing campaigns
by refining the precision of our targeting capabilities and testing new
concepts on subsets of our member base prior to implementation across
our entire user community;
. develop and acquire content that increasingly reflects member
preferences and lifestyles by collecting data on a variety of detailed
consumer behavior, such as opening of e-mail messages, click through
behavior on content, and advertisement responsiveness, including click
through and follow up purchase activity;
. enhance our member profiles through interactive quizzes and surveys,
purchasing additional demographic data and offering cash and prize
incentives for members to provide more extensive demographic and
preference information; and
. maximize reliability and scalability, allowing for the creation and
distribution of millions of personalized e-mails per week.
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Increasing Awareness and Understanding of the LifeMinders.com Brand
We believe that establishing and leveraging the LifeMinders.com brand is
critical to our ultimate success. We have already benefitted from viral
marketing and word-of-mouth publicity of our brand through interactions between
existing and prospective members. We intend to increase brand equity through
extensive consumer and trade advertising, including national print, outdoor and
broadcast placements, continued public relations campaigns, direct mail,
participation in strategic industry events and sustained consumer
communications campaigns. We also believe that the introduction of new e-mail
categories will increase our brand awareness.
Pursuing Strategic Acquisitions and Alliances
We plan to pursue acquisitions and alliances, both domestically and
internationally, to further penetrate and expand our e-mail categories,
leverage the strong relationship we have established with our members, broaden
our member base, capture new distribution channels and establish new revenue
streams. While we do not have any definitive agreements currently in place, we
believe that there exist many opportunities to acquire or develop strong
relationships with complementary businesses.
Services
Personalized E-mail Messages
We deliver e-mail messages to our members that contain highly personalized,
timely and relevant content along with related advertisements. Our editorial
staff of eight searches multiple online and offline sources to identify content
that is relevant to our members' needs. Our staff develops and composes most
all of our e-mail content based on third-party sources. The e-mail messages are
delivered in an attractive, easy-to-read format and contain imbedded URLs that
link directly to relevant information. Our average member has signed up for
four e-mail categories and receives an average of eight e-mails per month. We
also assist our members in organizing and managing their lives by automatically
delivering e-mail reminders that contain important dates such as birthdays,
holidays and car maintenance dates. An example of an e-mail message that we
deliver to our members is as follows:
[Graphic of typical LifeMinders Personal Finance e-mail with representative
advertisers and contextual links.]
Advertising and Direct Marketing Opportunities
We derive revenue from advertising, sponsorship and opt-in arrangements with
our advertising partners. Our advertising arrangements consist primarily of
banner advertisements that we display prominently within the e-mail messages we
provide to members who have indicated an interest in the product or service
being advertised. From each banner advertisement, viewers can hyperlink
directly to our advertising partner's own Web site, thus providing our partner
an opportunity to interact directly with interested members.
Sponsorships are advertising agreements of less than one year that provide
our advertising partners the ability to display their banners in a fixed
position within a specific category of the e-mail message. Sponsorships are
designed to support our advertising partners' broad marketing objectives,
including brand promotion, awareness, and new product introductions. Our
sponsorship agreements typically include the delivery of impressions that
enhance the promotional objectives of the sponsor.
Our opt-in arrangements allow our members to select targeted newsletters and
advertisements during our sign up process, and in return, our opt-in partners
who are promoting these newsletters and advertisements pay us a fee based on
affirmative member response. Representatives of recent opt-in advertisers
include Click Rewards, CyberGold and Virtual Vineyards.
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The following is a description of each e-mail category and a representative
sample of our recent advertisers for each e-mail category:
<TABLE>
<CAPTION>
Representative
Category Description Advertisers
------------------------------ ------------------------------------------- --------------
<C> <S> <C>
LifeMinders Family............ Parenting recommendations, toy tips, Kimberly-Clark
product recalls and development milestones (Huggies Brand)
customized by the age of a member's child
LifeMinders Entertainment..... Reviews and notifications of the latest Buy.com
videos, books, music, games and more based
on the member's unique entertainment
interest
LifeMinders Home.............. Seasonal how-to tips and climate-specific The Home Depot
advice so member's can get the most out of
their home, lawn and garden
LifeMinders Personal Events.. Reminders to help a member keep track of Miadora.com
important dates and inspired gift
suggestions for birthdays, anniversaries
and holidays
LifeMinders Pet............... Pet care, health and training tips PETsMART.com
customized for all of our member's pets
LifeMinders Automotive........ Maintenance reminders, recall notices, Autobytel.com
driving tips and Blue Book values based on
make, model year and mileage of a member's
car
LifeMinders Health............ Health, nutrition and well-being tips Drugstore.com
customized for each member based on
personal profile
LifeMinders Personal Finance.. Advice about banking, family finances, BankOne
investing and saving based on our member's
personal and financial goals
LifeMinders Travel............ Getaways, destinations and travel planning Starwood Hotels
tips tailored to our member's interests
LifeMinders Shopping.......... Coupons, deals and shopping tips specific Mercata
to each member's profile
</TABLE>
Sales and Marketing
Member Acquisition
We market LifeMinders.com to prospective members primarily through online
media. These marketing efforts consist of developing large-scale, vertically-
targeted advertising campaigns and strategic partnerships with large online
sites such as Lycos. Viral marketing is also a significant component of our
member acquisition strategy, as we have acquired approximately one-third of our
member base through referrals from existing members.
Advertising Sales
We sell our advertisements and sponsorships through a direct sales
organization dedicated to developing and maintaining close relationships with
top advertisers and leading advertising agencies nationwide. As of
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August 31, 1999, we had 12 full-time employees engaged in direct sales
activities based in our Herndon, Virginia headquarters. We plan to
significantly increase the size of our sales force and open a sales office in
San Francisco, California by December 31, 1999. Our sales department is
organized around and focuses on selling advertising within designated e-mail
categories. The sales force works regularly with our advertising partners on
the design and placement of their advertisements, provides advertising partners
with advertising measurement analyses and focuses on providing a high level of
client service and satisfaction.
Advertisers and advertising agencies typically enter into short-term
agreements--on average one to six months--in which they receive a guaranteed
number of e-mails delivered containing an advertisement based on a per e-mail
basis. Our standard advertising rate currently ranges from $30 to $200 per
thousand per e-mail delivered, depending upon location of the advertisement
within our e-mail message and the extent to which it is targeted for a
particular audience.
Technology and Infrastructure
Our service offering is supported by our two key proprietary technology
components:
. Content Creation and Management Software
. Member Targeting and Behavior Tracking System
Content Creation and Management Software
Our content creation and management software has four components: content
entry, targeting, personalization and formatting.
The content entry component allows our editorial staff to easily input,
revise and test e-mail content items. The content entry software runs on the
Windows platform using an interface similar to the Windows Explorer program.
The targeting component allows e-mail content items to be sent to members
based on explicit data that members have provided including important dates and
special interests as well as implicit data based on demographic and
psychographic groups defined by our editorial staff. These groups are defined
based on analyses of member behavior and preferences.
The personalization component allows our editorial staff to enhance content
by personalizing it for each individual member. For example, the e-mail content
items could contain the name of the child or use gender specific pronouns. The
software will automatically insert the proper pronoun or name based on the
gender or name provided by the member.
The formatting component allows our editorial staff to compose each e-mail
content item in a single, rich text format which will automatically adjust to
one of three formats (rich text, HTML or America Online) in order to provide
optimum presentation of the content. Members with HTML e-mail, supported by
most current e-mail services and e-mail clients, will receive the highest
quality presentation of our content because it includes images as well as text.
Members using America Online or plain text e-mail receive a version of our
content that is more textual in presentation, but is attractive and easy to
read.
Member Targeting and Behavior Tracking System
This system allows category managers to improve and adjust our e-mail
content over time to reflect the needs and interests of our members. Category
managers can personalize the subject line of an e-mail, content titles and the
physical display of the e-mail.
Our content targeting and behavior tracking system uses standard Internet
data transmission protocols, combined with proprietary application software, to
measure a wide range of possible member behaviors. These
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behaviors may include: opening the e-mail message, clicking through to links,
forwarding an e-mail message, or clicking through to advertisements and select
e-commerce opportunities. This system has been built to be scalable allowing
new categories to be brought online without additional programming. In
addition, this system is based on member profile data that allows categories
and subcategories to be changed to reflect member preferences and lifestyles.
Tracking individual member activity allows our category managers to measure
the effectiveness and interest level of members in our editorial content. At
the same time, the tracking systems support the measurement of the
effectiveness and efficiency of our advertising and promotional campaigns on
behalf of our advertising partners.
Scalability
We have designed our technology platform to be user friendly and to
significantly scale with additional members. We typically send e-mails in most
of our categories to our members on a weekly basis. Our current operating plan
ensures that we will have approximately twice the capacity needed to generate
and deliver needed e-mail content during any peak processing load. This assures
capacity for growth and unusual fluctuations in e-mail activity. As our member
base expands, we are increasing our capacity and replicating our infrastructure
to provide increasingly parallel operations. Therefore, we believe there are no
practical technology limits to our growth because our distributed framework
should ensure that failures are isolated to a small portion of our member base.
Security
Our technology incorporates a variety of encryption and security techniques
to protect confidential member data. We limit member activity, data
transmission, and Internet access to our information to the individual member
and to authorized company representatives. We monitor and protect all outside
access to our resources and data with state-of-the art-technology, and all
suspicious activity is logged and analyzed by qualified staff. Our data center
is co-hosted at a major third party Internet data center operation, PSINet,
that is constantly monitored and provides both physical and logistical
security. This facility provides redundant network connections and redundant
connections to power grids and diesel generators to ensure continuous
operations. In addition, the facility provides physical security, around-the-
clock operations support and monitoring and network diagnostic support as
needed.
Reliability
Our technology platform uses industry standard technologies to maximize
reliability. We ensure hardware reliability by a combination of redundancy at
the component level and hot spares for groups of components. We ensure software
and data reliability through a variety of processes and quality assurance
procedures. We have incorporated standard procedures such as daily database
backups, off site storage of critical archives, and incremental backup of
ongoing database modifications into our standard operating discipline.
Additional reliability is provided by our fault tolerant and redundant platform
architecture, which utilizes clustering technology to ensure that Web access to
our service is not interrupted by any single machine failure.
Competition
We face intense competition from both traditional and online advertising and
direct marketing businesses. We expect that competition will increase due to
the lack of significant barriers to entry in the online advertising market. As
we expand the scope of our services, we may compete with an increasing universe
of media companies across a widening range of advertising and direct marketing
services. Currently, several other companies offer competitive e-mail direct
marketing services, including coolsavings.com, MyPoints.com,
PostMasterDirect.com and YesMail.com. We may also face competition from online
content providers and list
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aggregators, as well as established online portals and community Web sites that
engage in direct marketing. Additionally, traditional advertising agencies and
direct marketing companies may seek to offer online products or services that
compete with ours.
Our ability to compete effectively depends upon many factors, including:
. the timing and market acceptance of new e-mail categories;
. the pricing of our services to advertisers;
. our ongoing ability to demonstrate the effectiveness of our service to
advertisers;
. our ability to increase awareness of the LifeMinders.com brand;
. our ability to increase our member database;
. our ability to increase the depth of information in our database by
capturing demographic, behavioral and transactional data about our
members;
. the capacity of our technology infrastructure to meet the needs of
members and advertisers; and
. the extent and effectiveness of our sales and marketing efforts and
those of our competitors.
While we believe that we compare favorably to our competitors based on these
factors, many of our current competitors and potential new competitors have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These advantages may allow them to respond more quickly to new or emerging
technologies and changes in customer requirements. It may also allow them to
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies, and make more
attractive offers to potential employees, strategic partners and advertisers.
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 our
prospective advertisers and advertising agency customers. As a result, it is
possible that new competitors may emerge and rapidly acquire significant market
share. Increased competition may result in price reductions, reduced gross
margins and loss of our market share.
Intellectual Property and Proprietary Rights
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we seek to protect
through a combination of patents, copyrights, trade secrets and trademarks. We
have one registered patent. We regularly enter into confidentiality or license
agreements with our employees, consultants and corporate and strategic partners
and generally seek to control access to and distribution of our documentation
and other proprietary information. We pursue the registration of our trade and
service marks in the United States and internationally. We have registered
trademarks for "MinderSoft," "HomeMinder," "EntertainmentMinder" and
"GrowthMinder" in the United States and have filed 21 trademark applications in
the United States, including the name and logo for "LifeMinders.com" and
"backslashSanity." Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our services
are distributed or made available through the Internet, and policing
unauthorized use of our proprietary information is difficult.
Current and Potential Government Regulation
Privacy Issues
The Federal Trade Commission, or FTC, is considering adopting regulations
regarding the collection and use of personal identifying information obtained
from individuals when accessing Web sites, with particular emphasis on access
by minors. These regulations may include requirements that companies establish
certain procedures to, among other things:
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. give adequate notice to consumers regarding information collection and
disclosure practices;
. provide consumers with the ability to have personal identifying
information deleted from a company's database;
. provide consumers with access to their personal information and with the
ability to rectify inaccurate information;
. clearly identify affiliations or a lack thereof with third parties that
may collect information or sponsor activities for a services membership;
and
. obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.
These regulations may also include enforcement and redress provisions. While
we are implementing programs designed to enhance the protection of the privacy
of its users, including children, there can be no assurance that these programs
will comply with any regulations adopted by the FTC. Moreover, even in the
absence of those regulations, the FTC has begun investigations into the privacy
practices of companies that collect information on the Internet. One
investigation resulted in a consent decree pursuant to which an Internet
company agreed to establish programs to implement the principles noted above.
We may become subject to a similar investigation, or the FTC's regulatory and
enforcement efforts may adversely affect our ability to collect demographic and
personal information from members. This, in turn, could have an adverse effect
on our ability to provide highly targeted opportunities for advertisers and
electronic commerce marketers.
The European Union, or EU, has adopted a directive that imposes restrictions
on the collection and use of personal data. Under the directive, EU citizens
are guaranteed rights to access their data, to know where the data originated,
to have inaccurate data corrected, to recourse in the event of unlawful
processing and to withhold permission to use their data for direct marketing.
The directive could, among other things, affect U.S. companies that collect
information over the Internet from individuals in EU member countries, and may
impose restrictions that are more stringent than current Internet privacy
standard in the United States. In particular, companies with offices located in
EU countries will not be allowed to send personal information to countries that
do not maintain adequate standards of privacy. The directive does not, however,
define what standards of privacy are adequate. As a result, the directive may
adversely affect the activities of entities like us that engage in data
collection from users in EU member countries.
Internet Taxation
There are currently pending a number of legislative proposals at the
federal, state and local level, and by certain foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet and
certain states already have taken measures to tax Internet-related activities.
Although Congress recently placed a three-year moratorium on state and local
taxes on Internet access or on discriminatory taxes on e-commerce, existing
state or local laws were expressly excepted from this moratorium. Further, once
this moratorium is lifted, one or more federal and/or state taxes may be
imposed upon Internet commerce. This legislation, or other attempts at
regulating commerce over the Internet, may substantially impede the growth of
commerce on the Internet and, therefore, adversely affect our opportunity to
derive financial benefit from those activities.
Jurisdictions
Although our e-mail transmissions over the Internet originate primarily in
Virginia, due to the global nature of the Internet, it is possible that the
governments of other states, the federal government and governments of foreign
countries might attempt to regulate our transmissions or prosecute us for
purported violations of their laws. These laws may be modified, or new laws
enacted, in the future. Any of the foregoing developments could harm our
business, results of operations and financial condition. In addition, as our
service
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is available over the Internet in multiple states and foreign countries, these
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each of these states or foreign countries. We are
qualified to do business only in Delaware and Virginia, and our failure to
qualify as a foreign corporation in a jurisdiction where we are required to do
so could subject us to penalties and could result in our inability to enforce
contracts in these jurisdictions.
Employees
As of August 31, 1999, we employed 47 people, including 20 in sales and
marketing, 12 in technology and production, eight in member
experience/marketing and analysis, and seven in support, administration,
finance, management and human resources. All employees are full-time. We
believe that we maintain good relations with our employees.
Facilities
We are currently leasing approximately 17,500 square feet of office space at
two locations in Herndon, Virginia. The lease for 13,000 square feet expires in
2004 while the lease for 4,500 square feet expires in August 2000. We believe
that this existing space will meet our space requirements for the near future
but that we will likely require additional space in late 2000.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this prospectus, we are not a party to any legal proceeding.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth, as of September 24, 1999, certain
information concerning the executive officers and directors:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Stephen R. Chapin, Jr... 36 President, Chief Executive Officer and Chairman of the Board of Directors
John A. Chapin.......... 34 Senior Vice President, Member Experience, Secretary
Joseph S. Grabias....... 50 Vice President and Chief Financial Officer
Harry A. Layman......... 42 Vice President, Engineering and Chief Technology Officer
Mark F. Bryant.......... 35 Vice President, Business Development and Advertising Sales
David C. Meade.......... 26 Vice President, Member Acquisition
Timothy D. Hanlon....... 41 Vice President, Marketing and Communications
Kevin G. Quinn.......... 45 Vice President, Strategic Planning
E. Rogers Novak, Jr. ... 51 Director
B. Gene Riechers........ 44 Director
Douglas A. Lindgren..... 37 Director
Philip D. Black......... 33 Director
Jonathan B. Bulkeley.... 38 Director
</TABLE>
- --------
Stephen R. Chapin, Jr. co-founded LifeMinders.com in August 1996 and has
served as our President, Chief Executive Officer and Chairman of the Board
since August 1996. Prior to founding LifeMinders.com, from September 1995 to
October 1996, Mr. Chapin served as a Vice President at First USA Bank. From
September 1993 to September 1995, Mr. Chapin was a management consultant at
McKinsey & Company. From 1985 to 1990, Mr. Chapin served in the U.S. Navy, as
the Secretary of the Navy's liaison to Congress and as a naval engineering and
weapons officer.
John A. Chapin co-founded LifeMinders.com in August 1996 and has served as
our Senior Vice President, Member Experience since August 1999. Prior to co-
founding LifeMinders.com, from September 1996 to July 1997, Mr. Chapin worked
in system sales to large corporate clients at Otis Elevator, an elevator
maintenance company. From July 1995 to September 1995, Mr. Chapin served as a
financial analyst at Allied Signal.
Joseph S. Grabias joined LifeMinders.com in August 1999 as Vice President
and Chief Financial Officer. Prior to joining LifeMinders.com, from October
1997 to July 1999, Mr. Grabias was the Vice President and Chief Financial
Officer of Comm Site International, Inc., a provider of tower related services
to the U.S. wireless communications industry. Mr. Grabias was the Chief
Financial Officer and Vice President at KMR Power Corporation from January 1994
to September 1997. Prior to working for KMR Power Corporation, Mr. Grabias was
a self-employed business consultant for seven years.
Harry A. Layman has served as our Vice President, Engineering and Chief
Technology Officer since March 1999. Prior to joining LifeMinders.com, Mr.
Layman was Executive Director of Software Services at The College Board, an
educational association which provides financial aid services and software. Mr.
Layman joined The College Board in January 1996 upon its acquisition of
Virginia Software Inc., a software development firm that Mr. Layman founded in
January 1986. Prior to founding Virginia Software, Inc., Mr. Layman worked in
servicing systems and in strategic planning at Sallie Mae and was a consultant
with Arthur Young & Company.
Mark F. Bryant has served as our Vice President, Business Development and
Advertising Sales, since May 1998. Prior to joining LifeMinders.com, Mr. Bryant
served as Chief Operating Officer and Senior Vice President of Marketing and
Sales of System Dynamics, Inc., a database management and targeted direct
communications company, which he joined in 1988. Prior to working at System
Dynamics, Inc., Mr. Bryant was involved in political fundraising and was active
in national and state politics.
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David C. Meade has served as our Vice President, Member Acquisition, since
June 1999 and served as Product Manager from April 1998 to June 1999.
Previously, from June 1996 to April 1998, Mr. Meade worked as a consultant at
Price Waterhouse LLP (now PricewaterhouseCoopers LLP). From May 1995 to
September 1995, he was the owner and manager of an independent franchise.
Timothy D. Hanlon has served as our Vice President, Marketing and
Communications since July 1999. Prior to joining LifeMinders.com, from July
1997 to May 1999, Mr. Hanlon was the President of Van Bueren International
where he served as the head of marketing and communications at America's
Promise, a national non-profit organization led by retired General Colin
Powell. From September 1995 to July 1997, Mr. Hanlon was an Account Director at
Bozell Worldwide, and from June 1993 to September 1995 he served as President
and CEO of the Buoniconti Fund to Cure Paralysis, Inc., a $38 million campaign
to build a new research facility for the Miami Project. Prior to that, Mr.
Hanlon was an Account Manager at Saatchi & Saatchi Advertising.
Kevin G. Quinn has served as our Vice President, Strategic Planning, since
September 1999. Prior to joining LifeMinders.com, from November 1994 to July
1999, Mr. Quinn was a Managing Director at H.C. Wainwright & Co., Inc., an
investment banking firm.
E. Rogers Novak, Jr. has been a director of LifeMinders.com since November
1997. Mr. Novak is a General Partner of Novak Biddle Venture Partners, a
venture capital investment firm, which he co-founded in 1996. From 1985 to 1994
he was a General Partner of Grotech Venture Partners, I, II and III. During
1995 and 1996, Mr. Novak was a Managing Director of Markowitz & McNaughton, an
investment banking firm. Mr. Novak currently serves on the boards of directors
of Entevo Corporation, Blackboard Inc., Engenia Software, Inc., 1010 Web and
Spyrus. He serves on the board of advisors of MMG Ventures, a specialized small
business investment company.
B. Gene Riechers has served as a director of LifeMinders.com since November,
1997. Mr. Riechers is a managing director of FBR Technology Venture Partners
L.P., a venture capital investment firm, which he joined in December 1996.
Prior to joining FBR Technology Venture Partners L.P., Mr. Riechers served as
the Chief Financial Officer of CyberCash, a leader in Internet payment systems,
from December 1995 to December 1996. From September 1993 to December 1995, Mr.
Riechers served as the Chief Financial Officer of Online Resources and
Communications Corp., a provider of electronic home banking services. He
currently serves on the boards of directors of webMethods, Inc., WisdomWare,
Inc., IntraNetics, Inc., Entevo Corporation, Call Technologies, Inc. and The
Empyrean Group.
Douglas A. Lindgren, has served as a director of LifeMinders.com since
February 1999. Mr. Lindgren is a Managing Director of United States Trust
Company of New York and is the Chief Investment Officer of Excelsior Private
Equity Fund II, Inc. Prior to joining U.S. Trust in April 1995, Mr. Lindgren
served in various capacities for Inco Venture Capital Management, Inc. from
January 1988 through March 1995, including the positions of President and
Managing Principal from January 1993 through March 1995. Before joining Inco
Venture Capital Management, Inc., Mr. Lindgren was employed at Salomon Brothers
Inc and Smith Barney, Harris Upham & Co., Inc. He is an Adjunct Professor of
Finance at Columbia University's Graduate School of Business, where he has been
teaching courses on venture capital since 1993. Mr. Lindgren currently serves
on the boards of director of Constellar Corporation, ReleaseNow.com,
PowerSmart, Inc., On the Go Software, Inc. and MarketFirst Software, Inc.
Philip D. Black has served as a director of LifeMinders.com since May 1999.
Since March 1999, Mr. Black has been a Managing Member of Calvert Capital
L.L.C. and Calvert Capital II, L.L.C., which are both venture capital
investment firms and the general partners of the ABS Ventures Entitites. From
March 1995 to March 1999, Mr. Black was a General Partner of Weiss, Peck &
Greer Venture Partners, a venture capital investment firm, and from 1988 to
1995, was a Senior Associate at Summit Partners, also a venture capital firm.
Mr. Black currently serves on the board of directors of Personify Incorporated
and Zilliant.com.
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Jonathan B. Bulkeley has served as a director of LifeMinders.com since
August 1999. Since January 1999, Mr. Bulkeley has served as the Chief Executive
Officer of barnesandnoble.com. From July 1995 to January 1999, he served as
managing director of America Online, Inc.'s joint venture with Bertelsmann
Online to provide interactive online services in the United Kingdom. Prior to
July 1995, Mr. Bulkeley was vice president of business development at America
Online in the United States, and prior that, served as general manager of media
at America Online. Before joining America Online in March 1993, Mr. Bulkeley
worked at Time Inc. in a variety of roles, including director of marketing and
development for Money magazine and sales and marketing positions at Time and
Discover magazines.
Board Composition
Our certificate of incorporation currently authorizes seven directors. Upon
completion of this offering, our Restated Certificate of Incorporation and
Bylaws will provide that our board will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. The
Class I directors, Messrs. Novak and Riechers, will stand for reelection at the
2000 annual meeting of stockholders. The Class II directors, Messrs. Lindgren
and Black, will stand for reelection at the 2001 annual meeting of
stockholders. The Class III directors, Messrs. Stephen Chapin and Bulkeley,
will stand for reelection at the 2002 annual meeting of stockholders. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible,
each class will consist of one-third of the directors. This staggered
classification of the board of directors may have the effect of delaying or
preventing changes in control or management.
We currently expect to add one additional director prior to December 31,
1999.
Stephen Chapin is the brother of John Chapin. There are no other family
relationships among any of our directors, officers or key employees.
Board Committees
The board of directors has a compensation committee and an audit committee.
Compensation Committee. Our board's compensation committee reviews and makes
recommendations to the board regarding the compensation and benefits provided
to our key executive officers and directors, including stock compensation and
loans. In addition, the compensation committee reviews policies regarding
compensation arrangements and benefits for all of our employees. As part of the
foregoing, the compensation committee also administers our 1998 Stock Option
Plan. The current members of the compensation committee are Messrs. Riechers
and Novak.
Audit Committee. Our board's audit committee reviews and monitors our
internal accounting procedures and reviews the results and scope of the annual
audit and other services provided by our independent accountants. The audit
committee also consults with our management and our independent auditors prior
to the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee is responsible for considering and recommending
the appointment of, and reviewing fee arrangements with, our independent
auditors. The current members of the audit committee are Messrs. Riechers and
Novak.
Director Compensation
Our directors do not receive compensation for attendance at board meetings
or board committee meetings. However, our directors are reimbursed for all
reasonable out-of-pocket expenses incurred in connection with their attendance
at board and board committee meetings. From time to time, certain directors who
are not employees of LifeMinders.com have received grants of options to
purchase shares of our common stock. On August 19, 1999, we granted Jonathan B.
Bulkeley an option to purchase 50,000 shares of our common stock, at an
exercise price of $4.83 per share.
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Compensation Committee Interlocks and Insider Participation
The compensation committee of the board of directors currently consists of
Messrs. Riechers and Novak. No interlocking relationship exists between any
member of our board of directors or our compensation committee and any member
of the board of directors or compensation committee of any other company, and
no such interlocking relationship has existed in the past.
Indemnification
Our Restated Certificate of Incorporation limits the liability of directors
to the maximum extent permitted under the Delaware General Corporation Law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
. unlawful payments of dividends or other distributions or unlawful stock
repurchases or redemptions under Section 174 of the Delaware General
Corporation Law; or
. any transaction from which the director derives an improper personal
benefit.
We or our stockholders may pursue equitable remedies for a director's
alleged breach of his or her fiduciary duties, such as an injunction or
rescission, even where monetary remedies are unavailable.
Our Restated Certificate of Incorporation provides that we shall indemnify
our current and former directors and officers, and may indemnify our current
and former employees and agents, against any and all liabilities and expenses
incurred in connection with their services in those capacities to the maximum
extent permitted by Delaware law. In addition, our Restated Certificate of
Incorporation requires us to advance expenses to any person entitled to
indemnification, provided that such person undertakes to repay the advancement
if it is determined in a final judicial decision from which there is no right
of appeal that such person is not entitled to indemnification. Our Restated
Certificate of Incorporation further permits us to secure insurance on behalf
of our directors, officers, employees and agents for any expense, liability or
loss incurred in such capacities, regardless of whether the Restated
Certificate of Incorporation or Delaware law would permit indemnification
against such expense, liability or loss.
With respect to the indemnification of directors and officers for
liabilities arising under the Securities Act, the SEC has opined that such
indemnification is against public policy, as expressed in the Securities Act,
and is therefore unenforceable.
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Executive Compensation
The following table sets forth information concerning the compensation we
paid to our chief executive officer and our other executive officer whose total
annual compensation exceeded $100,000 (the "named executive officer") during
the fiscal year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
-------------------
Annual Compensation(1)
----------------------- Number of Shares
Name and Principal Underlying Other
Position Salary ($) Bonus ($) Options (#) Compensation
- ------------------ ----------------------- ------------------- ------------
<S> <C> <C> <C> <C>
Stephen R. Chapin, $ 131,250 $ -- -- $--
Jr. ...................
President, Chief
Executive Officer and
Chairman of the Board
Mark F. Bryant.......... $ 125,000 $ -- 100,000 $--
Vice President,
Business Development
and Advertising Sales
</TABLE>
- --------
(1) Mr. Layman was hired as an executive officer in March 1999 and is
compensated at an annual rate of $175,000, Mr. Hanlon was hired as
executive officer in July 1999 and is compensated at an annual rate of
$150,000, Mr. Grabias was hired in August 1999 and is compensated at an
annual rate of $175,000 and Mr. Quinn was hired in September 1999 and is
compensated at an annual rate of $175,000.
The following table provides information concerning grants of options to
purchase our common stock that we made to our chief executive officer and named
executive officer during the fiscal year ended December 31, 1998. We did not
grant stock appreciation rights to these individuals during 1998.
Option Grants in Fiscal Year 1998
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Potential Realizable
Percentage Value at Assumed
Number of of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term(3)
Options Employees in Price Per Expiration ----------------------
Name Granted(1) Fiscal 1998 Share(2) Date 5% 10%
- ---- ---------- ------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Chapin, Jr... -- -- -- -- -- --
Mark F. Bryant.......... 100,000 26.7% $1.00 5/1/08 $ 62,889 $ 159,374
</TABLE>
- --------
(1) Of the options listed in the table above, 25% are exercisable on May 1,
2000 and a pro rata portion of the remaining 75% becomes exercisable each
month over the subsequent three year period.
(2) The exercise price is equal to the fair market value of our common stock as
valued by our board of directors on the date of grant. In determining this
fair market value, the board of directors took into account the purchase
price paid by investors for shares of our preferred stock (taking into
account the liquidation preferences and other rights, privileges and
preferences associated with such preferred stock) and an evaluation by the
board of directors of our revenue, operating history and prospects. The
exercise price may be paid in cash, in shares of our common stock valued at
fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. We may also
finance the option exercise by lending the optionee sufficient funds to pay
the exercise price for the purchased shares, together with any federal and
state income tax liability incurred by the optionee in connection with such
exercise.
(3) Potential Realizable Value assumes that the common stock appreciates at the
indicated annual rate (compounded annually) from the grant date until the
expiration of the option term and is calculated based on the rules
promulgated by the SEC. Potential Realizable Value does not represent our
estimate of future
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stock price performance. The potential realizable value at 5% and 10%
appreciation is calculated by assuming that the estimated fair market value
on the date of grant appreciates at the indicated rate for the entire term
of the option and that the option is exercised at the exercise price and
sold on the last day of its term at the appreciated price.
Aggregated Fiscal Year-End Option Values
The following table provides summary information regarding options held by
our chief executive officer and named executive officer for the fiscal year
ended December 31, 1998. The value of unexercised in-the-money options is based
on an assumed initial public offering price of $ .
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised "In-the-Money" Options
Options at December 31, 1998 at December 31, 1998(1)
--------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen R. Chapin, Jr... -- -- -- --
Mark F. Bryant.......... -- 100,000 -- --
</TABLE>
- --------
(1) Value for "in-the-money" options represents the positive spread between the
exercise price of outstanding options and the fair market value of $1.00
per share on December 31, 1998. The fair market value of our common stock
at the end of 1998 was estimated by the board of directors on the basis of
the purchase price paid by investors for shares of our preferred stock
(taking into account the liquidation preferences and other rights,
privileges and preferences associated with the preferred stock) and an
evaluation by the board of our revenue, operating history and prospects.
Stock Option Plan
We adopted a stock option plan for the purpose of promoting our long-term
growth and profitability by (i) providing key people with incentives to improve
stockholder value and contribute to our growth and financial success and (ii)
enabling us to attract, retain and reward talented and skilled persons for
positions of substantial responsibility. We have used stock options as a
component of compensation for our officers and key employees.
Share Reserve. Our board of directors adopted our 1998 Stock Option Plan on
March 26, 1998 and our stockholders approved the plan in April 1998, initially
providing for a maximum of 380,000 shares to be issued pursuant to stock
options granted under the plan. The board of directors and stockholders
approved an increase in the number of shares available for issuance pursuant to
stock options under the plan of 241,000 shares on June 26, 1998, a further
increase of 515,056 shares effective January 29, 1999, a further increase of
500,000 shares effective May 28, 1999, and a further increase of 700,000 shares
effective September 22, 1999, resulting in an aggregate maximum of 2,336,056
shares of the common stock available and reserved for issuance under the plan.
Administration. The compensation committee of our board of directors
administers the 1998 Stock Option Plan. The committee has the complete
discretion to make all decisions relating to the interpretation and operation
of the plan. The committee has the discretion to determine who will receive an
option, what type of option it will be, how many shares will be covered by the
option, what the vesting requirements will be (if any), and what the other
features and conditions of each option will be. The compensation committee,
with the approval of the board of directors, may also reprice the exercise
price of outstanding options to the then current fair market value of the
underlying stock and modify outstanding awards in other ways.
Eligibility. The following groups of individuals are eligible to participate
in the 1998 Stock Option Plan: employees, members of our board of directors and
consultants. The 1998 Stock Option Plan provides that no participant may
receive options covering more than 190,000 shares in the same year.
Types of Award. The 1998 Stock Option Plan provides for the issuance of
incentive stock options, which may be granted only to employees, and
nonstatutory stock options to purchase shares of our common stock. An
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<PAGE>
optionee who exercises an incentive stock option may qualify for favorable tax
treatment under Section 422 of the Internal Revenue Code of 1986. On the other
hand, nonstatutory stock options do not qualify for such favorable tax
treatment. The exercise price for incentive stock options granted under the
1998 Stock Option Plan may not be less than 100% of the fair market value of
our common stock on the option grant date. In the case of nonstatutory stock
options, the minimum exercise price is 85% of the fair market value of our
common stock on the option grant date.
Exercise and Vesting. Optionees may pay the exercise price by using cash
and, if permitted by the compensation committee and provided in their grant
agreement, through the following:
. shares of common stock which, if acquired by option exercise, the
optionee has owned for six months prior to exercise;
. a promissory note with such security as the board of directors shall
require;
. an immediate sale of the option shares through a broker designated by
us; or a loan from a broker designated by us; or
. a loan from a broker designated by us, secured by the option shares.
Options vest (that is, become exercisable) at the time or times determined by
the compensation committee. In most cases, our options vest over the four-year
period following the date of grant. Options generally expire 10 years after
they are granted, except that they generally expire earlier if the optionee's
service terminates earlier.
Merger or Sale. If we merge with another company, or there is a sale of
substantially all of our assets to another company, an option under the 1998
Stock Option Plan will terminate if the option is not assumed by the surviving
corporation or its parent or if the surviving corporation or its parent does
not substitute another award on substantially the same terms. In that event,
the optionee will be given at least 15 days prior to the option's termination
to exercise the vested portion of the option.
Change in Capitalization. The number and price of shares covered by
outstanding stock options and the number of shares authorized under the 1998
Stock Option Plan shall be proportionately adjusted, as determined by the board
of directors, to take into account a stock split, reverse stock split, stock
dividend, combination or reclassification of shares or similar event.
Amendment or Termination. Our board may amend or terminate the 1998 Stock
Option Plan at any time. If our board amends the plan, it does not need to ask
for stockholder approval of the amendment unless applicable law requires it. No
amendment shall impair the rights of any optionee under an option previously
granted without his or her consent. The 1998 Stock Option Plan will continue in
effect until March 25, 2008, unless the board decides to terminate the plan
earlier.
Employment Agreements
In November 1997, we entered into two year employment agreements with each
of Stephen Chapin and John Chapin. Under the agreements, we agreed to pay
Stephen Chapin an annual salary of $120,000 and John Chapin an annual salary of
$80,000. The board of directors subsequently approved an annual salary for
Stephen Chapin of $200,000 effective July 1999 and an annual salary of John
Chapin of $100,000 effective July 1999. Both agreements provide for bonuses
based upon our profitability and overall financial condition, which may be
awarded by our board of directors in its sole discretion. The employment
agreements prohibit Stephen Chapin and John Chapin from competing with us and
soliciting our customers or employees during the term of the employment
agreement and the 12-month period after the date of their termination.
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<PAGE>
CERTAIN TRANSACTIONS
Stock Purchase Agreements and Related Matters
In November 1997, we sold shares of our Series A convertible preferred stock
to the following purchasers in the following amounts at a purchase price of
$1.00 per share:
<TABLE>
<S> <C>
FBR Technology Venture Partners, L.P................................. 325,000
Novak Biddle Venture Partners, L.P................................... 300,000
ABS Ventures IV, L.P................................................. 250,000
ABX Fund, L.P........................................................ 75,000
David Pensky......................................................... 50,000
</TABLE>
In addition, we also granted to each of the above-listed purchasers an
option to purchase a like number of shares of Series B convertible preferred
stock, at an exercise price of $1.00 per share. In June 1998, the above-
mentioned purchasers exercised those options. Each of the purchasers entered
into a stockholders' agreement and a registration rights agreement. See
"Certain Transactions--Stock Purchase Agreements and Related Matters--
Stockholders' Agreement and Registration Rights Agreement."
In January 1999, we sold shares of our Series C convertible preferred stock
to the following purchasers in the following amounts at a price of $1.5265 per
share:
<TABLE>
<S> <C>
Excelsior Private Equity Fund II, Inc.............................. 1,965,280
Novak Biddle Venture Partners, L.P................................. 240,201
FBR Technology Venture Partners, L.P............................... 207,446
ABS Ventures IV, L.P............................................... 159,574
ABX Fund, L.P...................................................... 47,872
</TABLE>
Excelsior Private Equity Fund II, Inc. became a party to the stockholders'
agreement and the registration rights agreement. See "Certain Transactions--
Stock Purchase Agreements and Related Matters--Stockholders' Agreement and
Registration Rights Agreement."
In May 1999, we sold shares of our Series D convertible preferred stock to
the following purchasers in the following amounts at a price of $4.7051 per
share:
<TABLE>
<S> <C>
Pyramid Ventures, Inc.............................................. 1,275,212
Excelsior Private Equity Fund II, Inc.............................. 637,606
FBR Technology Venture Partners, L.P............................... 212,535
Novak Biddle Venture Partners, L.P................................. 106,268
Four Individual Accredited Investors............................... 21,253
</TABLE>
Each of Pyramid Ventures, Inc. and the four individual accredited investors
became parties to the stockholders' agreement and the registration rights
agreement. See "Certain Transactions--Stock Purchase Agreements and Related
Matters--Stockholders' Agreement and Registration Rights Agreement."
In September 1999, we sold shares of our Series E convertible preferred
stock to the following purchasers and to certain non-affiliated parties in the
following amounts at a price of $8.0868 per share:
<TABLE>
<S> <C>
Novak Biddle Venture Partners, L.P. ............................... 61,829
Novak Biddle Venture Partners II, L.P.............................. 49,463
ABS Ventures IV, L.P............................................... 91,187
ABX Fund, L.P...................................................... 27,861
FBR Technology Venture Partners, L.P. ............................. 111,292
Excelsior Private Equity Fund II, Inc.............................. 556,462
Jonathan Bulkeley.................................................. 61,829
Philip D. Black.................................................... 10,000
ABS Ventures LM L.L.C. ............................................ 120,000
Certain Non-Affiliated Parties..................................... 1,702,070
</TABLE>
49
<PAGE>
Each of the Series E Convertible Preferred Stock purchasers became parties
to the stockholders' agreement and the registration rights agreement. See
"Certain Transactions--Stock Purchase Agreements and Related Matters--
Stockholders' Agreement and Registration Rights Agreement."
Stockholders Agreement and Registration Rights Agreement. Holders of the
Company's preferred stock are parties to a stockholders' agreement that
contains arrangements with respect to voting, rights of first refusal, and
"tag-along" rights, as well as other agreements relating to corporate
governance. The rights and obligations under the stockholders' agreement will
terminate upon the consummation of this offering.
In addition, we have granted holders of our preferred stock certain
registration rights. Pursuant to these registration rights, we may be required
to file registration statements under the Securities Act covering all or a
portion of the common stock issued or issuable upon the automatic conversion of
the preferred stock or may be required to included such shares of common stock
in a registration under the Securities Act that we initiate on our own behalf.
See "Description of Capital Stock--Registration Rights."
Other Transactions
During 1996 and 1997, Stephen R. Chapin, Jr. and D. Thorp Foster loaned us
$35,236 and $53,319, respectively, to assist us in paying our obligations. We
repaid $10,000 of the loan during 1996 and $53,919 during 1997. In December
1997, Mr. Chapin and Mr. Foster forgave the outstanding loan balance of
$24,636. During 1998, we incurred $84,000 in contractor expenses from the
Lordhill Company. Hugh Ronalds, one of our stockholders, is the President of
the Lordhill Company.
We believe that the transactions disclosed above were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.
All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, and will continue to be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
Since January 1, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we or any of our
subsidiaries was or is to be a party in which the amount involved exceeded or
will exceed $60,000 and in which any of our directors, executive officers,
holder of more than 5% of our Common Stock or any member of the immediate
family of such persons had or will have a direct or indirect material interest
other than (i) compensation agreements and other arrangements, which are
described where required in "Management," and (ii) the transactions described
above.
We believe that the transactions set forth above were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, and will continue to be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding the
beneficial ownership of our common stock as of September 23, 1999, as adjusted
to reflect the sale of shares of common stock in this offering and the
conversion of all outstanding shares of our convertible preferred stock into
shares of common stock, by:
. each person or group known by us to own beneficially more than 5% of our
outstanding common stock;
. each of our directors and each named executive officer; and
. our directors and executive officers as a group.
We have determined beneficial ownership in accordance with the rules of the
SEC. Unless otherwise indicated, the persons included in the table have sole
voting and investment power with respect to all shares beneficially owned.
Shares of common stock subject to options that are currently exercisable or are
exercisable within 60 days of September 23, 1999 are treated as outstanding and
beneficially owned with respect to the person holding such options for the
purpose of computing the percentage ownership of such person. However, these
shares are not treated as outstanding for purposes of computing the percentage
ownership of any other person. The percentages in the "After the Offering"
column assume that the underwriters do not exercise their over-allotment option
to purchase up to additional shares.
<TABLE>
<CAPTION>
Percent of Common Stock
Shares of Beneficially Owned
Common Stock ----------------------------
Beneficially Before the After the
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ ------------ -----------
<S> <C> <C> <C>
Douglas A. Lindgren............... 3,159,348 25.59%
Excelsior Private Equity Fund II,
Inc.(1)
Philip D. Black................... 2,385,206 19.32%
Entities affiliated with ABS
Ventures(2)
B. Gene Riechers.................. 1,181,273 9.57%
FBR Technology Venture Partners,
L.P.(3)
E. Rogers Novak................... 1,057,761 8.57%
Novak Biddle Venture Partners,
L.P.(4)
Stephen R. Chapin, Jr.(5)......... 1,455,012 11.71%
Jonathan B. Bulkeley(6)........... 61,829 *
Mark F. Bryant(7)................. 57,500 *
All directors and executive
officers as a group (13
persons)(8)...................... 9,713,720 77.25%
</TABLE>
- --------
* Less than 1%.
(1) Represents shares held of record by Excelsior Private Equity Fund II, Inc.
Mr. Lindgren, one of our directors, is the Chief Investment Officer of
Excelsior Private Equity Fund II, Inc. The address of Mr. Lindgren and
Excelsior Private Equity Fund II, Inc. is 114 West 47th Street, New York,
New York 10036. Mr. Lindgren disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest in Excelsior Private Equity
Fund II, Inc.
(2) Represents (a) 1,395,212 shares held of record by ABS Ventures LM L.L.C.
(which shares were transferred from Pyramid Ventures, Inc., an affiliate of
ABS Ventures LM L.L.C., in September 1999), (b) 750,761 shares held of
record by ABS Ventures IV, L.P., (c) 225,733 shares held of record by ABX
Fund, L.P., (d) 10,000 shares held of record by Philip D. Black, (e) 1,000
shares held of record by John Burke, (f) 2,500 shares held of record by Jin
Byun. The address of Mr. Black, one of our directors, and each of the
entities and other individuals is 1 South Street, Suite 2150, Baltimore,
Maryland 21202. Mr. Black disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest in these entities.
51
<PAGE>
(3) Represents shares held of record by FBR Technology Venture Partners, L.P.
Mr. Riechers, one of our directors, is the Managing Director of FBR
Technology Venture Partners, L.P. The address of Mr. Riechers and FBR
Technology Venture Partners, L.P. is 1001 19th Street North, 10th Floor,
Arlington, Virginia 22209. Mr. Riechers disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest in FBR
Technology Venture Partners, L.P.
(4) Represents shares held of record by Novak Biddle Venture Partners, L.P. and
Novak Biddle Venture Partners II, L.P. Mr. Novak, one of our directors, is
a principal of Novak Biddle Venture Partners, L.P. The address of Mr. Novak
and Novak Biddle Venture Partners, L.P. is 1897 Preston White Drive,
Reston, Virginia 20191. Mr. Novak disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in Novak Biddle
Venture Partners, L.P.
(5) Includes 80,000 options to purchase shares that are vested. Mr. Chapin is
the Chairman of the Board, President and Chief Executive Officer of
LifeMinders.com. Mr. Chapin's address is 1110 Herndon Parkway, Herndon,
Virginia 20170.
(6) Mr. Bulkeley's address is 76 Ninth Avenue, 11th Floor, New York, New York
10128.
(7) Represents 57,500 options to purchase shares that are vested. Mr. Bryant's
address is 1110 Herndon Parkway, Herndon, Virginia 20170.
(8) Represents 9,483,325 shares held of record by our directors and executive
officers as a group and 215,395 shares subject to options exercisable
within 60 days of September 23, 1999 held by our directors and executive
officers as a group.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon consummation of this offering, our authorized capital stock will
consist of shares of common stock, $0.01 par value, and shares of
preferred stock, $0.01 par value. The following summary of certain provisions
of the common stock and the preferred stock does not purport to be complete and
is subject to, and qualified in its entirety by, our Restated Certificate of
Incorporation and Bylaws and by the provisions of applicable law.
Common Stock
As of , 1999, there were shares of common stock outstanding that were
held of record by approximately stockholders. There will be shares of
common stock outstanding (assuming no exercise of the underwriters' over-
allotment option and assuming no exercise after , 1999, of outstanding
options) after giving effect to the sale of the shares of common stock to the
public offered hereby and the conversion of our preferred stock into common
stock at a one-to-one ratio.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available therefor.
In the event of the liquidation, dissolution or winding up of LifeMinders.com,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
preferred stock, if any, then outstanding. The common stock has no cumulative
voting, preemptive or conversion or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into 9,665,240 shares of common stock and automatically
retired. Thereafter, the board of directors will have the authority to issue up
to shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of
LifeMinders.com without further action by the stockholders and may adversely
affect the voting and other rights of the holders of common stock. The issuance
of preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. At present, we have no plans to issue any of the preferred
stock.
Anti-takeover Effects of Provisions of the Certificate of Incorporation, Bylaws
and Delaware Law
Restated Certificate of Incorporation and Bylaws
Effective upon the closing of this offering, we will have a classified board
of directors such that approximately one-third of the members of the board of
directors are elected at each annual meeting of our stockholders. Our Bylaws
will provide that our stockholders may call a special meeting of stockholders
only upon a written request of stockholders owning at least 25% of our capital
stock. These provisions of the Restated Certificate of Incorporation and Bylaws
could discourage potential acquisition proposals and could delay or prevent a
change in control of LifeMinders.com. These provisions are intended to enhance
the
53
<PAGE>
likelihood of continuity and stability in the composition of the board of
directors and in the policies formulated by the board of directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of LifeMinders.com. These provisions are designed
to reduce our vulnerability to an unsolicited acquisition proposal. The
provisions also are intended to discourage certain tactics that may be used in
proxy fights. However, such provisions could have the effect of discouraging
others from making tender offers for our shares and, as a consequence, they
also may inhibit fluctuations in the market price of our shares that could
result from actual or rumored takeover attempts. Such provisions also may have
the effect of preventing changes in our management.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless:
. the Board of Directors approved the transaction in which such stockholder
became an interested stockholder prior to the date the interested
stockholder attained such status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
. on or subsequent to such date the business combination is approved by the
Board of Directors and authorized at an annual or special meeting of
stockholders by the holders of at least 66 2/3% of our outstanding voting
stock which is not owned by the interested stockholder.
A "business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior to the determination of
interested stockholder status, did own, 15% or more of a corporation's voting
stock.
Registration Rights
We have granted holders of our preferred stock certain piggy-back and demand
registration rights. These rights may require us to file registration
statements under the Securities Act covering all or a portion of the common
stock issued or issuable upon the automatic conversion of the preferred stock
or we may be required to include such shares of common stock in a registration
under the Securities Act that we initiate on our own behalf.
The demand registration rights provide that upon request of the holders of
common stock issued or issuable upon the automatic conversion of the preferred
stock, which request can be made at any time after November 12, 2000 or one
year from the date of the consummation of this offering, we may be required to
use its best efforts to register all or a portion of such shares under the
Securities Act on a Form S-1 registration statement. The request for such
registration must include at least 15% of the number of shares then held by the
holders granted registration rights or the number of shares sufficient to
result in net proceeds in excess of $15 million. We are obligated to effect no
more than three such registrations on a Form S-1 registration statement, but we
are not required to effect any demand registration within 180 days after any
other registration statement (on any form other than the Form S-4 or the Form
S-8) involving our common stock has become effective or has been filed and not
withdrawn.
The holders of common stock issued or issuable upon the automatic conversion
of the preferred stock also have the right to request that we register such
shares under the Securities Act on a Form S-3 registration
54
<PAGE>
statement, if and when we qualify to use this form of registration statement.
There is no limit on the number of registrations on Form S-3 that such holders
may request, except that no holder may request more than two such
registrations in any twelve month period and each request must include shares
having an aggregate offering price of at least $1 million.
In addition, each of the holders indicated above has certain "piggyback"
registration rights. If we propose to register any common stock under the
Securities Act for its own account (other than pursuant to an offering in
connection with the registration of securities on the Form S-8 or any
successor form, which covers securities issued under an employee benefit plan
or on the Form S-4 or any successor form, which covers securities issued in a
business combination or a registered exchange offer) holders of "piggyback"
rights may require that we include all or a portion of their common stock
issued or issuable upon the automatic conversion of the preferred stock in
such registration. In connection with any such offering, the managing
underwriter thereof can limit the number of shares held by persons with
"piggyback" registration rights to be included in such registration.
We will be responsible for all expenses incurred in connection with the
registration rights above, excluding underwriting discounts or commissions.
Transfer Agent And Registrar
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public
market could lower prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could harm the prevailing market price and impair our ability to raise equity
capital in the future.
Upon completion of the offering, we will have outstanding shares of
common stock. Of these shares, the shares sold in the offering, plus any
shares issued upon exercise of the underwriters' over-allotment option, will
be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. In general, affiliates include officers, directors or 10%
stockholders.
The remaining shares outstanding are "restricted securities" within the
meaning of Rule 144. Restricted securities 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 securities in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the common stock.
We anticipate that our directors, officers and significant securityholders
will enter into lock-up agreements in connection with this offering generally
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of our common stock or any securities
exercisable for or convertible into our common stock owned by them for a
period of 180 days after the date of this prospectus without the prior written
consent of Hambrecht & Quist LLC. Taking into account the lock-up agreements,
and assuming Hambrecht & Quist LLC does not release stockholders from these
agreements, the number of shares that will be available for sale in the public
market under the provisions of Rule 144, 144(k) and 701 will be as follows:
. Beginning on the effective date of this prospectus, only the shares sold
in this offering will be immediately available for sale in the public
market.
55
<PAGE>
. Beginning 90 days after the effective date, approximately shares
subject to fully vested options will be eligible for sale.
. Beginning 180 days after the effective date, approximately shares
will be eligible for sale.
. At various times thereafter upon the expiration of applicable holding
periods, shares will become eligible for sale.
In general, under Rule 144, after the expiration of the lock-up agreements, a
person 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:
. one percent of the number of shares of common stock then outstanding
which will equal approximately shares immediately after the offering;
or
. 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 requirements with respect to manner
of sale, notice and the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate 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 such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701 permits our employees, officers, directors or consultants who
purchased shares pursuant to a written compensatory plan or contract to resell
such shares in reliance upon Rule 144 but without compliance with specific
restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares
under Rule 144 without complying with the holding period requirement and that
non-affiliates may sell such shares in reliance on Rule 144 without complying
with the holding period, public information, volume limitation or notice
provisions of Rule 144.
56
<PAGE>
UNDERWRITING
The underwriters named below, through their representatives, Hambrecht &
Quist LLC, Thomas Weisel Partners LLC, PaineWebber Incorporated and Wit Capital
Corporation, have severally agreed to purchase, and we have agreed to sell
them, an aggregate of shares of common stock pursuant to an underwriting
agreement. The number of shares of common stock that each underwriter has
agreed to purchase is listed opposite its name below:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Hambrecht & Quist LLC....................................
Thomas Weisel Partners LLC...............................
PaineWebber Incorporated.................................
Wit Capital Corporation..................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
---
===
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are conditioned on the absence of any material adverse change in our business
and the receipt of certificates, opinions and letters from us and the selling
stockholders, their counsel and the independent auditors. The nature of the
underwriters' obligation is such that they are committed to purchase all shares
of common stock offered by this prospectus if any of the shares are purchased.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' over-allotment option
to purchase additional shares of common stock.
Underwriting Discounts and Commissions Payable by LifeMinders.com
<TABLE>
<CAPTION>
Without Over- With Over-
Allotment Exercise Allotment Exercise
------------------ ------------------
<S> <C> <C>
Per Share...........................
Total.............................
</TABLE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $ .
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price listed on the
cover page of this prospectus and part to selected dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. The underwriters may allow, and such dealers may reallow a
concession not in excess of $ per share to other underwriters or selected
other dealers. After the initial public offering of the shares of common stock,
the offering price and other selling terms may be changed by the
representatives of the underwriters.
An electronic prospectus is available on the Web site maintained by eSchwab.
The underwriters have agreed to allocate a limited number of shares to eSchwab
for sale to its brokerage account holders. In addition, a prospectus in
electronic format is being made available on an Internet Web site maintained by
Wit Capital. In addition, all dealers purchasing shares from Wit Capital in the
offering have agreed to make a prospectus in electronic format available on Web
sites maintained by each of these dealers.
57
<PAGE>
Purchases of shares from Wit Capital are to be made through an account at Wit
Capital in accordance with Wit Capital's procedures for opening an account and
transacting in securities.
In the underwriting agreement, we have granted to the underwriters an
option, exercisable no later than 30 days after the date of this prospectus, to
purchase up to an aggregate of additional shares of common stock at the
initial public offering price, less underwriting discounts and commissions,
listed on the cover page of this prospectus. To the extent that the
underwriters exercise this option, each underwriter will have a firm commitment
to purchase approximately the same percentage which the number of shares of
common stock to be purchased by it shown in the above table bears to the total
number of shares of common stock offered by this prospectus.
At our request, the underwriters have reserved up to shares of common
stock to be sold in the offering and offered for sale, at the public offering
price, to our directors, officers, employees, business associates and related
persons. The number of shares of common stock available for sale to the general
public will be reduced to the extent these individuals purchase the reserved
shares. Any reserved shares which are not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares
offered by this prospectus.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
LifeMinders.com has agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act, and to contribute to payments
the underwriters may be required to make with respect to these liabilities.
We anticipate that our directors, officers and our significant stockholders
will agree not to directly or indirectly, without the prior written consent of
Hambrecht & Quist LLC on behalf of the underwriters, whether any such
transaction described above is to be settled by delivery of common stock or
such other securities, in cash or otherwise, during the 180-day period
following the date of this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock (whether
any such shares or any such securities are then owned by such person or
are later acquired directly from us); or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock.
We have also agreed that we will not, without the prior written consent of
Hambrecht & Quist LLC, offer or sell any shares of common stock, options or
warrants to acquire shares of our common stock or securities exchangeable for
or convertible into shares of common stock during the 180-day period following
the date of this prospectus. We may issue shares upon the exercise of options
granted prior to the date of this prospectus, and may grant additional options
under our stock option plans, providing that, without the prior written consent
of Hambrecht & Quist LLC, the additional options shall not be exercisable
during the 180-day period.
The restrictions described in the previous paragraph do not apply to:
. the sale to the underwriters of the shares of common stock under the
underwriting agreement;
. the issuance of shares of our common stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date of
this prospectus which is described in the prospectus;
. transactions by any person other than LifeMinders.com relating to shares
of common stock or other securities acquired in open market transactions
after the completion of the offering of the shares of common stock; or
58
<PAGE>
. issuance of shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans as in existence on
the date of the prospectus and consistent with past practices.
The underwriters participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase, for the purpose of pegging,
fixing or maintaining the price of the common stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. A penalty bid means an arrangement that
permits the underwriters to reclaim a selling concession from a syndicate
member in connection with the offering when shares of common stock sold by the
syndicate member are purchased in syndicate covering transactions. These
transactions may be effected on the Nasdaq National Market, in the over-the-
counter market or otherwise. Stabilizing, if commenced, may be discontinued at
any time.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners LLC has been named as a lead or co-
manager of 68 filed public offerings of equity securities, of which 37 have
been completed, and has acted as a syndicate member in an additional 33 public
offerings of equity securities. We have an agreement with Thomas Weisel
Partners LLC under which they provide financial advisory and investment banking
services to us. In connection with the closing of our offering of Series E
preferred stock, Thomas Weisel Partners LLC received a cash fee equal to 10% of
the proceeds of the offering. Thomas Weisel Partners LLC does not have any
other material relationship with us or any of our officers, directors or
controlling persons, except with respect to its contractual relationship with
us under the underwriting agreement entered into in connection with this
offering.
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in the offering as one of the managing underwriters. The
National Association of Securities Dealers, Inc. approved the membership of Wit
Capital on September 4, 1997. Since that time, Wit Capital has acted as an
underwriter, e-manager or selected dealer in over 125 public offerings. Except
for its participation as a manager in the offering, Wit Capital has no
relationship with us or any of our affiliates.
Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation among LifeMinders.com and the representatives of the underwriters.
The factors that will be considered in determining the initial public offering
price are prevailing market and economic conditions, our revenue and earnings,
market valuations of other companies engaged in activities similar to us,
estimates of our business potential and prospects, the present state of our
business operations, our management and other factors deemed relevant.
59
<PAGE>
LEGAL MATTERS
The legality of the securities in this offering has been passed upon for us
by or counsel, Venable, Baetjer and Howard, LLP, of McLean, Virginia. Agreed
upon legal matters will be passed upon for the underwriters by its counsel,
Brobeck, Phleger & Harrison LLP of Washington, DC.
EXPERTS
Our financial statements at December 31, 1997 and 1998, and for the period
from August 9, 1996 (Date of Inception) through December 31, 1996, and for the
years ended December 31, 1997 and 1998, appearing in this prospectus and
registration statement have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered hereby. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits and schedules filed therewith. For further
information with respect to LifeMinders.com and the common stock offered
hereby, reference is made to the registration statement and to the exhibits and
schedules filed therewith. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and each such statement is qualified in all respects by reference to
the full text of such contract or other document filed as an exhibit to the
registration statement. A copy of the registration statement and the exhibits
and schedules filed therewith may be inspected without charge at the public
reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W.
Washington, D.C. 20549, and at the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the registration statement may be
obtained from such offices upon payment of the 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.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. Such periodic reports, proxy
statements and other information will be available for inspection and copying
at the regional offices, public reference facilities and Web site of the SEC
referred to above.
This prospectus includes statistical data regarding Internet usage and the
advertising industry which were obtained from industry publications, including
reports generated by Direct Marketing Association, Forrester Research, Inc.,
International Data Corporation, Electronic Mail & Messaging Systems and
Nielsen//NetRatings. These industry publications generally indicate that they
have obtained information from sources believed to be reliable, but do not
guarantee the accuracy and completeness of that information. While we believe
those industry publications to be reliable, we have not independently verified
the data included in the reports. We also have not sought, in all instances,
the consent of these organizations to refer to their reports in this
prospectus.
60
<PAGE>
LIFEMINDERS.COM, INC.
Table of Contents
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Accountants...................................... F-1
Balance Sheets as of December 31, 1997, 1998 and June 30, 1999
(unaudited)........................................................... F-2
Statements of Operations for the period from August 9, 1996 (date of
inception) to December 31, 1996, for the years ended December 31, 1997
and 1998 and for the six months ended June 30, 1998 and 1999
(unaudited)........................................................... F-3
Statements of Changes in Stockholders' Equity (Deficit) for the period
from August 9, 1996 (date of inception) to December 31, 1996, for the
years ended December 31, 1997 and 1998 and for the six months ended
June 30, 1999 (unaudited)............................................. F-4
Statements of Cash Flows for the period from August 9, 1996 (date of
inception) to December 31, 1996, for the years ended December 31, 1997
and 1998 and for the six months ended June 30, 1998, 1999
(unaudited)........................................................... F-5
Notes to Financial Statements.......................................... F-6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
LifeMinders.com, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity (deficit) and cash flows present
fairly, in all material respects, the financial position of LifeMinders.com,
Inc. (the Company) at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from August 9, 1996 (date of
inception) to December 31, 1996, and for each of the years ended December 31,
1997 and 1998 in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
April 2, 1999, except
as to Note 1 for which
the date is September
23, 1999
F-1
<PAGE>
LIFEMINDERS.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro forma
stockholders'
December 31, equity
---------------------- June 30, (deficit) at
1997 1998 1999 June 30, 1999
--------- ----------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.. $ 792,553 $ 232,073 $ 7,036,864
Accounts receivable, net... -- -- 919,830
Prepaid expenses........... -- -- 1,056,706
--------- ----------- -----------
Total current assets....... 792,553 232,073 9,013,400
Property and equipment,
net........................ 4,599 46,228 761,811
--------- ----------- -----------
Total assets............... $ 797,152 $ 278,301 $ 9,775,211
========= =========== ===========
Liabilities, Mandatorily
Redeemable Convertible
Preferred Stock and
Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable........... $ -- $ 42,368 $ 1,009,535
Accrued expenses........... 48,486 79,972 803,931
Deferred revenue........... -- 355,000 41,842
Note payable............... -- -- 47,246
--------- ----------- -----------
Total current liabilities.. 48,486 477,340 1,902,554
Note payable, net of current
portion.................... -- -- 114,740
--------- ----------- -----------
Total liabilities.......... 48,486 477,340 2,017,294
--------- ----------- -----------
Commitments and
contingencies
Mandatorily redeemable
convertible preferred
stock:
Series A, $.01 par value;
1,000,000 shares
authorized, issued and
outstanding at December
31, 1997 and 1998 and June
30, 1999 (unaudited)
(liquidation preference of
$1,524,002 as of June 30,
1999)..................... 866,338 980,486 1,029,564
Series B, $.01 par value;
1,000,000 authorized
shares; no shares issued
and outstanding at
December 31, 1997 and
1,000,000 shares issued
and outstanding at
December 31, 1998 and June
30, 1999 (unaudited)
(liquidation preference of
$1,476,224 as of June 30,
1999)..................... -- 1,042,889 1,082,889
Series C, $.01 par value;
2,620,373 authorized
shares; no shares issued
at December 31, 1997 and
1998; 2,620,373 shares
issued and outstanding at
June 30, 1999 (unaudited)
(liquidation preference of
$4,993,333 as of June 30,
1999)..................... -- -- 4,051,432
Series D, $.01 par value;
2,252,874 authorized
shares; no shares issued
at December 31, 1997 and
1998; 2,252,874 shares
issued and outstanding at
June 30, 1999 (unaudited)
(liquidation preference of
$11,593,335 as of June 30,
1999)..................... -- -- 10,540,229
--------- ----------- -----------
Total mandatorily
redeemable convertible
preferred stock........... 866,338 2,023,375 16,704,114
--------- ----------- -----------
Stockholders' equity
(deficit):
Common stock, $.01 par
value; 5,000,000 and
5,240,000 and 20,000,000
shares authorized at
December 31, 1997 and 1998
and June 30, 1999
(unaudited), respectively;
2,620,000 shares issued
and outstanding at
December 31, 1997 and 1998
and 2,627,500 shares
issued and outstanding at
June 30, 1999
(unaudited)............... 26,200 26,200 26,275 95,007
Additional paid-in
capital................... 370,301 212,765 1,410,253 18,045,635
Deferred compensation on
employee stock options.... -- -- (1,313,337) (1,313,337)
Accumulated deficit........ (514,173) (2,461,379) (9,069,388) (9,069,388)
--------- ----------- ----------- -----------
Total stockholders' equity
(deficit)................. (117,672) (2,222,414) (8,946,197) $ 7,757,917
--------- ----------- ----------- ===========
Total liabilities,
mandatorily redeemable
convertible preferred
stock and stockholders'
equity (deficit).......... $ 797,152 $ 278,301 $ 9,775,211
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
LIFEMINDERS.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
period
August 9,
1996
(date of
inception), For the year ended For the six months ended
to December 31, June 30,
December 31, ---------------------- --------------------------
1996 1997 1998 1998 1999
------------ --------- ----------- ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. $ -- $ 67,126 $ 56,750 $ -- $ 1,442,221
Cost of revenue......... -- 37,249 59,472 11,774 245,913
-------- --------- ----------- ----------- -------------
Gross margin (loss)..... -- 29,877 (2,722) (11,774) 1,196,308
-------- --------- ----------- ----------- -------------
Operating expenses:
Sales and marketing.... 15,965 147,325 868,706 330,942 6,240,486
Research and
development........... 9,800 240,498 373,788 192,064 525,432
General and
administrative........ 9,308 127,132 726,505 267,528 1,007,274
Stock-based
compensation.......... -- -- -- -- 99,348
-------- --------- ----------- ----------- -------------
Total operating
expenses............. 35,073 514,955 1,968,999 790,534 7,872,540
-------- --------- ----------- ----------- -------------
Loss from operations.... (35,073) (485,078) (1,971,721) (802,308) (6,676,232)
Interest income, net.... -- 5,978 24,515 13,573 68,223
-------- --------- ----------- ----------- -------------
Net loss.............. (35,073) (479,100) (1,947,206) (788,735) (6,608,009)
Accretion on mandatorily
redeemable convertible
preferred stock........ -- -- (157,037) (59,963) (231,622)
-------- --------- ----------- ----------- -------------
Net loss available to
common stockholders.... $(35,073) $(479,100) $(2,104,243) $ (848,698) $ (6,839,631)
======== ========= =========== =========== =============
Basic and diluted net
loss per common share.. $ (0.05) $ (0.24) $ (0.80) $ (0.32) $ (2.61)
======== ========= =========== =========== =============
Weighted average common
shares and common share
equivalents............ 638,576 2,024,183 2,620,000 2,620,000 2,620,083
======== ========= =========== =========== =============
Unaudited pro forma data
(Note 2):
Basic and diluted net
loss per common
share................. $ (0.51) $ (0.95)
=========== =============
Weighted average common
shares and common
share equivalents..... 4,161,667 7,179,206
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LIFEMINDERS.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deferred
Common stock Common stock stock
Common stock Class A Class B Additional compensation Treasury stock
----------------- -------------- ------------- paid-in on employee Accumulated ----------------
Shares Amount Shares Amount Shares Amount capital stock options deficit Shares Amount
--------- ------- ------ ------ ------ ------ ---------- ------------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
Class A common
stock at
inception on
August 9, 1996.. -- $ -- 1,000 $ 10 -- $ -- $ 9,990 $ -- $ -- -- $ --
Net loss........ -- -- -- -- -- -- -- -- (35,073) -- --
--------- ------- ------ ----- ---- ----- ---------- ----------- ----------- -------- -----
Balance,
December 31,
1996............ -- -- 1,000 10 -- -- 9,990 -- (35,073) -- --
Issuance of
Class B common
stock........... -- -- -- -- 299 3 52,562 -- -- -- --
Conversion of
Class B common
stock to
Series A common
stock........... -- -- 429 4 (299) (3) (1) -- -- -- --
Issuance of
1,618.6144
shares of common
stock for each
Class A common
stock share and
cancellation of
Class A common
stock........... 2,313,000 23,130 (1,429) (14) -- -- (23,116) -- -- -- --
Conversion of
note payable to
common stock.... 257,000 2,570 -- -- -- -- 197,430 -- -- -- --
Issuance of
stock options to
purchase common
stock in
connection with
the Series A
convertible
preferred stock
issuance........ -- -- -- -- -- -- 38,000 -- -- -- --
Issuance of
common stock.... 50,000 500 -- -- -- -- (400) -- -- -- --
Issuance of
warrants in
connection with
the Series A
convertible
preferred stock
issuance........ -- -- -- -- -- -- 51,000 -- -- -- --
Contribution by
stockholder..... -- -- -- -- -- -- 20,200 -- -- -- --
Forgiveness of
loan payable to
stockholders in
lieu of
contributions... -- -- -- -- -- -- 24,636 -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- (479,100) -- --
--------- ------- ------ ----- ---- ----- ---------- ----------- ----------- -------- -----
Balance,
December 31,
1997............ 2,620,000 26,200 -- -- -- -- 370,301 -- (514,173) -- --
Acquisition of
treasury stock.. -- -- -- -- -- -- -- -- -- 50,000 (500)
Exercise of
stock option in
connection with
the preferred
stock offering.. -- -- -- -- -- -- (499) -- -- (50,000) 500
Accretion on
mandatorily
redeemable
convertible
preferred
stock........... -- -- -- -- -- -- (157,037) -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- (1,947,206) -- --
--------- ------- ------ ----- ---- ----- ---------- ----------- ----------- -------- -----
Balance,
December 31,
1998............ 2,620,000 26,200 -- -- -- -- 212,765 -- (2,461,379) -- --
Accretion on
mandatorily
redeemable
convertible
preferred stock
(unaudited)..... -- -- -- -- -- -- (231,622) -- -- -- --
Exercise of
stock options
(unaudited)..... 7,500 75 -- -- -- -- 7,425 -- -- -- --
Issuance of
stock options in
exchange for
services
(unaudited)..... -- -- -- -- -- -- 9,000 -- -- -- --
Deferred
compensation
(unaudited)..... -- -- -- -- -- -- 1,412,685 (1,412,685) -- -- --
Amortization of
deferred
compensation
(unaudited)..... -- -- -- -- -- -- -- 99,348 -- -- --
Net loss
(unaudited)..... -- -- -- -- -- -- -- (6,608,009) -- --
--------- ------- ------ ----- ---- ----- ---------- ----------- ----------- -------- -----
Balance, June
30, 1999
(unaudited)..... 2,627,500 $26,275 -- $ -- -- $ -- $1,410,253 $(1,313,337) $(9,069,388) -- $ --
========= ======= ====== ===== ==== ===== ========== =========== =========== ======== =====
<CAPTION>
Total
------------
<S> <C>
Issuance of
Class A common
stock at
inception on
August 9, 1996.. $ 10,000
Net loss........ (35,073)
------------
Balance,
December 31,
1996............ (25,073)
Issuance of
Class B common
stock........... 52,565
Conversion of
Class B common
stock to
Series A common
stock........... --
Issuance of
1,618.6144
shares of common
stock for each
Class A common
stock share and
cancellation of
Class A common
stock........... --
Conversion of
note payable to
common stock.... 200,000
Issuance of
stock options to
purchase common
stock in
connection with
the Series A
convertible
preferred stock
issuance........ 38,000
Issuance of
common stock.... 100
Issuance of
warrants in
connection with
the Series A
convertible
preferred stock
issuance........ 51,000
Contribution by
stockholder..... 20,200
Forgiveness of
loan payable to
stockholders in
lieu of
contributions... 24,636
Net loss........ (479,100)
------------
Balance,
December 31,
1997............ (117,672)
Acquisition of
treasury stock.. (500)
Exercise of
stock option in
connection with
the preferred
stock offering.. 1
Accretion on
mandatorily
redeemable
convertible
preferred
stock........... (157,037)
Net loss........ (1,947,206)
------------
Balance,
December 31,
1998............ (2,222,414)
Accretion on
mandatorily
redeemable
convertible
preferred stock
(unaudited)..... (231,622)
Exercise of
stock options
(unaudited)..... 7,500
Issuance of
stock options in
exchange for
services
(unaudited)..... 9,000
Deferred
compensation
(unaudited)..... --
Amortization of
deferred
compensation
(unaudited)..... 99,348
Net loss
(unaudited)..... (6,608,009)
------------
Balance, June
30, 1999
(unaudited)..... $(8,946,197)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LIFEMINDERS.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
period
August 9,
1996 (date
of
inception) For the year ended For the six months
to December 31, ended June 30,
December 31, ----------------------- -----------------------
1996 1997 1998 1998 1999
------------ ---------- ----------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(35,073) $ (479,100) $(1,947,206) $ (788,735) $(6,608,009)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation.......... -- 271 8,234 2,131 46,046
Allowance for doubtful
accounts............. -- -- -- -- 40,000
Allowance for revenue
credits.............. -- -- -- -- 56,503
Amortization of
deferred compensation
on employee stock
options.............. -- -- -- -- 99,348
Issuance of common
stock and stock
options in exchange
for services......... -- 2,565 -- -- 9,000
Changes in assets and
liabilities:
Accounts receivable.. -- -- -- (30,000) (1,016,333)
Prepaid expenses..... -- -- -- -- (1,056,706)
Accounts payable..... -- -- 42,368 68,282 967,167
Accrued expenses..... -- 48,486 31,486 (48,486) 723,959
Deferred revenue..... -- -- 355,000 55,000 (313,158)
-------- ---------- ----------- ---------- -----------
Net cash used in
operating
activities......... (35,073) (427,778) (1,510,118) (741,808) (7,052,183)
-------- ---------- ----------- ---------- -----------
Cash flows from
investing activities:
Acquisition of
property and
equipment............ -- (4,870) (49,863) (19,029) (761,629)
-------- ---------- ----------- ---------- -----------
Net cash used in
investing
activities......... -- (4,870) (49,863) (19,029) (761,629)
-------- ---------- ----------- ---------- -----------
Cash flows from
financing activities:
Proceeds from
borrowings on notes
payable to
stockholders......... 35,236 53,319 -- -- --
Payments on notes
payable to
stockholders......... (10,000) (53,919) -- -- --
Issuance of preferred
stock................ -- 1,000,000 -- -- 14,600,000
Cash paid for offering
costs in connection
with issuance of
preferred stock...... -- (44,662) -- -- (150,883)
Proceeds from the
exercise of Series B
preferred warrants... -- -- 1,000,000 1,000,000 --
Proceeds from issuance
of note payable...... -- 200,000 -- -- 161,986
Purchase of treasury
stock................ -- -- (500) -- --
Proceeds from issuance
of common stock...... 10,000 50,100 1 -- --
Exercise of stock
options.............. -- -- -- -- 7,500
Stockholder cash
capital
contribution......... -- 20,200 -- -- --
-------- ---------- ----------- ---------- -----------
Net cash provided by
financing
activities......... 35,236 1,225,038 999,501 1,000,000 14,618,603
-------- ---------- ----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 163 792,390 (560,480) 239,163 6,804,791
Cash and cash
equivalents, beginning
of period............. -- 163 792,553 792,553 232,073
-------- ---------- ----------- ---------- -----------
Cash and cash
equivalents, end of
period................ $ 163 $ 792,553 $ 232,073 $1,031,716 $ 7,036,864
======== ========== =========== ========== ===========
Supplemental
disclosures of non-
cash investing and
financing activities:
Conversion of note
payable to common
stock................ $ -- $ 200,000 $ -- $ -- $ --
======== ========== =========== ========== ===========
Forgiveness of notes
payable to
stockholders......... $ -- $ 24,636 $ -- $ -- $ --
======== ========== =========== ========== ===========
Conversion of notes
payable due to
stockholders to
common stock......... $ 10,000 $ -- $ -- $ -- $ --
======== ========== =========== ========== ===========
Issuance of common
stock in exchange for
services............. $ -- $ 2,565 $ -- $ -- $ --
======== ========== =========== ========== ===========
Issuance of warrants
in connection with
Series A convertible
preferred stock
issuance............. $ -- $ 51,000 $ -- $ -- $ --
======== ========== =========== ========== ===========
Issuance of stock
options in exchange
for services......... $ -- $ -- $ -- $ -- $ 9,000
======== ========== =========== ========== ===========
Accretion of Series A,
Series B, Series C
and Series D
mandatorily
redeemable
convertible preferred
stock................ $ -- $ -- $ 157,037 $ 59,963 $ 231,622
======== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Financing of Start-Up Operations
LifeMinders is an online direct marketing company that provides personalized
content and advertisements via e-mail to a community of members. E-mail
messages contain reminders and tips that enable the Company's members to better
organize and manage their lives. Proprietary member information and targeting
capabilities provide advertising partners to more effectively reach their
target audiences.
The Company was incorporated in Maryland on August 9, 1996 ("Date of
Inception") under the name of MinderSoft, Inc. In January 1999, we changed our
name to LifeMinders.com, Inc. The Company was reincorporated in Delaware in
July 1999. From 1996 to 1998, the Company entered into arrangements with
national retailers to distribute reminder products in software form on disk. In
late 1998, the Company revised its strategy to become an online direct
marketing company that provides personalized content and advertisements via e-
mail to a loyal community of members.
Initial Public Offering and Unaudited Pro Forma Balance Sheet--In September
1999, the Board of Directors authorized the filing of a registration statement
with the Securities and Exchange Commission (SEC) that would permit the Company
to sell shares of common stock in connection with a proposed initial public
offering (IPO). If the IPO is consummated under the terms presently
anticipated, upon the closing of the proposed IPO all of the then outstanding
shares of the Company's mandatorily redeemable convertible preferred stock will
automatically convert into shares of common stock on a one-for-one basis. The
conversion of the convertible preferred stock has been reflected in the
accompanying unaudited pro forma stockholders' equity as if it had occurred on
June 30, 1999.
The Company was considered to be in the development stage from inception
through March 31, 1999 as it was devoting substantially all of its efforts to
establishing a new business, developing the design of its database marketing
product, raising capital, financial planning and market development. Although
revenue commenced in 1997 and continued during 1998, this revenue was generated
from distribution arrangements for its software based products and not from
planned principal operations. During the three month period ended March 31,
1999, the Company generated revenue of $23,322 (unaudited) from planned
operations. Subsequent to March 31, 1999, the Company ceased being a
development stage enterprise generating revenue of $1,418,899 (unaudited) from
planned principal operations which consisted of Internet related services.
2. Summary of Significant Accounting Policies
The significant accounting policies followed by the Company in the
preparation of these financial statements are as follows:
Use of Estimates
The preparation of the 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 revenue and expenses during the reported
period. Actual results could differ from these estimates.
Unaudited Interim Financial Statements
The unaudited balance sheet as of June 30, 1999, the unaudited statements of
operations and cash flows for the six months ended June 30, 1998 and 1999 and
the statement of changes in stockholders' equity (deficit)
F-6
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
for the six months ended June 30, 1999, have been prepared in accordance with
generally accepted accounting principles for interim financial information and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 1999 are not necessarily
indicative of results that may be expected for the year ending December 31,
1999.
Cash and Cash Equivalents
Highly liquid investments having original maturities of 90 days or less at
the date of acquisition are classified as cash equivalents. The carrying value
of cash equivalents approximate fair value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to five years. When property and equipment is retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is included in
operations.
Research and Development Costs
Research and development costs are expensed as incurred.
Revenue Recognition
During 1997 and 1998, the Company's revenue was generated from distribution
agreements for software-based products. Revenue from these agreements has been
recognized as the services were performed.
Beginning in fiscal year 1999, revenue was generated primarily by
advertising, opt-in services and sponsorships.
Advertising
Advertising arrangements consist primarily of banner advertisements that
are displayed within the Company's e-mails. Advertisers pay the Company for
the number of advertisements displayed, the number of times members click
on advertisements or based on other criteria. The Company derives
advertising revenue primarily from advertising contracts with average terms
of one to six months. In these contracts, the Company typically guarantees
a minimum number of e-mails delivered containing an advertisement directed
at a specific group on a per e-mail basis. The Company recognizes
advertising revenue ratably in the period in which the advertisement is
displayed, provided that there are no significant obligations remaining.
Advertising revenue also includes barter transactions, where the Company
exchanges advertising space on their e-mails for reciprocal advertising
space or traffic on other Web sites. Revenue from these barter transactions
are recorded at the estimated fair value of the advertisements delivered
and are recognized when the advertisements are included in the Company's e-
mails. No gain or loss results from these barter transactions as the
revenue recognized equals the advertising costs incurred. For the six month
period ended June 30, 1999, barter revenue was less than 10% of net
revenues. LifeMinders.com did not enter into barter transactions prior to
1999.
F-7
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Opt-in Services
The Company derives revenue from its opt-in services through fees that
its opt-in partners pay, based on the number of affirmative member
responses to the newsletters and other promotions offered during the
Company's sign up process. The Company recognizes revenue at the time it
invoices its opt-in partners for the number of affirmative member
responses. The Company records revenue net of estimated duplicate member
responses to its opt-in partners' newsletters and other promotions. For the
six month period ended June 30, 1999, revenue was recorded net of
approximately $56,500 for estimated duplicate member responses to the
Company's opt-in partners' newsletters and other promotions.
Sponsorship
The Company offers sponsorship arrangements to advertising partners that
provide the opportunity to display banners in a fixed position within a
specific e-mail category. Sponsorship revenue is derived principally from
contracts of less than one year. Sponsorship agreements typically include
the delivery of advertisements that enhance broad marketing objectives of
the sponsor. The portion of sponsorship revenue related to the delivery of
advertisements is recognized ratably in the period in which the
advertisement is displayed provided none of the Company's obligations
remain. The portion of sponsorship revenue related to the up-front
customized design work, as specified in the contract, is recognized in the
period in which the design work is performed.
Cash received in advance of advertising, opt-in and sponsorship services is
recorded as deferred revenue and recognized as revenue as services are
performed.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist of cash and cash equivalents and accounts receivable.
The Company's cash and cash equivalents are maintained at two U.S. financial
institutions. Deposits held with banks may exceed the amount of insurance
provided on such deposits. The majority of the Company's cash equivalents are
invested in short-term commercial paper.
Revenue for the years ended December 31, 1997 and 1998 and for the six
months ended June 30, 1999 (unaudited) and accounts receivable as of June 30,
1999 (unaudited) were concentrated as follows (amounts represent the percentage
of total revenue and accounts receivable), respectively:
<TABLE>
<CAPTION>
Accounts
Revenue receivable
------------------------- -----------
For the For the six
year ended months ended
December 31, June 30,
------------ ------------ June 30,
1997 1998 1999 1999
------------ ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Lowes.................................. 100% * * *
The Home Depot......................... * 88.1% 15.1% *
The Industry Standard.................. * * 17.1% 19.0%
Netcentives............................ * * * 12.9%
Excite Networks........................ * * 13.9% 19.7%
CyberGold.............................. * * * 14.3%
</TABLE>
* Represents less than 10% of total.
F-8
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Advertising Costs
Costs related to advertising and promotion of services is charged to sales
and marketing expense as incurred. Cash paid in advance of advertising and
services received is recorded as prepaid expenses which is amortized as
services are received.
Income Taxes
Prior to November 1997, the Company was organized as an S Corporation and
taxable income was included in the individual tax returns of the stockholders.
In conjunction with the Company's preferred stock financing during 1997, the
Company terminated its Subchapter S corporation election for tax. The Company,
now a C corporation, is subject to federal and state income taxes and
recognizes deferred taxes using the liability approach under which deferred
income taxes are calculated based on the differences between the financial and
tax bases of assets and liabilities based upon enacted tax laws and rates
applicable to the periods in which the taxes become payable. The Company
provides a valuation allowance, if necessary, to reduce deferred tax assets to
their estimated realizable value.
The provision for income taxes consists of the Company's current tax
provision (benefit) for federal and state income taxes and the changes in the
deferred tax asset and liability during the period.
Stock Based Compensation
The Company measures compensation expense for its employee stock-based
compensation using the intrinsic value method and provides pro forma
disclosures of net loss as if the fair value method had been applied in
measuring compensation expense. Under the intrinsic value method of accounting
for stock-based compensation, when the exercise price of options granted to
employees is less than the estimated fair value of the underlying stock on the
date of grant, deferred compensation is recognized and is amortized to
compensation expense over the applicable vesting period.
Impairment of Long-lived Assets
The Company evaluates the recoverability of the carrying value of its long-
lived assets periodically. The Company considers historical performance and
anticipated future results in its evaluation of potential impairment.
Accordingly, when indicators of impairment are present, the Company evaluates
the carrying value of these assets in relation to the operating performance of
the business and future discounted and undiscounted cash flows expected to
result from the use of these assets. Impairment losses are recognized when the
sum of expected future cash flows are less than the assets' carrying value. No
such impairment losses have been recognized to date.
Basic and Diluted Net Loss Per Common Share
Basic net loss per common share is based on the weighted average number
shares of common stock outstanding during each year. Diluted net loss per
common share is based on the weighted average number of shares of common stock
outstanding during each year, adjusted for the effect of common stock
equivalents arising from the assumed exercise of stock options, if dilutive.
Pro Forma Net Loss Per Share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 and for
the six months ended June 30, 1999 is computed using the weighted average
number of common shares outstanding including the pro forma
F-9
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
effects of the automatic conversion of the Company's Series A, Series B, Series
C, and Series D preferred stock outstanding as of June 30, 1999 into shares of
the Company's common stock effective upon the closing of the Company's initial
public offering. The resulting pro forma adjustment results in an increase in
the weighted average shares used to compute basic and diluted net loss per
share of 1,541,667 shares for the year ended December 31, 1998 and 4,559,123
shares for the six months ended June 30, 1999 and a pro forma basic and diluted
net loss per common share of $0.51 and $0.95, respectively. Pro forma common
equivalent shares, comprised of incremental common shares issuable upon the
exercise of stock options are not included in the pro forma diluted net loss
per share because they would be antidilutive.
Comprehensive Income
The Company has adopted the accounting treatment prescribed by SFAS 130,
Comprehensive Income. The adoption of this statement had no impact on the
Company's financial statements because the Company did not have any other
comprehensive income components other than net loss during the periods
presented.
Certain Risks and Uncertainties
The Company is subject to all the risks inherent in an early stage business
in the technology industry. The risks include, but are not limited to, limited
operating history, limited management resources, reliance on distribution
arrangements for software based products for revenue where acceptance of the
Company's service on the Internet is uncertain, reliance on relationships with
a limited number of customers, dependence on the Internet and related security
risks and the changing nature of the Internet industry.
3. Accounts Receivable
<TABLE>
<CAPTION>
June 30,
1999
-----------
(unaudited)
<S> <C>
Accounts receivable............................................ $959,830
Allowance for doubtful accounts................................ (40,000)
--------
Accounts receivable, net....................................... $919,830
========
</TABLE>
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------- June 30,
1997 1998 1999
------ ------- -----------
(unaudited)
<S> <C> <C> <C>
Furniture and fixtures........................ $ -- $22,204 $ 36,612
Computer equipment............................ 4,870 32,529 779,750
------ ------- --------
4,870 54,733 816,362
Less: accumulated depreciation (271) (8,505) (54,551)
------ ------- --------
Property and equipment, net................... $4,599 $46,228 $761,811
====== ======= ========
</TABLE>
F-10
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Borrowings
Line of Credit
In November 1998, the Company entered into a $600,000 working capital line
of credit with a bank. The line of credit was increased to $1,000,000 upon the
receipt of $4,000,000 from institutional venture capital investors in January
1999 in connection with the issuance of Series C mandatorily redeemable
convertible preferred stock. The interest rate on the line is the bank's prime
rate plus 1.0% per annum (8.75% at December 31, 1998). The line of credit is
collateralized by substantially all the Company's assets, including intangible
assets and future proceeds from such assets, and includes financial and other
covenants, including a requirement to maintain a monthly quick ratio of 1 to 1.
In March 1999, the working capital line of credit of $1,000,000 was reduced by
$150,000 which was allocated for a bank credit line. The line and business
credit line expire November 10, 1999. No borrowings were outstanding under the
line of credit as of December 31, 1998 and June 30, 1999 (unaudited).
Note Payable
On March 3, 1999, the Company entered into a $200,000 promissory note with
the same bank that the Company has the line of credit, for the purpose of
equipment and software purchases and general working capital. The Company can
draw from the note through November 10, 1999 (draw period). Interest during the
draw period is due monthly beginning April 10, 1999 at an annual interest rate
of the bank's prime rate plus 1.0%. On November 10, 1999, the outstanding
principal balance of the borrowings during the draw period are payable monthly
in 24 equal principal payments commencing on December 10, 1999. All remaining
principal and accrued but unpaid interest is due on maturity of November 9,
2001. The promissory note is collateralized under the same terms of the line of
credit discussed earlier and includes financial and other covenants, including
a requirement to maintain a minimum monthly quick ratio of 1.25 to 1. At June
30, 1999, $161,986 (unaudited) was outstanding under this agreement.
6. Mandatorily Redeemable Convertible Preferred Stock and Stockholders' Equity
(Deficit)
Common Stock
On August 9, 1996, the founders of the Company purchased 1,000 shares of the
Company's Class A common stock for $10,000 in connection with the Company's
formation.
In June 1997, the founders were issued 299 shares of Class B common stock
for $50,000 in cash and stock in exchange for services valued at $2,565. The
estimated fair value was determined by the Board of Directors.
On October 15, 1997, the Company completed a plan of recapitalization which
converted the 299 shares of Class B common stock to 429 shares of Class A
common stock. Subsequent to the conversion the Class B common stock was
retired.
On November 12, 1997, the Company issued 1,618.6144 shares of common stock
for each share of Class A common stock held by stockholders at such date. Upon
the issuance of the 2,313,000 shares of common stock, 1,429 shares of Class A
common stock were retired.
On November 12, 1997, the Company converted a $200,000, 7% Nonassignable
Convertible Note into 257,000 shares of common stock.
F-11
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
On November 12, 1997, the Company issued one non-employee options to
purchase 50,000 shares of common stock for $100 in connection with a consulting
agreement for services to raise capital for the Company. These options had a
fair value of $38,000 which were recorded as direct issuance costs and offset
against the proceeds. The options were exercised on November 12, 1997. The
estimated fair value of the options were determined using the American Black-
Scholes Model.
In June 1998, the Company purchased 50,000 shares of common stock at $0.01
per share from the founders of the Company. These treasury shares were re-
issued as result of one non-employee exercising a stock option granted during
1997 in the Series A mandatorily redeemable convertible preferred stock
issuance. The total exercise price was $1.00.
Mandatorily Redeemable Convertible Preferred Stock
As of December 31, 1998, the Company had authorized two classes of
mandatorily redeemable convertible preferred stock: Series A and Series B.
The Company issued 1,000,000 shares of Series A mandatorily redeemable
convertible preferred stock on November 12, 1997 for $1.00 per share. In
conjunction with this preferred stock sale, the Company issued warrants to
purchase 1,000,000 shares of Series B mandatorily redeemable convertible
preferred stock at $1.00 per share with an estimated fair value of $51,000
determined using the American Black-Scholes Model. The Series A shares have
cumulative preferred dividends of $0.08 per share annually.
On June 17, 1998, the Company issued 1,000,000 shares of Series B preferred
stock at $1.00 per share for total proceeds of $1,000,000 resulting from the
exercise of the Series B preferred stock warrants granted in 1997. The Series B
preferred stock carry the same terms and conditions as the Series A preferred
stock.
In January 1999, the Company amended its Articles of Incorporation to
authorize 2,620,373 shares of $0.01 par value Series C mandatorily redeemable
convertible preferred stock and to include the Series A and Series B Preferred
Stock as mandatorily redeemable shares. Each shareholder of preferred stock has
the right to require the Company to redeem their respective shares upon the
earlier of (1) the fifth anniversary of the issuance of the Series C Preferred
Stock or (2) the occurrence of a liquidation and or material and incurable
breach by the Company of the Amended and Restated Articles of Incorporation.
The redemption price is equal to the original issuance price of each respective
share, plus all accrued but unpaid dividends. As of June 30, 1999, the
preferred stock carrying value has been accreted to increase the carrying value
for cumulative dividends and a portion of direct issuance costs.
On January 29, 1999, the Company issued 2,620,373 shares of Series C
convertible preferred stock at an approximate price of $1.53 per share and
total proceeds of $4,000,000. The Series C preferred stock are mandatorily
redeemable and have the same redemption rights as Series A preferred stock and
Series B preferred stock.
Conversion
Each share of preferred stock is convertible into common stock at the option
of the holder at any time at the initial conversion ratio of 1 to 1. The
conversion ratio is subject to adjustment for events such as a stock split,
stock dividend, or certain issuances of stock. At December 31, 1997 and 1998
the conversion ratio was 1 to 1.
Automatic conversion is required if at any time the Company shall effect an
initial public offering in which the value of the Company is at least
$30,000,000 in an offering of not less than $10,000,000, before deduction of
underwriting discounts and registration expenses.
F-12
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In the January 29, 1999 Amendment to the Articles of Incorporation, the
automatic conversion of convertible preferred stock has been amended to convert
upon an initial public offering, net of underwriters' discounts, commissions
and registration expense, of at least $15,000,000 and at an offering price in
which assuming the conversion of all preferred stock and stock options and
other securities exercisable by the Company at that time would be included in
the number of common shares multiplied by the offering price would exceed at
least $45,000,000 net of underwriters' discounts, commissions and registration
expense.
Liquidation Preferences
In the event of any liquidation or winding up of the Company, the holders of
Series A, B, C and D preferred shares will be entitled to a liquidation
preference over the Company's common stock. The liquidation preference equals
the original face amount plus any accrued but unpaid dividends. No dividends
have been declared during December 31, 1997 and 1998.
Series A Preferred shareholders also participate so that after payment of
the original purchase price plus unpaid dividends to the holders of Series A,
B, C and D Preferred, the remaining assets shall be distributed on a pro rata
basis to all shareholders on a Common equivalent share basis until the holders
of Series A Preferred shares have received an aggregate of 2.5 times their
original purchase price (including the preference amount set forth in the
preceding paragraph).
A merger, acquisition or sale of substantially all of the assets of the
Company in which the shareholders of the Company do not own a majority of the
outstanding shares of the surviving corporation shall be deemed a liquidation.
In the January 29, 1999 Amendment to the Articles of Incorporation, the
liquidation preference was amended to provide the holders of Series C
convertible preferred shares with the same liquidation preference as the
holders of Series A mandatorily redeemable convertible preferred shares.
Dividends, Voting and Other Rights
The Company shall not declare or pay any distributions by dividend or
otherwise, payable other than in common stock, until a dividend in an amount at
least equal to the accrued and unpaid dividends due for each outstanding share
of Series A, Series B, Series C, and Series D Preferred Stock has been paid or
declared and set apart. After the holders of the outstanding Preferred Stock
have received their dividends, any dividends declared by the Board of Directors
out of funds legally available therefore shall be shared equally among all
outstanding shares on an as converted basis. The declaration of dividends is at
the discretion of the Board of Directors.
Each share of Preferred Stock is entitled to the number of votes equal to
the number of whole shares of common stock into which each share of Preferred
Stock could be converted.
Holders of a majority of the Preferred (or Common issued upon conversion of
the Preferred) can request the Company to file a Registration Statement for at
least 15% of their shares (or any lesser percentage if the anticipated gross
receipts from the offering exceed $15,000,000). The Company must use its best
efforts to cause such shares to be registered; provided, however, that the
Company shall not be obligated to effect any such registration prior to the
earlier of (i) November 12, 2000 or (ii) within one year following the
effective date of the Company's initial public offering.
F-13
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Preferred Stockholders have the right to purchase up to their pro rata share
of any shares the Company proposes to offer to any person or entity (other than
for an employee stock grant, equipment financing, acquisition of another
company or shares offered to the public pursuant to an underwritten public
offering).
If any founder of the Company proposes to sell all or a portion of his
shares to a third party, the Preferred Stockholders have the right to
participate in such sale on a pro rata basis or to exercise a right of first
refusal on the same basis. This agreement will terminate on the earlier of (1)
an IPO, (2) January 29, 2009, (3) when less than one quarter of the aggregate
number of shares outstanding as of January 29, 1999 for Series C and as of May
28, 1999 for Series D remain issued and outstanding, (4) sale of all or
substantially all of the Company's assets, and (5) the date of which any one or
more third parties acquire control or the ability to vote 33% or more of each
class outstanding.
7. Stock Options
Stock Option Plan for Employees and Non-employees
During 1998, the Company adopted the 1998 Stock Option Plan (the Plan),
under which incentive stock options and nonstatutory stock options may be
granted to employees, directors and consultants of the Company. Incentive stock
options may only be granted to employees of the Company.
The Plan is administered by a committee appointed by the Board of Directors.
The options are not transferable and are subject to various restrictions
outlined in the Plan. The committee determines the number of options granted to
employees, directors, or consultants, the vesting period and the exercise
price. The exercise price for stock options granted shall not be less than the
estimated fair value per share of common stock on the date of such grant for
incentive stock options and not less than 85% of the estimated fair value per
share of common stock on the date of such grant for nonstatutory stock options.
The estimated fair value of the underlying common stock is determined by third
party equity cash transactions.
The Board of Directors had reserved originally 621,000 shares of common
stock to grant options under the Plan. Options granted under the Plan vest over
a four year period and expire ten years after the grant date. In the January
29, 1999 and May 28, 1999 Amendments to the Articles of Incorporation, the
number of common stock shares reserved under the Plan was increased to
1,136,065 and 1,636,056 shares, respectively.
Accounting for Stock Options Issued to Employees
The following table summarizes stock option activity for option grants:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Shares Price
--------- --------
<S> <C> <C>
December 31, 1997...................................... -- $ --
Grants................................................. 375,200 1.00
Exercises.............................................. -- --
Cancellations.......................................... (12,500) 1.00
--------- -----
December 31, 1998...................................... 362,700 1.00
Grants (unaudited)..................................... 886,206 1.25
Exercises (unaudited).................................. (7,500) 1.00
Cancellations (unaudited).............................. (157,500) 1.00
--------- -----
June 30, 1999 (unaudited).............................. 1,083,906 $1.20
========= =====
</TABLE>
F-14
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The weighted-average exercise price for options outstanding at December 31,
1998 was $1.00. These options will expire if not exercised at specific dates
ranging from March 2002 to December 2002 and the weighted-average remaining
contractual life of the options outstanding is approximately four years. At
December 31, 1998, there were no outstanding options which were exercisable.
Management estimates that stock options granted prior to December 31, 1998 have
been either equal to or in excess of the estimated fair value of the underlying
common stock and therefore no compensation expense was recognized. The Company
has estimated the fair value of the underlying common stock on the date of
grant was in excess of the exercise price for the options granted during the
six month period ended June 30, 1999. As a result, the Company recorded
deferred compensation of $1,412,685 (unaudited) for the six months ended June
30, 1999. This amount was recorded as a reduction to stockholders' equity
(deficit) and is being amortized as a charge to operations over the vesting
period of the stock options. For the six months ended June 30, 1999, the
Company recognized $99,348 (unaudited) of employee stock compensation expense
related to these options.
Annual amortization of deferred stock compensation for stock options
outstanding as of June 30, 1999, is approximately $276,000, $353,000, $353,000,
$353,000 and $77,000, for the years ending December 31, 1999, 2000, 2001, 2002
and 2003, respectively.
For disclosure purposes, the fair value of each stock option granted is
estimated on the date of grant using the American Black-Scholes option-pricing
model with the following weighted average assumptions used for stock options
granted in 1998; no annual dividends, expected volatility of 0%, risk-free
interest rate ranging from 4.66% to 5.35% and expected life of one to four
years. The weighted-average fair value of the stock options granted in 1998 and
the six months ended June 30, 1999 were $1.00 and $1.25 (unaudited),
respectively.
Under the above model, the total value of the stock options granted in 1998
and for the six months ended June 30, 1999 (unaudited) was $53,704 and
$609,854, respectively, which would be amortized on a pro forma basis over the
option vesting period. SFAS No. 123 "Accounting for Stock-Based Compensation"
encourages adoption of a fair value based method for valuing the cost of stock-
based compensation. However, it allows companies to continue to use the
intrinsic value method for options granted to employees and disclose pro forma
net loss per share and loss per share. Had the Company determined compensation
cost for this plan in accordance with SFAS No. 123, the Company's pro forma net
loss in 1998 and for the six months ended June 30, 1999 would have been
$1,956,067 and $6,708,635 (unaudited), respectively, and the pro forma basic
and diluted loss per common share would have been $0.81 and $2.65,
respectively.
8. Income Taxes
The provision (benefit) for income taxes consists of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Current provision.................................... $ -- $ --
Deferred benefit..................................... (153,363) (638,315)
--------- ---------
(153,363) (638,315)
Change in valuation allowance........................ 153,363 638,315
--------- ---------
Total provision for income taxes..................... $ -- $ --
========= =========
</TABLE>
The Company's deferred tax assets at December 31, 1997 and 1998 which
consist exclusively of net operating loss carryforwards of $153,363 and
$791,678, respectively, are offset by a full valuation allowance. Based upon
the Company's limited operating history and management's expectation of future
profitability, management believes, based upon the evidence available, that a
full valuation allowance is necessary. The Company's net operating loss
carryforwards of $404,013 and $1,922,365 at December 31, 1997 and 1998,
respectively, begin expiring in 2012.
F-15
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Related Party Transactions
During 1996 and 1997, two stockholders loaned $35,236 and $53,319,
respectively, to assist the Company in paying its obligations. The Company
repaid $10,000 of the loan during 1996 and $53,919 during 1997. At December 31,
1997, the outstanding loan balance of $24,636 was forgiven by the stockholders
and recorded as additional paid-in capital by the Company.
During 1998, the Company incurred $84,000 in contractor expenses from a
company in which a shareholder of the Company is also the President of the
company which provided the services. At December 31, 1998, an accounts payable
balance of $3,500 was outstanding to this entity.
Also in 1998, the Company incurred $18,000 in consulting expenses from a
company in which a shareholder of the Company is also the President of the
company that provided the services.
10. Basic and Diluted Loss per Common Share:
The Company implemented SFAS No. 128, Earnings Per Share, in 1998, which
requires certain disclosures relating to the calculation of earnings per common
share. The following is a reconciliation of the numerators and denominators of
the basic and diluted loss per common share computations.
Basic and diluted net loss per common share:
<TABLE>
<CAPTION>
For the period
August 9, 1996 Six months
(date of inception) Year ended December 31, ended
to December 31, ------------------------- June 30,
1996 1997 1998 1999
------------------- ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
Net loss available to
common stockholders.... $(35,073) $ (479,100) $ (2,104,243) $(6,839,631)
======== =========== ============ ===========
Weighted-average shares
of common stock shares
outstanding............ 638,576 2,024,183 2,620,000 2,620,083
======== =========== ============ ===========
Basic and diluted net
loss per common share.. $ (0.05) $ (0.24) $ (0.80) $ (2.61)
======== =========== ============ ===========
</TABLE>
For the year ended December 31, 1997, 1,000,000 shares of preferred stock,
which are convertible into common stock, are not included in the computation of
diluted earnings per share as a result of their antidilutive effect. For the
year ended December 31, 1998, and for the six months ended June 30, 1999,
options to purchase 362,700 and 1,083,906 (unaudited) shares of common stock at
$1.00 per share and weighted average exercise of $1.20 per share, respectively,
and 2,000,000 and 6,873,247 shares of preferred stock, respectively, which are
convertible into common stock, are not included in the computation of diluted
earnings per share as a result of their antidilutive effect.
F-16
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
11. Subsequent Events (unaudited)
On May 28, 1999, the Company Amended and Restated its Articles of
Incorporation to authorize 2,252,874 shares of mandatorily redeemable
convertible preferred stock and issued 2,252,874 shares of Series D convertible
preferred stock at an approximate price of $4.71 per share and total proceeds
of $10,600,000. The Series D preferred stock are mandatorily redeemable and
have the same redemption rights as the Series A, Series B and Series C
preferred stock.
In the May 28, 1999 Amendment to the Articles of Incorporation, the
mandatory redemption date for the Series A, Series B and Series C convertible
preferred stock has been amended to be the same as the Series D shares which is
upon the earlier of (1) the fifth anniversary of the issuance of Series D
convertible preferred stock or (2) the occurrence of a liquidation and/or
material and incurable breach by the Company of the Amended and Restated
Articles of Incorporation. The redemption price is equal to the original
issuance price of each respective share, plus all accrued but unpaid dividends.
As of June 30, 1999, the preferred stock carrying value has been accreted to
increase the carrying value for cumulative dividends and a portion of direct
issuance costs.
In the May 28, 1999 Amendment of the Articles of Incorporation, automatic
conversion of convertible preferred stock has been amended to convert upon an
initial public offering, net of any and all underwriters' discounts,
commissions and expenses and registration expenses, of at least $20,000,000 and
at an offering price per share of common stock that is equal or greater than
two times the current applicable conversion price for the Series D convertible
preferred stock.
In the May 28, 1999 Amendment to the Articles of Incorporation, the
liquidation preference was amended to provide the holders of Series D
convertible preferred stock with the same liquidation preference as the holders
of Series A , B, C and D convertible preferred stock.
Lease for Office Space (unaudited)
On June 30, 1999, the Company entered into a lease for additional office
space in Herndon, Virginia. The lease ends August 31, 2004 and has minimum
annual lease payments of $226,695 for the first year and are increased an
annual rate of 3.0%. In accordance with the lease agreement, the Company is
required to have a letter of credit as a security deposit throughout the lease
term. On June 18, 1999, the Company entered into a letter of credit for
$100,000, which expires November 11, 2000. The letter automatically renews on
an annual basis if notice is not received within 60 days of the anniversary
date until final expiration on November 11, 2004.
In addition, during August 1999, the Company entered into a one-year lease
which has minimum annual payments of $51,600 and ends during August 2000. This
lease was previously a month-to-month lease.
Line of Credit (unaudited)
On August 19, 1999, the Company amended their existing $1,000,000 line of
credit, which includes $850,000 for working capital expenditures and $150,000
for a business credit line, to be increased to $1,350,000 which includes
$1,000,000 for working capital expenditures, $250,000 for a business credit
line, and a $100,000 letter of credit for leased office space. Collateral and
the expiration date of November 10, 1999 have not been amended.
In connection with the amendment, the Company is no longer required to
maintain a monthly quick ratio financial covenant of 1 to 1. Fees paid to the
bank in relation to the amendment of the line and waiver of the quick ratio
financial covenant totaled $50,000.
F-17
<PAGE>
LIFEMINDERS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Series E Mandatorily Redeemable Convertible Preferred Stock (unaudited)
On September 23, 1999, the Company issued 2,791,993 shares of Series E
mandatorily redeemable convertible preferred stock at $8.09 per share for cash
proceeds of approximately $22.6 million. The terms of the Series E mandatorily
redeemable convertible preferred stock are substantially the same as Series A,
B, C and D mandatorily redeemable convertible preferred stock.
Accounting for Stock Option Issued to Employees (unaudited)
During the period from July 1, 1999 to September 23, 1999, the Company
granted 560,900 options under the 1998 Employee Stock Option Plan. The Company
has estimated the fair value of the underlying common stock on the date of the
option grants was in excess of the exercise price of the options. As a result,
the Company recorded additional deferred compensation of $1.5 million
(unaudited) for the period. This amount will be recorded as a reduction to
stockholders' equity (deficit) and is being amortized as a charge to operations
over the vesting period of the stock options.
F-18
<PAGE>
[LifeMinders.com will insert a one page, four color version of its consumer
print effort which focuses on the life management system for members.]
<PAGE>
Shares
[LifeMinders.com Logo]
Common Stock
----------------
PROSPECTUS
----------------
HAMBRECHT & QUIST
THOMAS WEISEL PARTNERS LLC
PAINEWEBBER INCORPORATED
WIT CAPITAL CORPORATION
----------------
, 1999
----------------
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade in the securities in this offering, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
Part II. Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
We estimate that our expenses to be paid in connection with the offering
(other than underwriting discounts, commissions and reasonable expense
allowances) will be as follows:
<TABLE>
<S> <C>
SEC registration fee................................................. $
NASD filing fee...................................................... $
Nasdaq National Market listing fee................................... $
Printing and engraving expenses...................................... $
Accounting fees and expenses......................................... $
Legal fees and expenses.............................................. $
Miscellaneous........................................................ $
---
Total.............................................................. $
===
</TABLE>
Item 14. Indemnification of Directors and Officers.
LifeMinders.com organized under the laws of the State of Delaware. Our
Restated Certificate of Incorporation provides that we shall indemnify our
current and former directors and officers, and may indemnify our current and
former employees and agents, against any and all liabilities and expenses
incurred in connection with their services in those capacities to the maximum
extent permitted by Delaware law.
The Delaware General Corporation Law (the "DGCL") provides that a Delaware
corporation has the power generally to indemnify its current and former
directors, officers, employees and other agents (each, a "Corporate Agent")
against expenses and liabilities (including amounts paid in settlement) in
connection with any proceeding involving such person by reason of his being a
Corporate Agent, other than a proceeding by or in the right of the corporation,
if such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect to
any criminal proceeding, such person had no reasonable cause to believe his
conduct was unlawful.
In the case of an action brought by or in the right of the corporation,
indemnification of a Corporate Agent is permitted if such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation. However, no indemnification is permitted in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that
the court in which such proceeding was brought shall determine upon application
that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
such indemnification.
To the extent that a Corporate Agent has been successful on the merits or
otherwise in the defense of such proceeding, whether or not by or in the right
of the corporation, or in the defense of any claim, issue or matter therein,
the corporation is required to indemnify such person for expenses in connection
therewith. Under the DGCL, the corporation may advance expenses incurred by a
Corporate Agent in connection with a proceeding, provided that the Corporate
Agent undertakes to repay such amount if it shall ultimately be determined that
such person is not entitled to indemnification. Our Restated Certificate of
Incorporation requires us to advance expenses to any person entitled to
indemnification, provided that such person undertakes to repay the advancement
if it is determined in a final judicial decision from which there is no appeal
that such person is not entitled to indemnification.
The power to indemnify and advance the expenses under the DGCL does not
exclude other rights to which a Corporate Agent may be entitled to under the
certificate of incorporation, by laws, agreement, vote of stockholders or
disinterested directors or otherwise.
Our Restated Certificate of Incorporation permits us to secure insurance on
behalf of our directors, officers, employees and agents for any expense,
liability or loss incurred in such capacities, regardless of
II-1
<PAGE>
whether the Restated Certificate of Incorporation or Delaware law would permit
indemnification against such expense, liability or loss.
The purpose of these provisions is to assist us in retaining qualified
individuals to serve as our directors, officers, employees and agents by
limiting their exposure to personal liability for serving as such.
Item 15. Recent Sales of Unregistered Securities.
During the past three years, the following securities were issued by
LifeMinders.com without registration under the Securities Act:
In June 1997, we issued and sold 22,661 shares of common stock to H. Joseph
Engle for $25,000, 415,984 shares of common stock to Hugh Ronalds for services
rendered, and 104,458 shares of common stock to John Chapin for $10,227.
In July 1997, we issued and sold 104,458 shares of common stock to John
Chapin for $10,227, and in August 1997, we issued and sold 46,825 shares of
common stock to John Chapin for $4,546.
In November 1997, we issued and sold 257,000 shares of common stock to
Targeted Marketing Systems, Inc. for $200,000 and 50,000 shares of common stock
to Frans Kok for $100.
In June 1998, we issued and sold 50,000 shares of common stock to Frans Kok
for $1.
In June 1999, we issued and sold 7,500 shares of common stock to George
Pickering for $7,500.
In July 1999, we issued and sold 37,000 shares of common stock to Harry
Layman for $37,000 and 15,000 shares of common stock to Frank Lyman for
$15,000.
In November 1997, we issued and sold 1,000,000 shares of Series A
Convertible Preferred Stock to five (5) accredited investors at a purchase
price of $1.00 per share. Additionally, we issued options to such investors to
purchase up to 1,000,000 shares of Series B Convertible Preferred Stock at an
exercise price of $1.00 per share, all of which options were exercised in June
1998. Our outstanding Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock shall automatically convert into common stock upon
consummation of the offering.
In January 1999, we issued and sold 2,620,373 shares of Series C Convertible
Preferred Stock to five (5) accredited investors at a purchase price of $1.5265
per share. Our outstanding Series C Convertible Preferred Stock shall
automatically convert into common stock upon consummation of the offering.
In May 1999, we issued and sold 2,252,874 shares of Series D Convertible
Preferred Stock to eight (8) accredited investors at a purchase price of
$4.7051 per share. Our outstanding Series D Convertible Preferred Stock shall
automatically convert into common stock upon consummation of the offering.
In September 1999, we issued and sold 2,791,993 shares of Series E
Convertible Preferred Stock to 31 accredited investors at a purchase price of
$8.0868 per share. Our outstanding Series E Convertible Preferred Stock shall
automatically convert into common stock upon consummation of the offering.
As of August 31, 1999, options to purchase 1,636,056 shares of common stock
were available and reserved for issuance under the 1998 Stock Option Plan and
options to purchase 1,119,906 shares of common stock had been granted under the
plan and were outstanding. A total of 59,500 shares of common stock have been
issued pursuant to the exercise of options under the stock option plan. The
exercise price of the options for our common stock ranges from $1.00 to $4.83
per share.
All the above transactions were exempt from registration pursuant to
Sections 3(b), 4(2) or 4(6) of the Securities Act.
II-2
<PAGE>
Item 16. Exhibits.
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
1.1 Form of Underwriting Agreement between the Company and
Hambrecht & Quist, Thomas Weisel Partners LLC, PaineWebber
Incorporated and Wit Capital Corporation.*
3.1 Restated Certificate of Incorporation.
3.2 Bylaws.
4.1 Form of common stock certificate.*
5.1 Opinion of Venable, Baetjer and Howard, LLP regarding
legality.*
10.1 E-Commerce Agreement between the Company and Lycos, Inc.
dated as of August 25, 1999.+
10.2 Office Building Lease Agreement between the Company and
Sovran Limited Company dated June 11, 1999.*
10.3 Trustee License Agreement between the Company and Trust
Universal Standards in Electronic Transactions dated March
12, 1999.*
10.4 Starter Kit Loan and Security Agreement, as amended,
between the Company and Imperial Bank dated November 10,
1998.*
10.5 Employment Agreement between the Company and Stephen R.
Chapin, Jr. dated November 12, 1997.*
10.6 Employment Agreement between the Company and John Chapin
dated November 1, 1997.*
10.7 Consulting Letter Agreement between the Company and Johan
Hekelaar, Inc. dated November 10, 1997.*
10.8 Consulting Agreement between the Company and Lordhill
Company dated June 1, 1997 as amended by the Consulting
Letter Agreement between the Company and Lordhill Company
dated March 27, 1998.*
10.9 The Company's 1998 Stock Option Plan.*
10.10 Form of Lock-up Agreement between the Company and Hambrecht
& Quist, Thomas Weisel Partners LLC, PaineWebber
Incorporated and Wit Capital Corporation.*
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2 Consent of Venable, Baetjer and Howard, LLP (included in
Exhibit 5.1).*
24 Power of Attorney (filed as part of signature page).
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for portions of this document.
Item 17. Undertakings.
(a) The undersigned LifeMinders.com hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate,
II-3
<PAGE>
represent a fundamental change in the information set forth in the
registration statement). Notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(c) 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 SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(d) 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 the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Herndon, Virginia on the 24th day of
September 1999.
LIFEMINDERS.COM, INC.
/s/ Stephen R. Chapin, Jr.
By: _________________________________
Stephen R. Chapin, Jr.
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Stephen R. Chapin, Jr. and Joseph S.
Grabias and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, or any
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen R. Chapin, Jr. Chairman of the Board September 24, 1999
______________________________________ President and Chief
Stephen R. Chapin, Jr. Executive Officer
(Principal Executive
Officer)
/s/ Joseph S. Grabias Vice President and Chief September 24, 1999
______________________________________ Financial Officer
Joseph S. Grabias (Principal Financial
Officer)
/s/ E. Rogers Novak, Jr. Director September 24, 1999
______________________________________
E. Rogers Novak, Jr.
/s/ B. Gene Riechers Director September 24, 1999
______________________________________
B. Gene Riechers
/s/ Douglas A. Lindgren Director September 24, 1999
______________________________________
Douglas A. Lindgren
/s/ Philip D. Black Director September 24, 1999
______________________________________
Philip D. Black
/s/ Jonathan B. Bulkeley Director September 24, 1999
______________________________________
Jonathan B. Bulkeley
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement between the Company and Hambrecht &
Quist, Thomas Weisel Partners LLC, PaineWebber Incorporated and
Wit Capital Corporation.*
3.1 Restated Certificate of Incorporation.
3.2 Bylaws.
4.1 Form of common stock certificate.*
5.1 Opinion of Venable, Baetjer and Howard, LLP regarding legality.*
10.1 E-Commerce Agreement between the Company and Lycos, Inc. dated as
of August 25, 1999.+
10.2 Office Building Lease Agreement between the Company and Sovran
Limited Company dated June 11, 1999.*
10.3 Trustee License Agreement between the Company and Trust Universal
Standards in Electronic Transactions dated March 12, 1999.*
10.4 Starter Kit Loan and Security Agreement, as amended, between the
Company and Imperial Bank dated November 10, 1998.*
10.5 Employment Agreement between the Company and Stephen R. Chapin,
Jr. dated November 12, 1997.*
10.6 Employment Agreement between the Company and John Chapin dated
November 1, 1997.*
10.7 Consulting Letter Agreement between the Company and Johan
Hekelaar, Inc. dated November 10, 1997.*
10.8 Consulting Agreement between the Company and Lordhill Company
dated June 1, 1997 as amended by the Consulting Letter Agreement
between the Company and Lordhill Company dated March 27, 1998.*
10.9 The Company's 1998 Stock Option Plan.*
10.10 Form of Lock-up Agreement between the Company and Hambrecht &
Quist, Thomas Weisel Partners LLC, PaineWebber Incorporated and
Wit Capital Corporation.*
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2 Consent of Venable, Baetjer and Howard, LLP (included in Exhibit
5.1).*
24 Power of Attorney (filed as part of signature page).
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for portions of this document.
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
LIFEMINDERS.COM, INC.
LifeMinders.com, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
The name of the Corporation is LifeMinders.com, Inc. LifeMinders.com, Inc.
was originally incorporated under the same name, and the original Certificate of
Incorporation of the Corporation was filed with the Secretary of State of the
State of Delaware on July 2, 1999.
Pursuant to Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the original Certificate of
Incorporation.
The amendment of the Corporation's Certificate of Incorporation included
herein was unanimously adopted and approved by all of the Corporation's
directors in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware and was adopted and approved by the
Corporation's stockholders by written consent given in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.
The text of the Restated Certificate of Incorporation is hereby restated
and further amended to read in its entirety as follows:
FIRST: The name of the corporation is LifeMinders.com, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, in the city of
Wilmington in the county of New Castle. The name of the registered agent at
such address is Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "General Corporation Law").
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 29,665,240 shares, consisting of
(a) 20,000,000 shares of common stock, par value $.01 per share (the "Common
1
<PAGE>
Stock"), and (b) 9,665,240 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"), of which (i) 1,000,000 shares are designated Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), (ii) 1,000,000 shares are designated Series B Convertible Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock"), (iii)
2,620,373 shares are designated Series C Convertible Preferred Stock, par value
$.01 per share (the "Series C Preferred Stock"), (iv) 2,252,874 shares are
designated Series D Convertible Preferred Stock, par value $.01 per share (the
"Series D Preferred Stock") and (v) 2,791,993 shares are designated Series E
Convertible Preferred Stock, par value $.01 per share (the "Series E Preferred
Stock"). The aggregate par value of all authorized shares of all classes of the
Corporation's capital stock is $296,652.40.
The designations, powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof, with respect to the Preferred Stock and the Common Stock
are as follows:
2
<PAGE>
A. PREFERRED STOCK
1. Dividends.
- -- ---------
(a) The holders of the Preferred Stock shall be entitled to receive, out of
funds legally available for that purpose, dividends at the rate of 8% per annum
on the Original Issuance Price of each share of Preferred Stock. Dividends on a
share of Preferred Stock shall accrue daily on the basis of a year of 360 days
comprised of twelve 30-day months and be cumulative from the Original Issuance
Date of such share, and shall be payable (i) when and if declared, (ii) upon the
conversion of such share into Common Stock (subject to the limited waiver set
forth in Section 5(b)), (iii) upon a Liquidation or (iv) upon the redemption of
such share, whichever shall be the first to occur. Dividends on a share of
Preferred Stock shall be payable in cash, if payable at a time specified in
clause (i), (iii) or (iv), or in cash or shares of Common Stock (pursuant to the
terms of Section 5), if payable at a time specified in clause (ii).
(b) The Series A Preferred Stock, the Series B Preferred Stock, the Series
C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock
shall rank pari passu as to the payment of dividends in cash and all such
payments shall be made pro rata among such series of Preferred Stock in
proportion to the total dividends payable on each such series. After payment of
all dividends owing to holders of Preferred Stock, such holders shall share
ratably (on an as converted basis) in any dividends thereafter paid on the
Common Stock.
(c) In the event the Corporation shall fail to pay in full when due all
accrued dividends on all shares of Preferred Stock, the Corporation shall not
declare or pay or set apart for payment any dividend or other distribution upon
shares of Common Stock (other than dividends payable solely in Common Stock), or
any other capital stock of the Corporation ranking on a parity with or junior to
any series of Preferred Stock as to dividends, or redeem, repurchase or
otherwise acquire any such shares unless the Corporation has paid, or at the
time pays, in full all accrued and unpaid dividends on all shares of Preferred
Stock.
2. Liquidation.
- -- -----------
(a) Upon a Liquidation, after payment or provision for payment of the debts
and other liabilities of the Corporation, the holders of Preferred Stock shall
be entitled to receive, out of the remaining assets of the Corporation available
for distribution to its stockholders, with respect to each share of Preferred
Stock held by them, an amount equal to the Liquidation Amount of such share
before any distribution shall be made to the holders of the Common Stock or any
other class of capital stock of the Corporation ranking junior to any series of
Preferred Stock. If upon any Liquidation the assets of the Corporation available
for distribution to its stockholders shall be insufficient to pay the holders of
Preferred Stock the full Liquidation Amount to which they shall be entitled
pursuant to this Section 2(a), the holders of Preferred Stock shall share in any
distribution of assets in accordance with such full Liquidation Amount (pro rata
in accordance with the total Liquidation Amount that each such holder would have
received pursuant to this Section 2(a) had there been such sufficient assets).
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(b) Upon a Liquidation, after the payment of the full Liquidation Amount to
the holders of Preferred Stock pursuant to Section 2(a) above, the assets of the
Corporation available for distribution to its stockholders which then remain (if
any) shall be distributed to the holders of Common Stock, Series A Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock ratably (on an as converted basis) until the holders of Series A Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock shall have been paid an aggregate amount per each share of Series A
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock held by them (including, for such purpose, the full Liquidation
Amount paid in respect of each such share) equal to 2.50, multiplied by the
Original Issuance Price for such share of Preferred Stock. After the payment of
the full Liquidation Amount to the holders of Preferred Stock pursuant to
Section 2(a) above and the payment of the aggregate amount described in the
foregoing sentence to the holders of Series A Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, all the
then-remaining assets of the Corporation available for distribution to its
stockholders shall be distributed to the holders of the Common Stock pro rata
--- ----
based on the number of shares of Common Stock then held by them.
3. Redemption.
- -- ----------
(a) Each holder of a share of Preferred Stock shall have the right to
require the Corporation to redeem such share upon the earlier of (1) the fifth
anniversary of the earliest Original Issuance Date of the Series D Preferred
Stock and (2) the occurrence of any Redemption Event. At least 20 days but not
more than 60 days prior to each Redemption Event, the Corporation shall provide
written notice of such Redemption Event (a "Mandatory Redemption Notice") to
each holder of Preferred Stock and the date on which such Redemption Event is
scheduled to occur. Each holder of Preferred Stock may elect to have its shares
of Preferred Stock redeemed under this Section 3(a) by notifying the Corporation
of such election no later than 30 days prior to the fifth anniversary of the
earliest Original Issuance Date of the Series D Preferred Stock or, if
applicable, fifteen (15) days after receipt of any Mandatory Redemption Notice.
The Corporation shall effect such redemption on such fifth anniversary, if
applicable, or otherwise immediately following the occurrence of the Redemption
Event. The Corporation shall give the holders of Preferred Stock reasonable
prior notice of any Liquidation, including the material terms and conditions
thereof, in order to provide such holders with a reasonable opportunity to
determine whether to elect to have any of their shares of Preferred Stock
redeemed pursuant to this Section 3(a) (if available) or converted into shares
of Common Stock pursuant to Section 5.
(b) The price (the "Redemption Price") at which each share of Preferred
Stock is to be redeemed by the Corporation pursuant to this Section 3 shall be
equal to the Original Issuance Price of such share, plus all accrued but unpaid
dividends thereon up to (but not including) the date of such redemption. On and
after any date that the Corporation redeems shares of Preferred Stock pursuant
to this Section 3, all rights in
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respect of the shares of Preferred Stock to be redeemed, except the right to
receive the Redemption Price, shall cease and terminate, and such shares shall
no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Corporation. The conversion
of any shares of Preferred Stock into Common Stock shall have no effect on the
Redemption Price payable in connection with the redemption of the shares of
Preferred Stock not so converted.
(c) If the assets of the Corporation available for the redemption of
Preferred Stock shall be insufficient to permit the payment of the full price
required to be paid under this Section 3 to all holders of Preferred Stock, then
the holders of Preferred Stock being redeemed in accordance with this Section 3
shall share ratably in any such redemption based on the respective Redemption
Prices to which such holders are entitled, and the Corporation shall issue to
such holders, in the same proportion, promissory notes in the aggregate
principal amount of such shortfall which shall accrue interest at a rate per
annum equal to the prime rate announced from time to time by The Chase Manhattan
Bank (or its successor) plus 2.0% per annum, provided that such rate is lawful.
When additional assets of the Corporation are legally available for the payment
of the debts and other liabilities of the Corporation at any time thereafter,
such assets shall be used to redeem such notes in the full principal amount
thereof, plus the interest accrued but unpaid thereon up to (but not including)
the date on which such notes are redeemed.
(d) The number of shares of Preferred Stock deemed to be held by the
holders of the Preferred Stock and to be redeemed pursuant to the terms of this
Section 3 shall be increased on a one for one basis each time the number of
shares of Common Stock into which such shares of Preferred Stock are convertible
pursuant to the terms of Section 5 is increased in accordance with the
provisions of such Section 5.
(e) Any communication or notice relating to redemption given pursuant to
this Section 3 shall be sent by first-class certified mail, return receipt
requested, postage prepaid, to the holders of record of shares of Preferred
Stock, at their respective addresses as the same shall appear on the books of
the Corporation, or to the Corporation at the address of its principal, or
registered office, as the case may be. At any time on or after any date on which
the Corporation redeems shares of Preferred Stock pursuant to this Section 3,
the holders of record of such shares shall be entitled to receive the respective
Redemption Prices for such shares upon actual delivery to the Corporation or its
agents of the certificates representing the shares to be redeemed.
4. Voting Rights.
- -- -------------
(a) In addition to the rights provided by law or in the Corporation's By-
laws, each share of Preferred Stock shall entitle the holder thereof to such
number of votes as shall equal the number of shares of Common Stock into which
such share of Preferred Stock is then convertible pursuant to Section 5 at the
record date for the determination of stockholders entitled to vote or, if no
record date is established, at the date such vote is taken. The holders of
Preferred Stock shall be entitled to vote on all matters as to which holders of
Common Stock shall be entitled to vote, in the same manner and with the same
effect as such holders of Common Stock, voting together with the holders of
Common Stock as one class.
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(b) In addition to the other rights specified in this Section 4, the
holders of a majority of the shares of Series A Preferred Stock and Series B
Preferred Stock outstanding, voting together as a single class, shall at all
times have the special right to elect two directors to the Board of Directors of
the Corporation (the "Board") and any Board committees, the holders of a
majority of the shares of Series C Preferred Stock outstanding, voting
separately as one class, shall at all times have the special right to elect one
director to the Board and any Board committees, the holders of a majority of the
shares of Series D Preferred Stock outstanding, voting separately as one class,
shall at all times have the special right to elect one director to the Board and
any Board committees and the holders of at least eighty-five percent (85%) of
the shares of Series E Preferred Stock outstanding, voting separately as one
class, shall have the right to nominate one independent director to the Board
and any Board committees. In any election of directors by the holders of the
Series A Preferred Stock and Series B Preferred Stock, the holders of the Series
C Preferred Stock or the holders of the Series D Preferred Stock or nomination
by the holders of the Series E Preferred Stock pursuant to this Section 4(b),
each such holder shall be entitled to such number of votes for each share of
such series of Preferred Stock held as shall equal the number of shares of
Common Stock into which such share of Preferred Stock is then convertible
pursuant to Section 5. The special voting rights of the holders of the Series A
Preferred Stock and Series B Preferred Stock, the holders of the Series C
Preferred Stock, the holders of the Series D Preferred Stock and the holders of
the Series E Preferred Stock which are contained in this Section 4(b) may be
exercised either at a special meeting of such holders called as provided below,
or at any annual or special meeting of the stockholders of the Corporation, or
by written consent of such holders in lieu of a meeting. Each director to be
elected pursuant to this Section 4(b) shall serve for a term extending from the
date of his election and qualification until his successor has been elected and
qualified. If at any time any directorship to be elected by the holders of
Series A Preferred Stock and Series B Preferred Stock or Series C Preferred
Stock or Series D Preferred Stock, or nominated by the holders of Series E
Preferred Stock, pursuant to this Section 4(b) has been vacant for a period of
10 days, the Secretary of the Corporation shall, upon the written request of any
holder of the related one or more series of Preferred Stock, call a special
meeting of the holders of such one or more series of Preferred Stock for the
purpose of electing (or in the case of the holders of the Series E Preferred
Stock, nominating) a director to fill such vacancy. Such meeting shall be held
at the earliest practicable date, and at such place, as is specified in or
determined in accordance with the By-laws of the Corporation. If such meeting
shall not be called by the Secretary of the Corporation within 10 days after
personal service of such written request on him or her, then any holder of such
one or more series of Preferred Stock may designate in writing one of their
members to call such meeting at the expense of the Corporation, and such meeting
may be called by such person so designated upon the notice required for annual
meetings of stockholders and shall be held at such place as specified in such
notice. Any holder of such one or more series of Preferred Stock so designated
shall have access to the stock books of the Corporation relating to such series
for the purpose of calling a meeting of the stockholders pursuant to these
provisions. At any meeting held for the purpose of
6
<PAGE>
electing (or in the case of the holders of the Series E Preferred Stock,
nominating) directors as provided in this Section 4(b), the presence, in person
or by proxy, of the holders of record of shares representing at least a majority
of the voting power of such one or more series of Preferred Stock then
outstanding shall be required to constitute a quorum of such one or more series
for such election. A vacancy in a directorship to be elected by the holders of
the Series A Preferred Stock and the Series B Preferred Stock, the holders of
the Series C Preferred Stock or the holders of the Series D Preferred Stock, or
to be nominated by the holders of the Series E Preferred Stock, pursuant to this
Section 4(b) may be filled (or in the case of the directorship to be nominated
by the holders of the Series E Preferred Stock, nominated to be filled) only
either by (i) the vote of the holders of at least the requisite percentage of
the voting power of the related one or more series of Preferred Stock then
outstanding or (ii) written consent in lieu of a meeting of the holders of the
related one or more series of Preferred Stock then outstanding. The Corporation
shall take all actions necessary to effectuate the terms and provisions of this
Section 4(b).
(c) The Corporation shall not, without the affirmative consent or approval
of the holders of a majority of the shares of Series A Preferred Stock and
Series B Preferred Stock then outstanding, voting together as a single class:
(i) in any manner authorize, create, designate, issue or sell any class
or series of capital stock (including any shares of treasury stock) or
rights, options, warrants or other securities convertible into or
exercisable or exchangeable for capital stock or any debt security which by
its terms is convertible into or exchangeable for any equity security or
has any other equity feature or any security that is a combination of debt
and equity, which, in each case, as to the payment of dividends,
distribution of assets or redemptions, including, without limitation,
distributions to be made upon a Liquidation, is pari passu with or is
senior to the Series A Preferred Stock or the Series B Preferred Stock or
which in any manner otherwise adversely affects the holders of the Series A
Preferred Stock or the Series B Preferred Stock;
(ii) in any manner alter or change the terms, designations, powers,
preferences or relative, participating, optional or other special rights,
or the qualifications, limitations or restrictions, of the Series A
Preferred Stock or Series B Preferred Stock (including, without limitation,
an increase in the number of authorized shares of Series A Preferred Stock
or Series B Preferred Stock);
(iii) reclassify the shares of any class or series of capital stock into
shares of any class or series of capital stock (A) ranking, either as to
payment of dividends, distributions of assets or redemptions, including,
without limitation, distributions to be made upon a Liquidation, senior to
or on a parity with the Series A Preferred Stock or Series B Preferred
Stock, or (B) which in any manner otherwise adversely affects the rights of
the holders of the Series A Preferred Stock or Series B Preferred Stock in
their capacity as such;
(iv) take any action to cause any amendment, alteration or repeal of any
of the provisions of (A) this Restated Certificate of Incorporation or (B)
the By-laws of the Corporation, if such amendment, alteration or repeal
would have an adverse effect on the rights of the holders of the Series A
Preferred Stock or Series B Preferred Stock;
7
<PAGE>
(v) approve or authorize any Liquidation or any recapitalization or
reorganization of the Corporation or any subsidiary; or
(vi) approve or authorize the payment of any dividend or other
distribution upon shares of capital stock other than Preferred Stock (and
other than the issuance of notes to the stockholders of the Corporation
upon a redemption pursuant to the terms of Section 3), or redeem,
repurchase or otherwise acquire any such shares.
(d) The Corporation shall not, without the affirmative consent or approval
of the holders of a majority of the shares of Series C Preferred Stock then
outstanding:
(i) in any manner authorize, create, designate, issue or sell any class
or series of capital stock (including any shares of treasury stock) or
rights, options, warrants or other securities convertible into or
exercisable or exchangeable for capital stock or any debt security which by
its terms is convertible into or exchangeable for any equity security or
has any other equity feature or any security that is a combination of debt
and equity, which, in each case, as to the payment of dividends,
distribution of assets or redemptions, including, without limitation,
distributions to be made upon a Liquidation, is pari passu with or is
senior to the Series C Preferred Stock or which in any manner otherwise
adversely affects the holders of the Series C Preferred Stock;
(ii) in any manner alter or change the terms, designations, powers,
preferences or relative, participating, optional or other special rights,
or the qualifications, limitations or restrictions, of the Series C
Preferred Stock (including, without limitation, an increase in the number
of authorized shares of Series C Preferred Stock);
(iii) reclassify the shares of any class or series of capital stock into
shares of any class or series of capital stock (A) ranking, either as to
payment of dividends, distributions of assets or redemptions, including,
without limitation, distributions to be made upon a Liquidation, senior to
or on a parity with the Series C Preferred Stock, or (B) which in any
manner otherwise adversely affects the rights of the holders of the Series
C Preferred Stock in their capacity as such;
(iv) take any action to cause any amendment, alteration or repeal of any
of the provisions of (A) this Restated Certificate of Incorporation or (B)
the By-laws of the Corporation, if such amendment, alteration or repeal
would have an adverse effect on the rights of the holders of the Series C
Preferred Stock;
(v) approve or authorize any Liquidation or any recapitalization or
reorganization of the Corporation or any subsidiary; or
8
<PAGE>
(vi) approve or authorize the payment of any dividend or other
distribution upon shares of capital stock other than Preferred Stock (and
other than the issuance of notes to the stockholders of the Corporation
upon a redemption pursuant to the terms of Section 3), or redeem,
repurchase or otherwise acquire any such shares.
(e) The Corporation shall not, without the affirmative consent or approval
of the holders of a majority of the shares of Series D Preferred Stock then
outstanding:
(i) in any manner authorize, create, designate, issue or sell any class
or series of capital stock (including any shares of treasury stock) or
rights, options, warrants or other securities convertible into or
exercisable or exchangeable for capital stock or any debt security which by
its terms is convertible into or exchangeable for any equity security or
has any other equity feature or any security that is a combination of debt
and equity, which, in each case, as to the payment of dividends,
distribution of assets or redemptions, including, without limitation,
distributions to be made upon a Liquidation, is pari passu with or is
senior to the Series D Preferred Stock or which in any manner otherwise
adversely affects the holders of the Series D Preferred Stock;
(ii) in any manner alter or change the terms, designations, powers,
preferences or relative, participating, optional or other special rights,
or the qualifications, limitations or restrictions, of the Series D
Preferred Stock (including, without limitation, an increase in the number
of authorized shares of Series D Preferred Stock);
(iii) reclassify the shares of any class or series of capital stock into
shares of any class or series of capital stock (A) ranking, either as to
payment of dividends, distributions of assets or redemptions, including,
without limitation, distributions to be made upon a Liquidation, senior to
or on a parity with the Series D Preferred Stock, or (B) which in any
manner otherwise adversely affects the rights of the holders of the Series
D Preferred Stock in their capacity as such;
(iv) take any action to cause any amendment, alteration or repeal of any
of the provisions of (A) this Restated Certificate of Incorporation or (B)
the By-laws of the Corporation, if such amendment, alteration or repeal
would have an adverse effect on the rights of the holders of the Series D
Preferred Stock;
(v) approve or authorize any Liquidation or any recapitalization or
reorganization of the Corporation or any subsidiary; or
(vi) approve or authorize the payment of any dividend or other
distribution upon shares of capital stock other than Preferred Stock (and
other than the issuance of notes to the stockholders of the Corporation
upon a redemption pursuant to the terms of Section 3), or redeem,
repurchase or otherwise acquire any such shares.
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(f) The Corporation shall not, without the affirmative consent or approval
of the holders of a majority of the shares of Series E Preferred Stock then
outstanding:
(i) in any manner authorize, create, designate, issue or sell any class
or series of capital stock (including any shares of treasury stock) or
rights, options, warrants or other securities convertible into or
exercisable or exchangeable for capital stock or any debt security which by
its terms is convertible into or exchangeable for any equity security or
has any other equity feature or any security that is a combination of debt
and equity, which, in each case, as to the payment of dividends,
distribution of assets or redemptions, including, without limitation,
distributions to be made upon a Liquidation, is pari passu with or is
senior to the Series E Preferred Stock or which in any manner otherwise
adversely affects the holders of the Series E Preferred Stock;
(ii) in any manner alter or change the terms, designations, powers,
preferences or relative, participating, optional or other special rights,
or the qualifications, limitations or restrictions, of the Series E
Preferred Stock (including, without limitation, an increase in the number
of authorized shares of Series E Preferred Stock);
(iii) reclassify the shares of any class or series of capital stock into
shares of any class or series of capital stock (A) ranking, either as to
payment of dividends, distributions of assets or redemptions, including,
without limitation, distributions to be made upon a Liquidation, senior to
or on a parity with the Series E Preferred Stock, or (B) which in any
manner otherwise adversely affects the rights of the holders of the Series
E Preferred Stock in their capacity as such;
(iv) take any action to cause any amendment, alteration or repeal of any
of the provisions of (A) this Restated Certificate of Incorporation or (B)
the By-laws of the Corporation, if such amendment, alteration or repeal
would have an adverse effect on the rights of the holders of the Series E
Preferred Stock;
(v) approve or authorize any Liquidation or any recapitalization or
reorganization of the Corporation or any subsidiary; or
(vi) approve or authorize the payment of any dividend or other
distribution upon shares of capital stock other than Preferred Stock (and
other than the issuance of notes to the stockholders of the Corporation
upon a redemption pursuant to the terms of Section 3), or redeem,
repurchase or otherwise acquire any such shares.
5. Conversion.
- -- ----------
(a) Upon the terms set forth in this Section 5, each holder of shares of
each series of Preferred Stock shall have the right, at such holder's option, at
any time and from time to time, to convert any such share into the number of
fully paid and nonassessable shares of Common Stock equal to the quotient
obtained by dividing (A) the Original Issuance Price of such share of such
series of Preferred Stock by (B) the applicable Conversion Price
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(as defined below), as last adjusted and then in effect, by surrender of the
certificate representing such share to be converted. The conversion price per
share at which shares of Common Stock shall be issuable upon conversion of
shares of Preferred Stock (the "Conversion Price") shall initially be equal to
the Original Issuance Price of such share of Preferred Stock, and shall be
subject to adjustment from time to time as set forth in Section 5(e) below. The
holder of any shares of Preferred Stock may exercise the conversion right
pursuant to this Section 5(a) as to one or more shares thereof by delivering to
the Corporation the certificate for the shares to be converted, duly endorsed or
assigned in blank or to the Corporation (if required by it), accompanied by a
written notice stating that the holder elects to convert such shares, and the
name or names (with address) in which the certificate or certificates for the
shares of Common Stock are to be issued. Conversion shall be deemed to have been
effected on the date when such delivery is made or upon the consummation of a
Qualified Public Offering as provided below, if applicable (the "Conversion
Date").
(b) Subject to the terms and conditions set forth in this Section 5, upon
the earlier of (i) the consummation of a Qualified Public Offering or (ii) the
request in writing of the holders of a majority of the Series A Preferred Stock
and the Series B Preferred Stock voting together as a separate class, the
holders of a majority of the Series C Preferred Stock voting as a separate
class, the holders of a majority of the Series D Preferred Stock voting as a
separate class, and the holders of a majority of the Series E Preferred Stock
voting as a separate class, each share of Preferred Stock shall automatically be
converted to that number of fully paid and nonassessable shares of Common Stock
equal to the quotient obtained by dividing (A) the Original Issuance Price for
the share being converted by (B) the applicable Conversion Price, as last
adjusted and then in effect. Upon any conversion of shares of Preferred Stock
pursuant to this Section 5 (other than upon the consummation, or otherwise due
to and in contemplation of the immediately impending consummation, of a
Qualified Public Offering), all accrued but unpaid dividends on such shares up
to (but not including) the date of such conversion shall be paid to the holder
in cash and/or shares of Common Stock, at the election of the Board, and, upon
such payment in full, any and all accrued but unpaid dividends on such shares
shall cease to exist and the holder shall have no further right thereto. The
number of shares of Common Stock issuable to such holder in respect of the
foregoing election by the Board shall be based on the fair market value of such
shares at the time of conversion as determined by the Board in good faith. Upon
the conversion of any shares of Preferred Stock pursuant to this Section 5 upon
the consummation, or otherwise due to and in contemplation of the immediately
impending consummation, of a Qualified Public Offering, any and all accrued but
unpaid dividends on such shares shall cease to exist and the holders of such
shares shall have no rights thereto.
(c) As promptly as practicable after the conversion of any shares of
Preferred Stock into Common Stock under Section 5(a) or 5(b) above, or upon the
written order of such holder, the Corporation shall issue and deliver to the
place designated by such holder, a certificate or certificates for the number of
full shares of Common Stock to which such holder is entitled, a cash amount in
respect of any accrued but unpaid dividends on the converted shares payable as
provided in Section 5(b) above and a cash amount in respect of any fractional
interest in a share of Common Stock as provided
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in Section 5(d) below. The person in whose name the certificate or certificates
for Common Stock are to be issued shall be deemed to have become a stockholder
of record on the Conversion Date unless the transfer books of the Corporation
are closed on that date, in which event such person shall be deemed to have
become a stockholder of record on the next succeeding date on which the transfer
books are open, but the Conversion Price shall be that in effect on the
Conversion Date, and the rights of the holder of the shares of Preferred Stock
so converted shall cease on the Conversion Date. Upon conversion of only a
portion of the number of shares covered by a certificate representing shares of
Preferred Stock surrendered for conversion, the Corporation shall issue and
deliver to or upon the written order of the holder of the certificate so
surrendered for conversion, at the expense of the Corporation, a new certificate
covering the number of shares of Preferred Stock representing the unconverted
portion of the certificate so surrendered.
(d) Upon conversion, the Corporation (unless otherwise requested by the
holders of at least a majority of the then outstanding Preferred Stock then
subject to conversion) will issue fractional shares of its Common Stock, as
applicable, and shall not distribute cash in lieu of such fractional shares. The
number of full shares of Common Stock issuable upon conversion of any Preferred
Stock shall be computed on the basis of the aggregate number of shares of
Preferred Stock to be converted. If fractional shares of Common Stock that would
otherwise be issuable upon conversion of any such shares of Preferred Stock are
not issued, the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the product of (i) the price of one
share of Common Stock as determined in good faith by the Board and (ii) such
fractional interest. The holders of fractional interests shall not be entitled
to any rights as stockholders of the Corporation in respect of such fractional
interests.
(e) Subject to the terms and conditions of Section 5(f) below, the
Conversion Price applicable to a series of Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to time after the
Original Issuance Date of such series of Preferred Stock, issue any shares
of Common Stock (or be deemed to have issued shares of Common Stock as
provided herein), other than Excluded Stock, without consideration or for a
consideration per share less than the Conversion Price for such series of
Preferred Stock, in effect immediately prior to the issuance of such Common
Stock, then the Conversion Price in effect immediately prior to each such
issuance shall forthwith be lowered to a price equal to the quotient
obtained by dividing:
(1) an amount equal to the sum of (x) the total number of shares of
Common Stock outstanding on a fully diluted basis immediately prior to
such issuance, multiplied by the Conversion Price in effect immediately
prior to such issuance, and (y) the consideration received by the
Corporation upon such issuance; by
(2) the total number of shares of Common Stock outstanding on a fully
diluted basis immediately after the issuance of such Common Stock.
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(ii) For the purposes of any adjustment of the Conversion Price
applicable to a series of Preferred Stock pursuant to clause (i) above, the
following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for cash in a public
offering or private placement, the consideration shall be deemed to be
the amount of cash paid therefor after deducting therefrom any
discounts, commissions or placement fees payable by the Corporation to
any underwriter or placement agent in connection with the issuance and
sale thereof.
(2) In the case of the issuance of Common Stock for a consideration
in whole or in part other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof as determined in
good faith by the Board, irrespective of any accounting treatment.
(3) In the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock, or options to purchase or rights to
subscribe for such convertible or exchangeable securities (except for
options to acquire Excluded Stock):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at
the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in
Sections 5(e)(ii)(1) and 5(e)(ii)(2) above), if any, received by
the Corporation upon the issuance of such options or rights plus
the minimum purchase price provided in such options or rights for
the Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such
securities, options, or rights were issued and for a consideration
equal to the consideration received by the Corporation for any such
securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus
the additional consideration, if any, to be received by the
Corporation upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in
each case to be determined in the manner provided in Sections
5(e)(ii)(1) and 5(e)(ii)(2) above);
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(C) on any change in the number of shares or exercise price of
Common Stock deliverable upon exercise of any such options or
rights or conversions of or exchanges for such securities, other
than a change resulting from the antidilution provisions thereof,
the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustment
made upon the issuance of such options, rights or securities not
converted prior to such change or options or rights related to such
securities not converted prior to such change been made upon the
basis of such change;
(D) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have been obtained had
the adjustment made upon the issuance of such options, rights,
securities or options or rights related to such securities been
made upon the basis of the issuance of only the number of shares of
Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities, or upon
the exercise of the options or rights related to such securities
and subsequent conversion or exchange thereof; and
(E) No further adjustment of the Conversion Price adjusted upon
the issuance of any such options, rights, convertible securities or
exchangeable securities shall be made as a result of the actual
issuance of Common Stock on the exercise of any such rights or
options or any conversion or exchange of any such securities.
(iii) If, at any time after the Original Issuance Date of such series of
Preferred Stock, the number of shares of Common Stock outstanding is
increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, following the
record date for the determination of holders of Common Stock entitled to
receive such stock dividend, subdivision or split-up, the Conversion Price
shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of the applicable series of
Preferred Stock shall be increased in proportion to such increase in
outstanding shares.
(iv) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for
such combination, the Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of each
share of the applicable series of Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
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(v) In the event of any capital reorganization of the Corporation, any
reclassification of the stock of the Corporation (other than a change in
par value or from par value to no par value or from no par value to par
value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or any consolidation or merger of the Corporation,
each share of the applicable series of Preferred Stock shall after such
reorganization, reclassification, consolidation, or merger be convertible
into the kind and number of shares of stock or other securities or property
of the Corporation or of the corporation resulting from such consolidation
or surviving such merger to which the holder of the number of shares of
Common Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation or merger) upon conversion
of such share of the applicable series of Preferred Stock would have been
entitled upon such reorganization, reclassification, consolidation or
merger. The provisions of this clause shall similarly apply to successive
reorganizations, reclassifications, consolidations or mergers.
(vi) No adjustment in the Conversion Price of any series of Preferred
Stock shall be required unless such adjustment would require an increase or
decrease of at least .1% in such Conversion Price; provided, that any
adjustments not required to be made by virtue of this sentence shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under Sections 5(e)(i) through 5(e)(v) above shall be made to
the nearest one hundredth (1/100) of a cent or the nearest one tenth (1/10)
of a share, as the case may be.
(vii) In any case in which the provisions of this Section 5(e) shall
require that an adjustment shall become effective following a record date
of an event, the Corporation may defer until the occurrence of such event
(A) issuing to the holder of any share of the applicable series of
Preferred Stock converted after such record date and before the occurrence
of such event the shares of capital stock issuable upon such conversion by
reason of the adjustment required by such event in addition to the shares
of capital stock issuable upon such conversion before giving effect to such
adjustments, and (B) paying to such holder any amount in cash in lieu of a
fractional share of capital stock pursuant to Section 5(d) above; provided,
--------
however, that the Corporation shall deliver to such holder an appropriate
-------
instrument evidencing such holder's right to receive such additional shares
and such cash.
(viii) Whenever the Conversion Price applicable to a series of Preferred
Stock shall be adjusted as provided in Section 5(e), the Corporation shall
make available for inspection during regular business hours, at its
principal executive offices or at such other place as may be designated by
the Corporation, a statement, signed by its chief executive officer,
showing in detail the facts requiring such adjustment and the Conversion
Price that shall be in effect after such adjustment. The Corporation shall
also cause a copy of such statement to be sent by first class certified
mail, return receipt requested and postage prepaid, to each holder of
Preferred Stock affected by the adjustment at such holder's address
appearing on the Corporation's records. Where appropriate, such copy may be
given in advance and may be included as part of any notice required to be
mailed under the provisions of Section 5(e)(ix) below.
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(ix) If the Corporation shall propose to take any action of the types
described in clauses (iii), (iv) or (v) of this Section 5(e), the
Corporation shall give notice to each holder of shares of the applicable
series of Preferred Stock, in the manner set forth in Section 5(e)(vii)
above, which notice shall specify the record date, if any, with respect to
any such action and the date on which such action is to take place. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Conversion
Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of
such action or deliverable upon conversion of shares of such series of
Preferred Stock. In the case of any action which would require the fixing
of a record date, such notice shall be given at least 20 days prior to the
date so fixed, and in case of all other action, such notice shall be given
at least 30 days prior to the taking of such proposed action. Failure to
give such notice, or any defect therein, shall not affect the legality or
validity of any such action.
(x) The Corporation shall at all times keep reserved, free from
preemptive rights, out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the Preferred
Stock, sufficient shares of Common Stock to provide for the conversion of
all outstanding shares of the Preferred Stock.
(xi) Without duplication of any other adjustment provided for in this
Section 5, at any time the Corporation makes or fixes a record date for the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in securities of the Corporation other than
shares of Common Stock, provision shall be made so that each holder of
Preferred Stock shall receive upon conversion thereof, in addition to the
shares of Common Stock receivable thereupon, the number of securities of
the Corporation which it would have received had its shares of Preferred
Stock been converted into shares of Common Stock on the date of such event
and had such holder thereafter, during the period from the date of such
event to and including the date of conversion, retained such securities
receivable by it pursuant to this paragraph during such period, subject to
the sum of all other adjustments called for during such period under this
Section 5 with respect to the rights of such holder of Preferred Stock.
(f) The Conversion Price applicable to a series of Preferred Stock shall be
subject to further adjustment as follows:
(i) If at any time the Corporation determines (or is notified by any
holders of Preferred Stock) that the number of shares of Common Stock into
which the Series A Preferred Stock was convertible on the date hereof
pursuant to this Section 5 represented less than 6.70% (the "Series A
Target Percentage") of the number of shares of Common Stock outstanding on
the date hereof (assuming
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the issuance of all shares or options reserved for issuance under any
employee, officer or director equity compensation plan of the Corporation
in effect on the date hereof and the exercise, conversion or exchange on
the date hereof of all options, warrants, preferred stock and any other
securities of the Corporation exercisable, convertible or exchangeable for
or into Common Stock), the Corporation shall recalculate the then-
applicable Conversion Price for such series (which may be reduced but shall
not be increased), by (x) determining the initial Conversion Price for such
series that would have resulted in the Series A Target Percentage, as
measured on the date hereof, being met and (y) then adjusting such initial
Conversion Price for each issuance or deemed issuance of shares of Common
Stock after the date hereof in accordance with the terms and conditions of
Section 5(e).
(ii) If at any time the Corporation determines (or is notified by any
holders of Preferred Stock) that the number of shares of Common Stock into
which the Series B Preferred Stock was convertible on the date hereof
pursuant to this Section 5 represented less than 6.70% (the "Series B
Target Percentage") of the number of shares of Common Stock outstanding on
the date hereof (assuming the issuance of all shares or options reserved
for issuance under any employee, officer or director equity compensation
plan of the Corporation in effect on the date hereof and the exercise,
conversion or exchange on the date hereof of all options, warrants,
preferred stock and any other securities of the Corporation exercisable,
convertible or exchangeable for or into Common Stock), the Corporation
shall recalculate the then-applicable Conversion Price for such series
(which may be reduced but shall not be increased), by (x) determining the
initial Conversion Price for such series that would have resulted in the
Series B Target Percentage, as measured on the date hereof, being met and
(y) then adjusting such initial Conversion Price for each issuance or
deemed issuance of shares of Common Stock after the date hereof in
accordance with the terms and conditions of Section 5(e).
(iii) If at any time the Corporation determines (or is notified by any
holders of Preferred Stock) that the number of shares of Common Stock into
which the Series C Preferred Stock was convertible on the date hereof
pursuant to this Section 5 represented less than 17.56% (the "Series C
Target Percentage") of the number of shares of Common Stock outstanding on
the date hereof (assuming the issuance of all shares or options reserved
for issuance under any employee, officer or director equity compensation
plan of the Corporation in effect on the date hereof and the exercise,
conversion or exchange on the date hereof of all options, warrants,
preferred stock and any other securities of the Corporation exercisable,
convertible or exchangeable for or into Common Stock), the Corporation
shall recalculate the then-applicable Conversion Price for such series
(which may be reduced but shall not be increased), by (x) determining the
initial Conversion Price for such series that would have resulted in the
Series C Target Percentage, as measured on the date hereof, being met and
(y) then adjusting such initial Conversion Price for each issuance or
deemed issuance of shares of Common Stock after the date hereof in
accordance with the terms and conditions of Section 5(e).
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(iv) If at any time the Corporation determines (or is notified by any
holders of Preferred Stock) that the number of shares of Common Stock into
which the Series D Preferred Stock was convertible on the date hereof
pursuant to this Section 5 represented less than 15.10% (the "Series D
Target Percentage") of the number of shares of Common Stock outstanding on
the date hereof (assuming the issuance of all shares or options reserved
for issuance under any employee, officer or director equity compensation
plan of the Corporation in effect on the date hereof and the exercise,
conversion or exchange on the date hereof of all options, warrants,
preferred stock and any other securities of the Corporation exercisable,
convertible or exchangeable for or into Common Stock), the Corporation
shall recalculate the then-applicable Conversion Price for such series
(which may be reduced but shall not be increased), by (x) determining the
initial Conversion Price for such series that would have resulted in the
Series D Target Percentage, as measured on the date hereof, being met and
(y) then adjusting such initial Conversion Price for each issuance or
deemed issuance of shares of Common Stock after the date hereof in
accordance with the terms and conditions of Section 5(e).
(v) If at any time the Corporation determines (or is notified by any
holders of Preferred Stock) that the number of shares of Common Stock into
which the Series E Preferred Stock was convertible on the date hereof
pursuant to this Section 5 represented less than 18.71% (the "Series E
Target Percentage") of the number of shares of Common Stock outstanding on
the date hereof (assuming the issuance of all shares or options reserved
for issuance under any employee, officer or director equity compensation
plan of the Corporation in effect on the date hereof and the exercise,
conversion or exchange on the date hereof of all options, warrants,
preferred stock and any other securities of the Corporation exercisable,
convertible or exchangeable for or into Common Stock), the Corporation
shall recalculate the then-applicable Conversion Price for such series
(which may be reduced but shall not be increased), by (x) determining the
initial Conversion Price for such series that would have resulted in the
Series E Target Percentage, as measured on the date hereof, being met and
(y) then adjusting such initial Conversion Price for each issuance or
deemed issuance of shares of Common Stock after the date hereof in
accordance with the terms and conditions of Section 5(e).
(g) The Corporation will not, by amendment of its Restated Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section and
in the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the holders of each series of Preferred Stock
against impairment.
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(h) The computations of all amounts under Sections 5(e) or 5(f) shall be
made assuming all other anti-dilution or similar adjustments to be made to the
terms of all other securities resulting from the transaction causing an
adjustment pursuant to such Sections have previously been made so as to maintain
the relative economic interest of each series of Preferred Stock relative to all
other securities issued by the Corporation.
(i) The Corporation shall take, or cause to be taken, such steps as shall
be necessary to keep the par value of each share of Common Stock less than or
equal to the Conversion Price of each share of Preferred Stock at all times.
6. Reissuance of Preferred Stock.
- -- -----------------------------
During the period that any share of any series of Preferred Stock
authorized as of the date hereof is outstanding, no such share of Preferred
Stock acquired by the Corporation by reason of redemption, repurchase,
conversion or otherwise shall be reissued, and all such shares so acquired shall
hold the status of undesignated shares of Preferred Stock. Notwithstanding the
foregoing sentence, upon the consummation of a Qualified Public Offering, the
Board of Directors shall be authorized to reissue any share of Preferred Stock
acquired by reason of redemption, repurchase, conversion or otherwise (the
"Reissued Preferred Stock"). The Board of Directors shall be authorized,
subject to limitations prescribed by law and within the limitations and
restrictions stated in this Restated Certificate of Incorporation, to provide
for the issuance of the shares of Reissued Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences, and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof. The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(1) The number of shares constituting that series and the distinctive
designation of that series;
(2) The dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of
dividends on shares of that series;
(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting
rights;
(4) Whether that series shall have conversion obligations or privileges,
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as
the Board of Directors shall determine;
(5) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the
date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
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<PAGE>
(6) Whether that series shall have a sinking fund for the redemption or
purchases of shares of that series, and, if so, the terms and
amount of such sinking fund;
(7) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(8) Any other relative rights, preferences and limitations of that
series.
7. Definitions.
- -- -----------
As used herein, the following terms shall have the following meanings:
(a) "Annual Budget" has the meaning assigned to such term in the Series
E Purchase Agreement.
(b) "Approved Business Sponsor" means a Business Sponsor to whom shares
of Common Stock are issued (or to whom shares of Common Stock are deemed to
be issued within the meaning of Section 5(e)) upon the approval of the
Board, and, at the time of the issuance (or deemed issuance) of such
shares, such Business Sponsor is specifically named in, or falls within a
particular category of Business Sponsors identified as a source of actual
or projected revenue for the Corporation in, the Business Plan and/or the
Annual Budget then in effect.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Business Plan" has the meaning assigned to such term in the
Stockholders' Agreement.
(e) "Business Sponsor" has the meaning assigned to such term in the
Stockholders' Agreement.
(f) "Excluded Stock" means (i) shares of Common Stock or options or
warrants to purchase shares of Common Stock which may after the date hereof
be, or which may prior to the date hereof have been, issued to employees,
officers and directors of, or consultants, lessors of property or lenders
to, or as consideration for the acquisition of the assets or capital stock
of another business concern by, or to an Approved Business Sponsor of, the
Corporation or any of its subsidiaries, in each case upon the approval of
the Board, or pursuant to a commitment made by the Corporation prior to the
date hereof, reasonably documented in writing, and in no event exceeding an
aggregate of 2,276,556 shares, (ii) shares of Common Stock or other
securities issued by the Corporation after the date hereof upon the
conversion of any Preferred Stock or the exercise, conversion or exchange
of any options, warrants or other rights to acquire capital stock of the
Corporation, which such options, warrants or other rights were outstanding
on the date hereof or
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the issuance of which after the date hereof made the then-applicable
Conversion Price for each share of Preferred Stock then outstanding subject
to adjustment pursuant to Section 5(e)(i), and (iii) any securities issued
by the Corporation after the date hereof to give effect to any stock
dividend or distribution, stock split, reverse stock split or combination
or other similar pro rata recapitalization event affecting any class or
series of the Corporation's capital stock. The Excluded Stock shall include
any additional shares of Common Stock as may be issued by virtue of
antidilution provisions, if any, applicable to such shares, options,
warrants or other securities, as the case may be.
(g) "Liquidation" means (i) any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, (ii) the sale
of all or substantially all of the assets of the Corporation and its
subsidiaries, on a consolidated basis, to any person or an entity which is
not a wholly owned subsidiary of the Corporation, or (iii) the merger or
consolidation of the Corporation with or into another entity under
circumstances in which the holders of a majority in voting power of the
outstanding voting power of the outstanding capital stock of the
Corporation, immediately prior to such merger or consolidation, own less
than a majority in voting power of the outstanding capital stock of the
surviving or resulting corporation, immediately following such merger or
consolidation. For the purpose of this definition, a sale (or multiple
related sales) of one or more subsidiaries of the Corporation (whether by
way of merger, consolidation or sale of all or substantially all assets) to
a person or entity (other than the Corporation or a wholly owned subsidiary
thereof) which constitutes all or substantially all of the consolidated
assets of the Corporation and its subsidiaries shall be deemed a
Liquidation.
(h) "Liquidation Amount" means, with respect to any share of any series
of Preferred Stock, the Original Issuance Price of such share of Preferred
Stock, plus all accrued but unpaid dividends thereon up to (but not
including) the date of Liquidation.
(i) "Original Issuance Date" means, with respect to any share of any
series of Preferred Stock, the date on which such share was originally
issued.
(j) "Original Issuance Price" means, (i) in the case of a share of
Series A Preferred Stock, $1.00, (ii) in the case of a share of Series B
Preferred Stock, $1.00, (iii) in the case of a share of Series C Preferred
Stock, $1.5265, (iv) in the case of a share of Series D Preferred Stock,
$4.7051 and (v) in the case of a share of Series E Preferred Stock,
$8.0868. The Original Issuance Price with respect to any share of any
series of Preferred Stock shall be adjusted to reflect any stock dividend,
stock split, reverse stock split or combination or other pro rata
recapitalization event affecting any such series of Preferred Stock.
(k) "Qualified Public Offering" shall mean a firm commitment,
underwritten public offering of shares of Common Stock (other than an
offering in connection with an acquisition or employee benefit plan)
pursuant to an effective registration statement under the Securities Act of
1933, as amended, that results in proceeds to the Corporation (net of any
and all underwriters' discounts, commissions and expenses and registration
expenses) of at least $25,000,000 at an offering price per share of Common
Stock that is equal to or greater than 2.12 times the Original Issuance
Price for the Series E Preferred Stock (subject to adjustment upon any of
the events described in Sections 5(e)(iii), 5(e)(iv) or 5(e)(v)).
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(l) "Redemption Event" shall mean (i) a Liquidation or (ii) any material
breach by the Corporation of any material term of this Restated Certificate
of Incorporation, as amended from time to time (provided any such material
breach is incurable or otherwise remains outstanding and uncured for a
period of 30 days from the date of notice thereof to the Corporation).
(m) "Series E Purchase Agreement" shall mean that certain Securities
Purchase Agreement dated as of the date hereof, among the Corporation and
the purchasers of the Series E Preferred Stock, as the same may be amended,
supplemented or modified from time to time.
(n) "Stockholders' Agreement" shall mean that certain Second Amended and
Restated Stockholders' Agreement dated as of the date hereof among the
Corporation and the stockholders of the Corporation, as the same may be
amended, supplemented or modified from time to time.
B. COMMON STOCK
(a) Each holder of shares of Common Stock shall be entitled to one vote
for each share of Common Stock held on all matters as to which holders of Common
Stock shall be entitled to vote.
(b) Subject to the limitation that all preferences, voting powers, relative,
participating, optional or other special rights and privileges, and
qualifications, limitations, or restrictions of the Common Stock are expressly
made subject to those that may be fixed with respect to any shares of Preferred
Stock, the holders of Common Stock shall have exclusively all other rights of
stockholders including, but not by way of limitation, (i) the right to receive
dividends, when and as declared by the Board out of the assets of the
Corporation legally available therefor and (ii) in the event of any distribution
of assets upon a Liquidation or otherwise, the right to receive ratably and
equally all the assets and funds of the Corporation remaining after the payment
to the holders of shares of Preferred Stock of the specific amounts which they
are respectively entitled to receive upon such Liquidation.
(c) The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
FIFTH: The business and affairs of the Corporation shall be managed by or
under the direction of the Board. The authorized number of directors of the
Corporation is seven (7).
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SIXTH: The name and mailing address of the incorporator are Jagpreet
Singh, c/o Venable, Baetjer, Howard & Civiletti, LLP, 1201 New York Ave., Suite
1000, Washington, DC 20005. The powers of the incorporator shall terminate upon
the filing of this Certificate of Incorporation.
SEVENTH: Notwithstanding vacancies, if any, to be filled by the
stockholders, the names and mailing addresses of the persons who are to serve as
directors until the first annual meeting of stockholders or until their
successors are elected and qualify, are as follows:
Stephen R. Chapin, Jr.
5125 Sheppard Lane
Ellicott City, MD 21042
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Douglas A. Lindgren
114 West 47th Street
New York, NY 10036
E. Rogers Novak, Jr.
1897 Preston White Drive
Reston, VA 20191
Gene Riechers
1001 19th Street, North, 10th Floor
Arlington, VA 22209
Philip D. Black
101 California Street, 45th Floor
San Francisco, CA 94111
EIGHTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or
an officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as
provided in Section C of this Article EIGHTH with respect to proceedings to
enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article EIGHTH
shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition
(hereinafter and "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, services to an employee benefit
plan) shall be made only
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upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision
from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section or otherwise. The rights to indemnification
and to the advancement of expenses conferred in Sections A and B of this
Article EIGHTH shall be contract rights and such rights shall continue as to
an indemnitee who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
C. If a claim under Section A or B of this Article EIGHTH is not paid in full
by the Corporation within sixty days after a written claim has been received
by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expenses of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses hereunder, or by
the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the burden of proving that the indemnitee is not entitled
to be indemnified, or to such advancement of expenses, under this Article
EIGHTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article EIGHTH shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of this
Restated Certificate of Incorporation, Bylaws, agreement, or vote of
stockholders or disinterested directors.
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E. The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or its
subsidiary or affiliate, or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent
of the provisions of this Article EIGHTH with respect to the indemnification
and advancement of expenses of directors and officers of the Corporation.
NINTH: A director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability: (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended. Any repeal or modification of the
foregoing paragraph by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
TENTH: The Board of Directors shall have the power to adopt, amend or
repeal the bylaws of the Corporation.
ELEVENTH: Elections of Directors need not be by written ballot unless the
bylaws of the Corporation so provide.
26
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
executed by Stephen R. Chapin, Jr., the Corporation's duly authorized officer,
this 22nd day of September, 1999.
LIFEMINDERS.COM, INC.
By: /s/ Stephen R. Chapin, Jr.
--------------------------
Stephen R. Chapin, Jr.,
President and Chief Executive
Officer
27
<PAGE>
Exhibit 3.2
BYLAWS
OF
LIFEMINDERS.COM, INC.
ARTICLE I.
---------
Stockholders
------------
Section 1. Annual Meetings.
- ---------------------------
The annual meeting of the stockholders of the Corporation shall be held on
such date within the month of April as may be fixed from time to time by the
Board of Directors. Not less than ten nor more than 90 days' written notice
stating the place, day and hour of each annual meeting shall be given in the
manner provided in Section 1 of Article IX hereof. The business to be
transacted at the annual meetings shall include the election of directors,
consideration and action upon the reports of officers and directors, and any
other business within the power of the Corporation. All annual meetings shall
be general meetings at which any business may be considered without being
specified as a purpose in the notice unless otherwise required by law.
Section 2. Special Meetings Called by Chairman of the Board, President or Board
- --------------------------------------------------------------------------------
of Directors.
- ------------
At any time in the interval between annual meetings, special meetings of
stockholders may be called by the Chairman of the Board, or by the President, or
by the Board of Directors. Not less than ten nor more than 90 days' written
notice stating the place, day and hour of such meeting and the matters proposed
to be acted on thereat shall be given to each stockholder entitled to such
notice in the manner provided in Section 1 of Article IX. No business shall be
transacted at any special meeting except that specified in the notice.
Section 3. Special Meeting Called by Stockholders.
- --------------------------------------------------
Upon the request in writing delivered to the Secretary by the stockholders
entitled to cast at least 25% of all the votes entitled to be cast at the
meeting, it shall be the duty of the Secretary to call forthwith a special
meeting of the stockholders. Such request shall state the purpose of such
meeting and the matters proposed to be acted on thereat, and no other business
shall be transacted at any such special meeting. The Secretary shall inform
such stockholders of the reasonably estimated costs of preparing and mailing the
notice of the meeting, and upon payment to the Corporation of such costs, the
Secretary shall give not less than ten nor more than 90 days' notice of the
time,
<PAGE>
place and purpose of the meeting to each stockholder entitled to such
notice in the manner provided in Section 1 of Article IX. If upon payment of
such costs the Secretary shall fail to issue a call for such meeting within ten
days after the receipt of such payment (unless such failure is excused by law),
then the stockholders entitled to cast 25% or more of the outstanding shares
entitled to vote may do so upon giving not less than ten days' nor more than 90
days' notice of the time, place and purpose of the meeting in the manner
provided in Section 1 of Article IX.
Section 4. Place of Meetings.
- -----------------------------
All meetings of stockholders shall be held at the principal office of the
Corporation or at such other place within or without the State of Delaware as
may be fixed from time to time by the Board of Directors and designated in the
notice.
Section 5. Quorum.
- ------------------
Except as otherwise provided by law or the Charter, at any meeting of
stockholders, the presence in person or by proxy of stockholders entitled to
cast a majority of the votes entitled to be cast thereat shall constitute a
quorum. In the absence of a quorum, the stockholders present in person or by
proxy, by majority vote and without notice other than by announcement at the
meeting, may adjourn the meeting from time to time until a quorum shall attend.
Section 6. Adjourned Meetings.
- ------------------------------
A meeting of stockholders convened on the date for which it was called
(including one adjourned to achieve a quorum as above provided in Section 5 of
this Article) may be adjourned from time to time without further notice other
than by announcement at the meeting and any business may be transacted at any
adjourned meeting which could have been transacted at the meeting as originally
called. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjournment meeting, a notice of
the adjournment meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 7. Voting.
- ------------------
Except as otherwise provided by the Charter, a plurality of the votes cast
at a meeting of stockholders duly called and at which a quorum is present shall
be sufficient to elect a director. Except as otherwise provided by the Charter,
each share of stock may be voted for as many individuals as there are directors
to be elected and for whose election the share is entitled to be voted.
Except as otherwise provided by law or the Charter, a majority of the votes
cast at a meeting of stockholders, duly called and at which a quorum is present,
shall be sufficient to take or authorize action upon any other matter which may
properly come before the meeting. The Board of Directors may fix the record
date for the determination
2
<PAGE>
of stockholders entitled to vote in the manner provided in Section 3 of Article
VIII of these Bylaws. Unless otherwise provided in the Charter, each outstanding
share of stock, regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of stockholders.
Section 8. Proxies.
- -------------------
A stockholder may vote the shares owned of record either in person or by
proxy. The proxy shall be in writing and shall be signed by the stockholder or
by the stockholder's duly authorized attorney-in-fact or be in such other form
as may be permitted by the Delaware General Corporation Law, including documents
conveyed by electronic transmission. A copy, facsimile transmission or other
reliable reproduction of the writing or transmission may be substituted for the
original writing or transmission for any purpose for which the original
transmission could be used. Every proxy shall be dated, but need not be sealed,
witnessed or acknowledged. No proxy shall be valid after 11 months from its
date, unless otherwise provided in the proxy. In the case of stock held of
record by more than one person, any co-owner or co-fiduciary may execute the
proxy without the joinder of the co-owner(s) or co-fiduciary(ies), unless the
Secretary of the Corporation is notified in writing by any co-owner or co-
fiduciary that the joinder of more than one is to be required. At all meetings
of stockholders, the proxies shall be filed with and verified by the Secretary
of the Corporation, or, if the meeting shall so decide, by the Secretary of the
meeting. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary of the corporation.
Section 9. List of Stockholders Entitled to Vote.
- -------------------------------------------------
The Secretary shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list of stockholders or the books of the corporation, or to vote in person
or by proxy at any meeting of stockholders.
3
<PAGE>
Section 10. Informal Action by Stockholders.
- --------------------------------------------
Any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded.
ARTICLE II.
----------
Directors
---------
Section 1. Powers.
- ------------------
The business and affairs of the Corporation shall be managed under the
direction of its Board of Directors. All powers of the Corporation may be
exercised by or under the authority of the Board of Directors except as
conferred on or reserved to the stockholders by law, by the Charter or by these
Bylaws. A director need not be a stockholder. The Board of Directors shall
keep minutes of its meetings and full and fair accounts of its transactions.
Section 2. Number; Term of Office; Removal.
- -------------------------------------------
The authorized number of directors of the Corporation shall be not less
than seven; provided, however, that such number may be increased and thereafter
increased or decreased from time to time by vote of a majority of the entire
Board of Directors. The number of directors shall not exceed eleven (11). The
Board of Directors shall initially consist of the persons named as directors in
the certificate of incorporation, and each director so elected shall hold office
until the first annual meeting of stockholders or until his successor is elected
and qualified. At the first annual meeting of stockholders and at each annual
meeting thereafter, the stockholders shall elect directors each of whom shall
hold office for a term of one year or until his successor is elected and
qualified. Any director may resign at any time upon written notice to the
corporation. Any newly created directorship or any vacancy occurring in the
Board of Directors for any cause may be filled by a majority of the remaining
members of the Board of Directors, although such majority is less than a quorum,
or by a plurality of the votes cast at a meeting of stockholders, and each
director so elected shall hold office until the expiration of the term of office
of the director whom he has replaced or until his successor is elected and
qualified.
4
<PAGE>
Section 3. Annual Meeting; Regular Meetings.
- --------------------------------------------
As soon as practicable after each annual meeting of stockholders, the Board
of Directors shall meet for the purpose of organization and the transaction of
other business. No notice of the annual meeting of the Board of Directors need
be given. Other regular meetings of the Board of Directors may be held at such
times and at such places, within or without the State of Delaware, as shall be
designated in the notice for such meeting by the party making the call. All
annual and regular meetings shall be general meetings, and any business may be
transacted thereat.
Section 4. Special Meetings.
- ----------------------------
Special meetings of the Board of Directors may be called by the President,
any Vice President, the Secretary or by any of the directors. Notice of a
special meeting shall be given by the person calling the meeting at least
twenty-four hours before the special meeting.
Section 5. Quorum; Voting.
- --------------------------
A majority of the Board of Directors shall constitute a quorum for the
transaction of business at every meeting of the Board of Directors. Except as
hereinafter provided or as otherwise provided by the Charter or by law,
directors shall act by a vote of a majority of those members in attendance at a
meeting at which a quorum is present.
Section 6. Vacancies.
- ---------------------
(a) Unless otherwise provided by the Charter, if the office of a director
becomes vacant for any reason other than removal or increase in the size of the
Board, such vacancy may be filled by the Board by a vote of a majority of
directors then in office, although such majority is less than a quorum.
(b) Unless otherwise provided by the Charter, if the vacancy occurs as a
result of the removal of a director, the stockholders may elect a successor or
may delegate that authority to the Board of Directors.
(c) Unless otherwise provided by the Charter, if the vacancy occurs as a
result of an increase in the number of directors, it may be filled by vote of a
majority of the entire Board of Directors holding office prior to the increase.
(d) Unless otherwise provided by the Charter, if the entire Board of
Directors shall become vacant, any stockholder may call a special meeting in the
same manner that the Chairman of the Board or the President may call such
meeting, and directors for the unexpired term may be elected at such special
meeting in the manner provided for their election at annual meetings.
5
<PAGE>
(e) A director elected by the Board of Directors to fill a vacancy shall
serve until the next annual meeting of stockholders and until a successor is
elected and qualifies. A director elected by the stockholders to fill a vacancy
shall serve for the unexpired term and until a successor is elected and
qualifies.
Section 7. Rules and Regulations.
- ---------------------------------
The Board of Directors may adopt such rules and regulations for the conduct
of its meetings and the management of the affairs of the Corporation as it may
deem proper and not inconsistent with the laws of the State of Delaware, these
Bylaws and the Charter.
Section 8. Executive Committee.
- -------------------------------
(a) The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, constitute an Executive Committee, composed of at
least [one] director, from among its members. The Executive Committee shall
hold office at the pleasure of the Board of Directors. Between sessions of the
Board of Directors, such Committee shall have and may exercise all of the powers
of the Board of Directors in the management of the business and affairs of the
Corporation, except those powers specifically denied by law. If any position on
the Executive Committee becomes vacant, or if the number of members is
increased, such vacancy may be filled by the Board of Directors. The taking of
any action by the Executive Committee shall be conclusive evidence that the
Board of Directors was not in session at the time of such action. The Executive
Committee shall hold formal meetings and keep minutes of all of its proceedings.
A copy of such minutes shall, after approval by the members of the Committee, be
sent to all directors as a matter of information. Any action taken by the
Executive Committee within the limits permitted by law shall have the force and
effect of Board action unless and until revised or altered by the Board. The
presence of not less than a majority of the Committee shall be necessary to
constitute a quorum. Action may be taken without a meeting if a unanimous
written consent is signed by all of the members of the Committee, and if such
consent is filed with the records of the Committee. The Executive Committee
shall have the power to elect one of its members to serve as its Chairman unless
the Board of Directors shall have designated such Chairman.
(b) The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, constitute one or more committees other than an
Executive Committee, composed of at least [one] director, from among its
members. Any such committee, to the extent permitted by law and to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation. Such other committee or committees
shall hold office at the pleasure of the Board of Directors. If any position on
such committee or committees becomes vacant, or if the number of members is
increased, such vacancy may be filled by the Board of Directors. Each such
committee shall hold formal meetings and keep minutes of all of its proceedings.
A copy
6
<PAGE>
of such minutes shall, after approval by the members of such committee,
be sent to all directors as a matter of information. Any action taken by such
committee or committees within the limits permitted by law shall have the force
and effect of Board action unless and until revised or altered by the Board.
The presence of not less than a majority of each such committee shall be
necessary to constitute a quorum. Action may be taken without a meeting if a
unanimous written consent is signed by all of the members of such committee, and
if such consent is filed with the records of such committee. Each such
committee shall have the power to elect one of its members to serve as its
Chairman unless the Board of Directors shall have designated such Chairman.
Section 9. Compensation.
- ------------------------
The directors may receive a stated salary or an attendance fee for each
meeting of the Board of Directors or any committee thereof attended, plus
reimbursement of reasonable expenses of attendance. The amount of the salary or
attendance fee and any entitlement to reimbursement of expenses shall be
determined by resolution of the Board; provided, however, that nothing herein
contained shall be construed as precluding a director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 10. Place of Meetings.
- ------------------------------
Regular or special meetings of the Board may be held within or without the
State of Delaware, as the Board may from time to time determine. The time and
place of meeting may be fixed by the party calling the meeting.
Section 11. Informal Action by the Directors.
- ---------------------------------------------
Any action required or permitted to be taken at any meeting of the Board
may be taken without a meeting, if a written consent to such action is signed by
all members of the Board and such consent is filed with the minutes of the
Board.
Section 12. Telephone Conference.
- ---------------------------------
Members of the Board of Directors or any committee thereof may participate
in a meeting of the Board or such committee by means of a conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other at the same time. Participation by such
means shall constitute presence in person at the meeting.
7
<PAGE>
ARTICLE III.
-----------
Officers
--------
Section 1. In General.
- ----------------------
The Board of Directors may choose a Chairman of the Board from among the
directors. The Board of Directors shall elect a President, a Treasurer, a
Secretary, and may elect one or more Vice Presidents, Assistant Secretaries and
Assistant Treasurers as the Board may from time to time deem appropriate. All
officers shall hold office only during the pleasure of the Board or until their
successors are chosen and qualify. Any two of the above offices may be held by
the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity when such instrument is required to be
executed, acknowledged or verified by any two or more officers. The Board of
Directors may from time to time appoint such other agents and employees with
such powers and duties as the Board may deem proper. In its discretion, the
Board of Directors may leave unfilled any offices except those of President and
Secretary. Any office may resign at any time upon written notice to the
corporation.
Section 2. Chairman of the Board.
- ---------------------------------
The Chairman of the Board, if one is elected, shall have the responsibility
for the implementation of the policies determined by the Board of Directors and
for the administration of the business affairs of the Corporation. The Chairman
shall preside over the meetings of the Board and of the stockholders if present
at the meeting. The Chairman shall be the Chief Executive Officer of the
Corporation if so designated by resolution of the Board.
Section 3. President.
- ---------------------
The President shall have the responsibility for the active management of
the business and general supervision and direction of all of the affairs of the
Corporation. In the absence of a Chairman of the Board, the President shall
preside over the meetings of the Board and of the stockholders if present at the
meeting, and shall perform such other duties as may be assigned by the Board of
Directors or the Executive Committee. The President shall have the authority on
the Corporation's behalf to endorse securities owned by the Corporation and to
execute any documents requiring the signature of an executive officer. The
President shall perform such other duties as the Board of Directors may direct
and shall be the Chief Executive Officer of the Corporation unless the Chairman
of the Board is so designated by resolution of the Board.
Section 4. Vice Presidents.
- ---------------------------
The Vice Presidents, in the order of priority designated by the Board of
Directors, shall be vested with all the power and may perform all the duties of
the
8
<PAGE>
President in the latter's absence. They may perform such other duties as
may be prescribed by the Board of Directors, the Executive Committee or the
President.
Section 5. Treasurer.
- ---------------------
The Treasurer shall have general supervision over the Corporation's
finances, and shall perform such other duties as may be assigned by the Board of
Directors or the President. Unless the Board designates another officer, the
Treasurer shall be the Chief Financial Officer of the Corporation. If required
by resolution of the Board, the Treasurer shall furnish a bond (which may be a
blanket bond) with such surety and in such penalty for the faithful performance
of duty as the Board of Directors may from time to time require, the cost of
such bond to be paid by the Corporation.
Section 6. Secretary.
- ---------------------
The Secretary shall keep the minutes of the meetings of the stockholders
and of the Board of Directors and shall attend to the giving and serving of all
notices of the Corporation required by law or these Bylaws. The Secretary shall
maintain at all times in the principal office of the Corporation at least one
copy of the Bylaws with all amendments to date, and shall make the same,
together with the minutes of the meetings of the stockholders, the annual
statement of affairs of the Corporation and any voting trust or other
stockholders agreement on file at the office of the Corporation, available for
inspection by any officer, director or stockholder during reasonable business
hours. The Secretary shall perform such other duties as may be assigned by the
Board of Directors.
Section 7. Assistant Treasurer and Secretary.
- ---------------------------------------------
The Board of Directors may designate from time to time Assistant Treasurers
and Secretaries, who shall perform such duties as may from time to time be
assigned to them by the Board of Directors or the President.
Section 8. Compensation; Removal; Vacancies.
- --------------------------------------------
The Board of Directors shall have power to fix the compensation of all
officers of the Corporation. It may authorize any committee or officer, upon
whom the power of appointing subordinate officers may have been conferred, to
fix the compensation of such subordinate officers. The Board of Directors shall
have the power at any regular or special meeting to remove any officer if, in
the judgment of the Board, the best interests of the Corporation will be served
by such removal. The Board of Directors may authorize any officer to remove
subordinate officers. The Board of Directors may authorize the Corporation's
employment of an officer for a period in excess of the term of the Board. The
Board of Directors at any regular or special meeting shall have power to fill a
vacancy occurring in any office for the unexpired portion of the term.
9
<PAGE>
Section 9. Substitutes.
- -----------------------
The Board of Directors may, from time to time in the absence of any one of
its officers or at any other time, designate any other person or persons on
behalf of the Corporation to sign any contracts, deeds, notes or other
instruments in the place or stead of any of such officers, and may designate any
person to fill any one of said offices, temporarily or for any particular
purpose; and any instruments so signed in accordance with a resolution of the
Board shall be the valid act of the Corporation as fully as if executed by any
regular officer.
ARTICLE IV.
----------
Commercial Paper, Etc.
----------------------
All bills, notes, checks, drafts and commercial paper of all kinds to be
executed by the Corporation as maker, acceptor, endorser or otherwise, and all
assignments and transfers of stock, contracts, or written obligations of the
Corporation, and all negotiable instruments, shall be made in the name of the
Corporation and shall be signed by any one or more of the following officers as
the Board of Directors may from time to time designate: the Chairman of the
Board, the President, any Vice President, or the Treasurer, or such other person
or persons as the Board of Directors or Executive Committee may from time to
time designate.
ARTICLE V.
---------
Fiscal Year
-----------
The fiscal year of the Corporation shall cover such period of 12 months as
the Board of Directors may determine. In the absence of any such determination,
the accounts of the Corporation shall be kept on a calendar year basis.
ARTICLE VI.
----------
Seal
----
The seal of the Corporation shall be in such form as approved by the Board
of Directors and shall be inscribed with the name of the Corporation and the
year and State in which it is incorporated. The Secretary or Treasurer, or any
Assistant Secretary or Assistant Treasurer, shall have the right and power to
attest to the corporate seal. In lieu of affixing the corporate seal to any
document, it shall be sufficient to meet the requirements of any law, rule or
regulation relating to a corporate seal to affix the word "(SEAL)" adjacent to
the signature of the person authorized to sign the document on behalf of the
Corporation.
10
<PAGE>
ARTICLE VII.
-----------
Stock
-----
Section 1. Issue.
- -----------------
Each stockholder shall be entitled to a certificate or certificates which
shall represent and certify the number and class of shares of stock owned in the
Corporation. Each certificate shall be signed by the Chairman of the Board, the
President or any Vice President and be countersigned by the Secretary or any
Assistant Secretary or the Treasurer or any Assistant Treasurer. The signatures
of the Corporation's officers and its corporate seal appearing on stock
certificates may be facsimiles if each such certificate is authenticated by the
manual signature of an officer of a duly authorized transfer agent. Stock
certificates shall be in such form, not inconsistent with law and the Charter,
as shall be approved by the Board of Directors. In case any officer of the
Corporation who has signed any certificate ceases to be an officer of the
Corporation, whether by reason of death, resignation or otherwise, before such
certificate is issued, then the certificate may nevertheless be issued by the
Corporation with the same effect as if the officer had not ceased to be such
officer as of the date of such issuance.
Section 2. Transfers.
- ---------------------
The Board of Directors shall have power and authority to make all such
rules and regulations as the Board may deem expedient concerning the issue,
transfer and registration of stock certificates. The Board of Directors may
appoint one or more transfer agents and/or registrars for its outstanding stock,
and their duties may be combined. No transfer of stock shall be recognized or
binding upon the Corporation until recorded on the books of the Corporation, or,
as the case may be, of its transfer agent and/or of its registrar, upon
surrender and cancellation of a certificate or certificates for a like number of
shares.
Section 3. Record Dates for Dividends and Stockholders' Meeting.
- ----------------------------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by
11
<PAGE>
the Board of Directors; and (3) in the case of any other action, shall not be
more than sixty days prior to such other action. If no record date is fixed: (1)
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior action of
the Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action; and (3) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 4. New Certificates.
- ----------------------------
In case any certificate of stock is lost, stolen, mutilated or destroyed,
the Board of Directors may authorize the issuance of a new certificate in place
thereof upon such indemnity to the Corporation against loss and such other terms
and conditions as it may deem advisable. The Board of Directors may delegate
such power to any officer or officers of the Corporation or to any transfer
agent or registrar of the Corporation; but the Board of Directors, such officer
or officers or such transfer agent or registrar may, in their discretion, refuse
to issue such new certificate save upon the order of some court having
jurisdiction.
ARTICLE VIII
------------
Notice
------
Section 1. Notice to Stockholders.
- ----------------------------------
Whenever by law or these Bylaws notice is required to be given to any
stockholder, such notice shall be in writing and may be given to each
stockholder by personal delivery or at the stockholder's residence or usual
place of business, or by mailing it, postage prepaid, and addressed to the
stockholder at the address appearing on the books of the Corporation or its
transfer agent. Such leaving or mailing of notice shall be deemed the time of
giving such notice.
Section 2. Notice to Directors and Officers.
- --------------------------------------------
Whenever by law or these Bylaws notice is required to be given to any
director or officer, such notice may be given in any one of the following ways:
by
12
<PAGE>
personal delivery to such director or officer, by telephone communication
with such director or officer personally or by facsimile transmission, by
telegram, cablegram, radiogram, first class mail or by delivery service
providing confirmation of delivery, addressed to such director or officer at the
address appearing on the books of the Corporation. The time when such notice
shall be consigned to a communication company for delivery shall be deemed to be
the time of the giving of such notice; if mailed, such notice shall be deemed
given 48 hours after the time it is deposited in the mail, postage prepaid; if
by facsimile transmission, such notice shall be deemed given at the time of such
transmission.
Section 3. Waiver of Notice.
- ----------------------------
Notice to any stockholder or director of the time, place and/or purpose of
any meeting of stockholders or directors required by these Bylaws may be
dispensed with if such stockholder shall either attend in person or by proxy, or
if such director shall attend in person, or if such absent stockholder or
director shall, in writing filed with the records of the meeting either before
or after the holding thereof, waive such notice.
ARTICLE IX.
----------
Voting of Stock in Other Corporations
-------------------------------------
Any stock in other corporations, which may from time to time be held by the
Corporation, may be represented and voted at any meeting of stockholders of such
other corporations by the President or a Vice President or by proxy or proxies
appointed by the President or a Vice President, or otherwise pursuant to
authorization thereunto given by a resolution of the Board of Directors adopted
by a vote of a majority of the directors.
ARTICLE X.
---------
Indemnification
---------------
To the maximum extent permitted by the Delaware General Corporation Law as
from time to time amended, the Corporation may indemnify its currently acting
and its former directors, officers, agents and employees and those persons who,
at the request of the Corporation serve or have served another corporation,
partnership, joint venture, trust or other enterprise in one or more of such
capacities against any and all liabilities incurred in connection with their
services in such capacities to the extent determined appropriate by the Board of
Directors. To the extent required by the Charter or applicable law, the
Corporation shall indemnify such individuals.
13
<PAGE>
ARTICLE XI.
----------
Amendments
----------
These Bylaws may be added to, altered, amended, repealed or suspended by a
vote of a majority of the Board of Directors at any regular or special meeting
of the Board, but the stockholders may make additional by-laws and may alter and
repeal any by-laws whether adopted by them or otherwise.
Adopted by the Board of Directors on the
21st day of September, 1999.
/s/ John Chapin
_______________________________________
John Chapin
Secretary
14
<PAGE>
Exhibit 10.1
E-COMMERCE AGREEMENT
This Agreement, dated as of August 25, 1999 (the "Effective Date"), is made by
------------
and between Lycos, Inc., a Delaware corporation with a principal place of
business at 400-2 Totten Pond Road, Waltham, MA 02451 ("Lycos") and
-----
LifeMinders.com Inc., a Maryland corporation with a principal place of business
at 1110 Herndon Parkway, Herndon, VA 20170 ("LifeMinders").
Recitals
- --------
A. Lycos is the owner or licensee of certain Web services (collectively, the
"Lycos Services"), which are accessible through the URLs www.lycos.com ,
- --------------- -------------
www.tripod.com, www.angelfire.com, www.mailcity.com, www.wired.com,
- -------------- ----------------- ---------------- -------------
www.hotbot.com, my.lycos.com, clubs.lycos.com, and www.whowhere.com (all sites
- -------------- --------- ---------- ----------------
are collectively referred to as the "Lycos Network").
-------------
B. LifeMinders is the operator of a Web site accessible through the URL
www.lifeminders.com (the "LifeMinders Site") on which LifeMinders promotes a
----------------
free e-mail reminder service (the "Email Service").
-------------
C. Lycos and LifeMinders wish to establish a relationship through which
Lifeminders shall launch a co-branded version of the LifeMinders Site (the
"Co-branded Site"), including a co-branded version of the Email Service (the
---------------
"Co-branded Email Service") which Lycos will link to throughout the Lycos
------------------------
Network. Collectively, the Co-branded Site and Co-branded Email Service are
referred to herein as the "Co-branded Services".
-------------------
D. All the content and information on the Co-branded Site and in any and all e-
mails sent by Lifeminders through the Co branded Email Service shall be referred
to herein as the "Content".
-------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lycos and LifeMinders hereby agree
as follows:
Terms
- -----
1. Co-branded Services.
-------------------
1.1 Serving and Hosting. LifeMinders will operate and serve the Co-
-------------------
branded Site in a manner consistent with the present quality standards of the
LifeMinders Site. In addition, LifeMinders will be responsible for system
operation software costs, hardware costs, and network costs. LifeMinders shall
provide Lycos with a contact at LifeMinders who shall be available to assist
Lycos twenty-four hours a day, seven days a week. LifeMinders will provide
Lycos with daily traffic and Member (as defined in Section 6.2) registration
reports. Without Lycos' prior approval, which will not be unreasonably withheld,
LifeMinders shall not (i) sell or place advertisements or sponsorships on any
page of the Co-Branded Services for any Lycos Competitor listed on attached
Exhibit D; (ii) sell any merchandise or other items on any page of the Co-
- ---------
branded Site, excluding the "Opt-In Services" page of the registration pages and
except as otherwise contemplated herein; or (iii) place a link to any site,
other than the LifeMinders Site and the TRUSTe Site, on the Co-branded Site,
excluding the "Opt-In Services" page of the registration pages. In addition,
Lycos will not sell any merchandise or other items on any page of the Co-branded
Site, except as otherwise contemplated herein. LifeMinders shall provide
additional services and functionality that are developed by LifeMinders for the
LifeMinders Site (or any successor to the LifeMinders Site) at no additional
cost so that the Co-Branded Services are maintained at a level substantially
equal to the LifeMinders Site and the Email Service as they appear from time to
time. Lycos may elect not to include on the Co-branded Services any such
additional services and functionality if Lycos, in its sole discretion, deems
such additional services and functionality to be competitive to Lycos' products
and services. Lycos shall have the right to provide online access to the Co-
Branded Services to Lycos' subsidiaries, joint venture partners of Lycos, and
licensees of the Lycos Services.
1.2 Launch Date. LifeMinders shall launch the Co-branded Services thirty
-----------
(30) days after the Effective Date (the "Launch Date").
-----------
1.3 Branding.
--------
1.3.1 Co-branded Site. The Co-branded Site will have the Lycos
---------------
Network branding bar on each page and the Lycos "look and feel," unless
otherwise agreed to by both parties. The URL of the Co-branded Site will be
substantially similar to:
Co-branded Site URL: www.lifeminders.lycos.com.
1.3.2 Co-branded E-mail Service. All emails sent through the Co-branded
-------------------------
E-mail Service (both text and web based emails) to users who subscribe for the
Co-branded Email Service on the Co-branded Site will be co-branded with the
Lycos logo as mutually agreed to by the parties.
1.4 Content. Subject to Section 1.1 above and the terms of this Section
-------
1.4, the content on the Co-branded Services shall include all Content on the
LifeMinders Site and the E-mail Service, unless otherwise mutually agreed to by
the parties. Notwithstanding anything to the contrary contained herein, it is
expressly understood that: (a) any Content that conflicts with Lycos' exclusive
advertising obligations shall be omitted from the Co-branded Site at the request
of Lycos, (b) any advertising that conflicts with Lycos' exclusive e-commerce
obligations shall be omitted from the Co-branded Site at the request of Lycos;
and (c) the Co-branded Services shall not include any pornographic or adult
Content, Content conveying a racist, hate or discriminatory message, or Content
promoting or advertising firearms or any illegal products or services. In
addition, if Lycos or its users reasonably find any Content to be offensive and
Lycos notifies LifeMinders of the offensive Content, LifeMinders will discuss in
good faith with Lycos the removal of such Content. In the event that
LifeMinders receives Content from any Lycos Competitor listed in attached
Exhibit D, LifeMinders shall immediately notify Lycos in writing (email being
- ---------
considered written notice) of the type of Content being provided by such Lycos
Competitor, and give Lycos the opportunity to provide LifeMinders with
comparable Content within five (5) business days after receipt of such notice,
which shall be displayed on the Co-branded Services in lieu of the competitive
Content. In the event that Lycos fails to provide such comparable Content
within such five (5) business day period, LifeMinders may display the Lycos
Competitor's Content.
<PAGE>
1.5 Co-branded E-Mail Service LifeMinders shall be responsible for all
-------------------------
aspects of the Co-branded Services, including, without limitation, sending out
all the e-mails requested by users. Lycos shall take no part in, and have no
responsibility or liability for, the Co-branded Services.
2. Lycos Network Integration.
-------------------------
2.1 Links on the Lycos Network. During the Term, Lycos will display the
--------------------------
impressions outlined in the attached Exhibit A in accordance with the time
----------
schedule specified therein. Based upon availability, Lycos may change the
impressions to be provided pursuant to Exhibit A if the parties mutually agree
---------
that substitute impressions may increase traffic to the Co-branded Site.
2.2 Additional Integration. In addition to the impressions outlined in
-----------------------
Exhibit A, Lycos will place additional links to the Co-branded Site throughout
- ---------
the Lycos Network, which shall initially include, but not limited to, the links
described in Exhibit B. From time to time, Lycos may change the additional
---------
links to be provided pursuant to this Section 2.2 so long as such links are
comparable to the links described in Exhibit B. Lycos will begin integrating
---------
the links described in attached Exhibit B promptly following the Effective Date,
---------
and shall complete the integration on or before ninety (90) days after the
Effective Date.
2.3 LifeMinders Obligations. LifeMinders shall provide Lycos with any
-----------------------
commercially reasonable assistance requested by Lycos in establishing the links
between the Lycos Network and the Co-branded Site, and with all artwork (subject
to Lycos' approval) for the advertising banners, buttons, boxes and links.
3. Redesigning of the Lycos Network Sites. LifeMinders acknowledges that,
--------------------------------------
consistent with Lycos' need for editorial discretion, Lycos may redesign, delete
or replace any pages on any site in the Lycos Network, including those pages on
which the impressions described in Section 2 will be displayed. In addition,
Lycos may redesign or replace the type of links, buttons, boxes and banners
described in Section 2. Notwithstanding the foregoing, Lycos will use good
faith efforts to provide LifeMinders with comparable links, buttons, boxes and
banners on any re-designed or replacement pages. In addition, Lycos will use
good faith efforts to provide LifeMinders reasonable notice of any major
redesigns of the Lycos Network Sites that will significantly effect those pages
on which the impressions described in Section 2 will be displayed.
4. Standard Terms and Conditions. The advertising products outlined in
-----------------------------
Exhibits A and B will be provided pursuant to the Terms and Conditions outlined
- ---------- -
in attached Exhibit C, which Terms and Conditions are incorporated herein by
---------
reference. Throughout the Term, all advertising banners must meet the Lycos
specifications found at http://adreporting.lycos.com/specs.html, as they appear
---------------------------------------
from time to time.
5. Impression Guarantees. Lycos guarantees that during the Term, Lycos shall
---------------------
provide LifeMinders with the number of Lycos Network impressions outlined in
Exhibit A. In the event that multiple impressions described in Exhibit A appear
- --------- ---------
on a single page of a Lycos Network site (e.g. a site page includes a banner ad
and a showcase box), each impression will be counted toward the Lycos impression
guarantees set forth herein.
6. Royalties and Fees.
------------------
6.1 Lycos Network Integration Fees.
-------------------------------
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
6.2 Lycos Bounty Royalties.
-----------------------
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
6.3 Advertising.
------------
6.3.1 Sale.
-----
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
6.3.2 CPM.
----
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
6.3.3 Sharing of Revenue.
-------------------
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
<PAGE>
6.4 Reporting. LifeMinders shall provide Lycos with weekly reports
---------
regarding: (i) clickthrus to the Co-branded Site from the impressions outlined
in Section 2; (ii) the number of Members; and (iii) the Bounties. Lycos shall
provide LifeMinders with weekly reports regarding: (i) the number of impressions
outlined in Section 2.1 displayed, and (ii) the clickthrus to the Co-branded
Site from the impressions outlined in Section 2.1.
6.5 Audit Rights. Each party shall maintain complete and accurate records
------------
with respect to the calculation of all payments due under this Agreement. Each
party shall have the right, at its expense (except as provided below), to audit
the other party's books and records for the purpose of verifying and tracking
payment amounts and Members. Any audits made pursuant to this Section 6.5 shall
be made not more than once per year, on not less then ten (10) days written
notice, during regular business hours, by auditors reasonably acceptable to the
party being audited (the "Audited Party"). If the auditor's figures reflect
-------------
payment due under this Agreement other than that reported by the Audited Party,
then the Audited Party shall pay the amount owed (if such amount is higher than
reported), or the party conducting the audit shall reimburse the difference (if
such amount is lower than reported), as the case may be. In addition, for any
audit performed hereunder, if the auditor's figures vary by more than 10% from
the figures provided by the Audited Party, then the Audited Party shall also pay
the reasonable cost of the audit.
7. User Information
----------------
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION.]
8. Licenses; Approvals. To the extent access to the Co-branded Services is
-------------------
deemed a use, public display, transmission, distribution or reproduction of the
Content, or to the extent the Content is actually used, publicly displayed,
transmitted, distributed or reproduced on the Lycos Network sites, LifeMinders
hereby grants Lycos a non-exclusive, non-transferable (except as provided
herein), royalty-free (except as provided herein), worldwide license to use,
publicly display, transmit, distribute and reproduce the Co-branded Services and
the Content during the Term solely for the purposes described herein.
LifeMinders represents and warrants that it has obtained all necessary licenses,
consents and approvals relating to all Content provided by a third party and
that it is responsible for obtaining any such licenses, consents and approvals
during the Term. Lycos acknowledges that the licenses granted hereunder do not
allow Lycos to use portions of the Content throughout the Lycos Network except
as permitted under this Agreement or with LifeMinders' prior approval. To the
extent Lycos provides LifeMinders with Content pursuant to Section 1.4, and such
Content is displayed on the Co-branded Services, Lycos hereby grants LifeMinders
a non-exclusive, non-transferable (except as provided herein), royalty-free
(except as provided herein), worldwide license to use, publicly display,
transmit, distribute and reproduce the Co-branded Services and the Content
during the Term solely for the purposes described herein.
9. Term. The term ("Term") of this Agreement shall commence on the Effective
----- ----
Date and continue for nine (9) months unless terminated earlier as provided in
Section 15 below or extended as provided herein. If, at the conclusion of the
original Term, /1/ have not subscribed to the
Co-branded E-mail Service, the Term will automatically extend for an additional
ninety (90) day period (the "Extended Term") during which Lycos will provide
-------------
LifeMinders, at no additional cost to LifeMinders, with additional Lycos Network
impressions and integration to be displayed in Lycos' sole discretion and based
on availability. The number and placement of the impressions and integration
displayed during the Extended Term will be comparable to the impressions and
integration displayed during the previous ninety (90) day period. At the end of
the Term, the parties may mutually agree to renew this Agreement for an
additional nine (9) month period.
10. Marks. Lycos hereby grants to LifeMinders a non-exclusive, non-
-----
transferable license to reproduce and display Lycos' trademarks, service marks,
logos and the like solely for the purposes specified in this Agreement and in
accordance with Lycos' established trademark usage policies and procedures.
LifeMinders hereby grants Lycos a non-exclusive, non-transferable license to
reproduce and display LifeMinders' trademarks, service marks, logos and the like
solely for the purposes specified in this Agreement and in accordance with
LifeMinders' established trademark usage policies and procedures. Except as
expressly stated herein, neither party shall make any other use of the other
party's marks. Upon request of either party, the other party shall provide
appropriate attribution of the use of the requesting party's marks. (e.g., "Go
Get It(R) is a registered service mark of Lycos, Inc. All Rights Reserved.") or
immediately cease using such requesting party's marks. In connection with the
licenses granted hereunder, each party shall have the unilateral right to
establish such quality standards and additional terms and conditions concerning
the use of its trademarks as such party deems necessary to reasonably protect
its trademarks. Such licenses shall terminate automatically upon the effective
date of expiration or termination of this Agreement.
/1/CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
11. Representations and Warranties. Each party hereby represents and warrants
------------------------------
as follows:
(a) Corporate Power. Such party is duly organized and validly existing
---------------
under the laws of the state of its incorporation and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof.
(b) Due Authorization. Such party is duly authorized to execute and
-----------------
deliver this Agreement and to perform its obligations hereunder.
(c) Binding Agreement. This Agreement is a legal and valid obligation
-----------------
binding upon it and enforceable with its terms. The execution, delivery and
performance of this Agreement by such party does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a party
or by which it may be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having jurisdiction over it.
(d) Intellectual Property Rights.
----------------------------
(i) LifeMinders has the full and exclusive right to grant or otherwise
permit Lycos to access the LifeMinders Site and the Co-branded Services, and to
use LifeMinders' intellectual property as necessary for Lycos to perform its
obligations under this Agreement, and LifeMinders is aware of no claims by any
third parties adverse to any of such intellectual property rights.
(ii) Lycos has the full and exclusive right to grant or otherwise permit
LifeMinders to access the Lycos Network and to use Lycos' intellectual property
as necessary for LifeMinders to perform its obligations under this Agreement,
and Lycos is aware of no claims by any third parties adverse to any of such
intellectual property rights.
(iii) If either party's (the "Infringing Party") intellectual property
----------------
rights are alleged or held to infringe the intellectual property rights of a
third party, the Infringing Party shall, at its own expense, and in its sole
discretion, (1) procure for the non-Infringing Party the right to continue to
use the allegedly infringing intellectual property or (2) replace or modify the
intellectual property to make it non-infringing; provided, however, if neither
option is possible or economically feasible and if the inability to use such
intellectual property would cause a material breach of this Agreement (as
determined by the non-Infringing Party), the Infringing Party may terminate this
Agreement.
The representations and warranties and covenants in this Section 11 are
continuous in nature and shall be deemed to have been given by each party at
execution of this Agreement and at each stage of performance hereunder. These
representations, warranties and covenants shall survive termination or
expiration of this Agreement.
12. Limitation of Warranty. EXCEPT AS EXPRESSLY WARRANTED IN
----------------------
SECTION 11 ABOVE, EACH PARTY EXPRESSLY DISCLAIMS ANY FURTHER WARRANTIES,
EXPRESS, IMPLIED, OR STATUTORY, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, LYCOS MAKES NO EXPRESS OR IMPLIED
WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE LYCOS NETWORK OR THE CO-
BRANDED SERVICES, AND LYCOS SHALL NOT BE LIABLE FOR THE CONSEQUENCES OF ANY
INTERRUPTIONS OR ERRORS RELATED THERETO. LYCOS SPECIFICALLY DISCLAIMS ALL
LIABILITY FOR THE LIFEMINDERS SITE, THE CO-BRANDED SERVICES, AND THE CONTENT
THEREIN, AND LIFEMINDERS SPECIFICALLY DISCLAIMS ALL LIABILITY FOR THE LYCOS
NETWORK AND THE CONTENT THEREIN. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, LYCOS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH
RESPECT TO ANY PRODUCTS OFFERED OR SOLD THROUGH THE LYCOS NETWORK, THE
LIFEMINDERS SITE OR THE CO-BRANDED SERVICES (INCLUDING, WITHOUT LIMITATION,
WARRANTIES OF FITNESS, MERCHANTABILITY, NON-INFRINGEMENT OR ANY IMPLIED
WARRANTIES ARISING OUT OF A COURSE OF PERFORMANCE, DEALING OR TRADE USAGE).
13. Indemnification; Insurance.
--------------------------
13.1 Indemnification.
---------------
13.1.1 LifeMinders Indemnity. LifeMinders will at all times defend,
---------------------
indemnify and hold harmless Lycos and its officers, directors, shareholders,
employees, accountants, attorneys, agents, affiliates, subsidiaries, successors
and assigns from and against any and all third party claims, damages,
liabilities, costs and expenses, including reasonable legal fees and expenses,
arising out of or related to: (i) any breach of any warranty, representation,
covenant or agreement made by LifeMinders in this Agreement; (ii) the
development, operation or maintenance of the LifeMinders Site, the Co-Branded
Site, the Co-branded Email Service, and the Content thereon; and (iii) the sale
or offering of any subscription to the Co-branded Email Service, and any other
products or services through the LifeMinders Site or the Co-branded Services,
including without limitation the purchase, acceptance, use or misuse of, or
reliance on, such products and services by any customer or user, so long as such
claims, damages, liabilities, costs and expenses do not arise out of the gross
negligence or willful misconduct of Lycos and its officers, directors,
shareholders, employees, accountants, attorneys, agents, affiliates,
subsidiaries. Lycos shall give LifeMinders prompt written notice of any claim,
action or demand for which indemnity is claimed. LifeMinders shall have the
right, but not the obligation, to control the defense and/or settlement of any
claim in which it is named as a party. Lycos shall have the right to
participate in any defense of a claim by LifeMinders with counsel of Lycos'
choice at Lycos' own expense. The foregoing indemnity is conditioned upon:
prompt written notice by Lycos to LifeMinders of any claim, action or demand
for which indemnity is claimed; complete control of the defense and settlement
thereof by LifeMinders; and such reasonable cooperation by Lycos in the defense
as LifeMinders may request.
13.1.2 Lycos Indemnity. Lycos will at all times defend, indemnify
---------------
and hold harmless LifeMinders and its officers, directors, shareholders,
employees, accountants, attorneys, agents, affiliates, subsidiaries, successors
and assigns from and against any and all third party claims, damages,
liabilities, costs and expenses, including reasonable legal fees and expenses,
arising out of or related to any breach of any warranty, representation,
covenant or agreement made by Lycos in this Agreement or the development,
operation or maintenance of the Lycos Network, including the content thereon
(but specifically excluding any content posted by users, including content
appearing in search results, chat or bulletin boards) so long as such claims,
damages, liabilities, costs and expenses do not arise out of the gross
negligence or willful misconduct of LifeMinders and its officers, directors,
shareholders, employees, accountants, attorneys, agents, affiliates,
subsidiaries. LifeMinders shall give Lycos prompt written notice of any claim,
action or demand for which indemnity is claimed. Lycos shall have the right, but
not the obligation, to control the defense and/or settlement of any claim in
which it is named as a party. LifeMinders shall have the right to participate in
any defense of a claim by Lycos with counsel of LifeMinders' choice at
LifeMinders' own expense. The foregoing indemnity is conditioned upon; prompt
written notice by LifeMinders to Lycos of any claim, action or demand for which
indemnity is claimed; complete control of the defense and settlement thereof by
Lycos; and such reasonable cooperation by LifeMinders in the defense as Lycos
may request.
<PAGE>
13.1.3 Settlement. Neither party shall, without the prior written
----------
consent of the other party, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim unless the settlement,
compromise or consent provides for and includes an express, unconditional
release of all claims, damages, liabilities, costs and expenses, including
reasonable legal fees and expenses, against the indemnified party.
13.2 Insurance. For the length of the Term, LifeMinders shall cause
---------
Lycos to be included as an "additional insured" on all of LifeMinders relevant
insurance policies that provide coverage of any kind relating to or regarding
the services or content provided by or the goods and products sold by
LifeMinders in accordance with the terms of this Agreement.
14. Confidentiality, Press Releases.
-------------------------------
14.1 Non-Disclosure Agreement. The parties agree and acknowledge that, as
------------------------
a result of negotiating, entering into and performing this Agreement, each party
has and will have access to certain of the other party's Confidential
Information (as defined below). Each party also understands and agrees that
misuse and/or disclosure of that information could adversely affect the other
party's business. Accordingly, the parties agree that, during the Term of this
Agreement and thereafter, each party shall use and reproduce the other party's
Confidential Information only for purposes of this Agreement and only to the
extent necessary for such purpose and shall restrict disclosure of the other
party's Confidential Information to its employees, consultants or independent
contractors with a need to know and shall not disclose the other party's
Confidential Information to any third party without the prior written approval
of the other party. Notwithstanding the foregoing, it shall not be a breach of
this Agreement for either party to disclose Confidential Information of the
other party if required to do so under law or in a judicial or other
governmental investigation or proceeding, provided the other party has been
given prior notice and the disclosing party has sought all available safeguards
against widespread dissemination prior to such disclosure. Notwithstanding
anything to the contrary in this section, in the event that LifeMinders engages
in a public offering, this Agreement may be made available in a SEC filing,
subject to Lycos' prior approval, such approval not to be unreasonably withheld,
and subject to customary redaction.
14.2 Confidential Information Defined. As used in this Agreement, the
--------------------------------
term "Confidential Information" refers to: (i) the terms and conditions of this
------------------------
Agreement; (ii) each party's trade secrets, business plans, strategies, methods
and/or practices; and (iii) other information relating to either party that is
not generally known to the public, including information about either party's
personnel, products, customers, marketing strategies, services or future
business plans. Notwithstanding the foregoing, the term "Confidential
------------
Information" specifically excludes (A) information that is now in the public
- -----------
domain or subsequently enters the public domain by publication or otherwise
through no action or fault of the other party; (B) information that is known to
either party without restriction, prior to receipt from the other party under
this Agreement, from its own independent sources as evidenced by such party's
written records, and which was not acquired, directly or indirectly, from the
other party; (C) information that either party receives from any third party
reasonably known by such receiving party to have a legal right to transmit such
information, and not under any obligation to keep such information confidential;
and (D) information independently developed by either party's employees or
agents provided that either party can show that those same employees or agents
had no access to the Confidential Information received hereunder.
14.3 Press Releases. Lycos and LifeMinders will jointly prepare a press
--------------
release concerning the existence of this Agreement and the terms hereof which
shall be released on or before thirty (30) days after the Launch Date and which
shall include quotes from senior executives of both parties. Otherwise, no
public statements concerning the existence or terms of this Agreement shall be
made or released to any medium except with the prior approval of Lycos and
LifeMinders or as required by law.
15. Termination. Either party may terminate this Agreement if (a) the other
-----------
party files a petition for bankruptcy or is adjudicated bankrupt; (b) a petition
in bankruptcy is filed against the other party and such petition is not
dismissed within sixty (60) days of the filing date; (c) the other party becomes
insolvent or makes an assignment for the benefit of its creditors pursuant to
any bankruptcy law; (d) a receiver is appointed for the other party or its
business; (e) upon the occurrence of a material breach of a material provision
by the other party if such breach is not cured within thirty (30) days after
written notice is received by the breaching party identifying the matter
constituting the material breach; or (f) by mutual consent of the parties.
16. Force Majeure. In the event that either party is prevented from
-------------
performing, or is unable to perform, any of its obligations under this Agreement
due to any cause beyond the reasonable control of the party invoking this
provision, the affected party's performance shall be excused and the time for
performance shall be extended for the period of delay or inability to perform
due to such occurrence.
17. Relationship of Parties. LifeMinders and Lycos are independent
-----------------------
contractors under this Agreement, and nothing herein shall be construed to
create a partnership, joint venture or agency relationship between LifeMinders
and Lycos. Neither party has authority to enter into agreements of any kind on
behalf of the other.
<PAGE>
18. Assignment, Binding Effect. Neither Lycos nor LifeMinders may assign
--------------------------
this Agreement or any of its rights or delegate any of its duties under this
Agreement without the prior written consent of the other which consent shall not
be unreasonably withheld, delayed or conditioned. Notwithstanding the
foregoing, Lycos may assign this Agreement to any successor of Lycos.
19. Choice of Law and Forum. This Agreement, its interpretation, performance
-----------------------
or any breach thereof, shall be construed in accordance with, and all questions
with respect thereto shall be determined by, the laws of the Commonwealth of
Massachusetts applicable to contracts entered into and wholly to be performed
within said state. LifeMinders hereby consents to the personal jurisdiction of
the Commonwealth of Massachusetts, acknowledges that venue is proper in any
state or Federal court in the Commonwealth of Massachusetts, agrees that any
action related to this Agreement must be brought in a state or Federal court in
the Commonwealth of Massachusetts, and waives any objection LifeMinders has or
may have in the future with respect to any of the foregoing.
20. Good Faith. The parties agree to act in good faith with respect to each
----------
provision of this Agreement and any dispute that may arise related hereto.
21. Counterparts and Facsimile Signatures. This Agreement may be executed in
-------------------------------------
multiple counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument. Facsimile
signatures will be considered original signatures.
22. No Waiver. The waiver by either party of a breach or a default of any
---------
provision of this Agreement by the other party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or omission on the part of either party to exercise or avail itself of
any right, power or privilege that it has, or may have hereunder, operate as a
waiver of any right, power or privilege by such party.
23. Successors and Assigns. This Agreement shall be binding upon and inure to
----------------------
the benefit of the parties hereto and their respective heirs, successors and
assigns.
24. Severability. Each provision of this Agreement shall be severable from
------------
every other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
25. Notices. All notice required to be given under this Agreement must be
-------
given in writing and delivered either in hand, by certified mail, return receipt
requested, postage pre-paid, or by Federal Express or other recognized overnight
delivery service, all delivery charges pre-paid, and addressed:
If to Lycos:
Lycos, Inc.
400-2 Totten Pond Road
Waltham, MA 02451
Fax No.: (781) 370-2600
Attention: General Counsel
If to LifeMinders:
LifeMinders.com
733 Elden Street
Herndon, VA 20170
Fax No: (703) 707-8269
Attention: CEO
26. Entire Agreement. This Agreement and all exhibits contain the entire
----------------
understanding of the parties hereto with respect to the transactions and matters
contemplated hereby, supersedes all previous agreements between Lycos and
LifeMinders concerning the subject matter, and cannot be amended except by a
writing signed by both parties. No party hereto has relied on any statement,
representation or promise of any other party or with any other officer, agent,
employee or attorney for the other party in executing this Agreement except as
expressly stated herein.
27. Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE
------------------------
LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES (EVEN IF SUCH DAMAGES ARE FORSEEABLE OR THAT PARTY HAS BEEN
ADVISED OR HAS CONSTRUCTIVE KNOWLEDGE OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM SUCH PARTY'S PERFORMANCE OR NON-PERFORMANCE PURSUANT TO ANY
PROVISION OF THIS AGREEMENT OR THE OPERATION OF SUCH PARTY'S SITE (INCLUDING
SUCH DAMAGES INCURRED BY THIRD PARTIES), SUCH AS, BUT NOT LIMITED TO, LOSS OF
REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. IN NO EVENT SHALL EITHER PARTY
BE LIABLE FOR DAMAGES IN EXCESS OF THE VALUE RECEIVED BY SUCH PARTY UNDER THIS
AGREEMENT. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, HOWEVER, THIS
SECTION SHALL NOT LIMIT EITHER PARTY'S LIABILITY TO THE OTHER FOR (A) WILLFUL
AND MALICIOUS MISCONDUCT; (B) DIRECT DAMAGES TO REAL OR TANGIBLE PERSONAL
PROPERTY; (C) BODILY INJURY OR DEATH CAUSED BY NEGLIGENCE; OR (D)
INDEMNIFICATION OR CONFIDENTIALITY OBLIGATIONS HEREUNDER.
28. Survival. All terms of this Agreement, which by their nature extend
--------
beyond its termination, remain in effect until fulfilled, and apply to
respective successors and assigns.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement
as of the date set forth above.
LIFEMINDERS.COM INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
Date: ____________________________
<PAGE>
LYCOS, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
Date: ____________________________
<PAGE>
EXHIBIT A
- ---------
<TABLE>
<CAPTION>
Total
Targeting September October November December January February March April May Imps
- ---------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lycos Channels
- ----------------
Computers 4,000,000 4,000,000 4,000,000 4,000,000 3,000,000 3,000,000 2,000,000 1,500,000 1,500,000 27,000,000
Games 2,000,000 2,000,000 2,000,000 2,000,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 15,500,000
Entertainment 4,000,000 4,000,000 4,000,000 4,000,000 3,000,000 3,000,000 3,000,000 1,000,000 1,000,000 27,000,000
Weather 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 4,500,000
Regional 250,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 6,250,000
Science & 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 900,000
Technology
Real Estate 350,000 300,000 400,000 200,000 100,000 100,000 400,000 600,000 600,000 3,050,000
Travel 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 3,600,000
News & Politics 1,200,000 1,200,000 1,200,000 1,200,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 9,800,000
Pictures & 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 9,000,000
Sounds
Chat 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 9,000,000
MyTime 250,000 250,000 300,000 300,000 370,000 370,000 370,000 370,000 370,000 2,950,000
Lycos 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 54,000,000
Personaliztion
Tripod Zones
- ----------------
Entertainment 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 9,000,000
Teens 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 4,500,000
Fun & Games 600,000 150,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 4,950,000
Homepage Banners
- ----------------
Lycos 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 6,750,000
WhoWhere 750,000 750,000 750,000 750,000 750,000 3,750,000
Angelfire 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 6,750,000
MailCity 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 6,750,000
HotBot 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 6,750,000
ROS Banners
- ----------------
Lycos 7,000,000 7,000,000 7,000,000 7,000,000 7,000,000 7,000,000 7,000,000 7,000,000 7,000,000 63,000,000
WhoWhere 2,000,000 6,000,000 10,000,000 12,500,000 20,000,000 22,500,000 25,000,000 27,500,000 30,000,000 155,500,000
Angelfire 25,000,000 27,500,000 35,000,000 35,000,000 40,000,000 40,000,000 40,000,000 40,000,000 40,000,000 322,500,000
MailCity 20,000,000 25,000,000 30,000,000 35,000,000 45,000,000 45,000,000 45,000,000 45,000,000 45,000,000 335,000,000
HotBot 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 36,000,000
Angelfire 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 9,000,000 81,000,000
HomePage
(106x60)
Text Links
- ----------------
MyTime Text 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000 810,000
Link
Halloween 700,000 700,000
Promotion
<PAGE>
Other Promotions 1,500,000
Millenium Guide 500,000 750,000 1,000,000 1,000,000 500,000 3,750,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
- ---------
Initially, Lycos shall place prominent links to the Co-branded Site as follows:
1. On the www.mailcity.com navigation bar, and on the www.mailcity.com
---------------- ----------------
registration pages, promoted as an opt in service for users;
2. On the New Services area and as a configurable component of my.lycos.com;
3. On the Activities Center of clubs.lycos.com;
4. In the following pages or areas of www.tripod.com: (a) Log-in Page, (b) text
--------------
link on the Front Page, (c) Tripod Builder Pages, and (d) Welcome Page; and
5. Tripod Insider Newsletter second page, promoted as an opt-in email service
for users.
<PAGE>
EXHIBIT C
---------
ADDITIONAL ADVERTISING TERMS
----------------------------
1. Changes and Cancellations. All artwork must be received at least five days
-------------------------
in advance of publication date. Cancellations or copy changes will not be
accepted after the published closing date of the update to the Lycos site.
Lycos must receive changes to artwork at least five days in advance of requested
change date. Lycos may not unreasonably limit the amount of artwork submitted by
LifeMinders. Lycos' ad banner specifications are accessible through the URL
adreporting.lycos.com/specs.html; Lycos reserves the right to change any of its
ad banner specifications at any time. Any cancellations or change orders must
be made in writing and acknowledged by Lycos.
2. Licenses and Indemnification. LifeMinders represents that it is the owner
----------------------------
or is licensed to use the entire contents and subject matter contained in its
advertising and collateral information, including, without limitation, (a) the
names and/or pictures of persons; (b) any copyrighted material, trademarks,
service marks, logos, and/or depictions of trademarked or service marked goods
or services; and (c) any testimonials or endorsements contained in any
advertisement submitted to Lycos. In consideration of Lycos' acceptance of such
advertisements and information for publication, LifeMinders will jointly and
severally indemnify and hold Lycos harmless against all loss, liability, damage
and expense of any nature (including reasonable attorney's fees) arising out of
the copying, printing, distributing, or publishing of LifeMinders'
advertisements. If LifeMinders possesses any preexisting copyright interests in
the advertisements, advertiser grants Lycos the right to use, reproduce, and
distribute the advertisements.
3. Key Words and Phrases. Each advertiser may be given a "first right" to its
---------------------
exact company name and trademarks for keyword/phrase advertising. Lycos may
pre-empt an existing key word/phrase advertiser by submitting a three-month
advertising contract. The existing contract-holder for the key word/phrase will
be provided with a two-week notification of preemption and will receive a pro-
rated refund for any unfulfilled number of guaranteed impressions. If two or
more advertisers have the same name or trademark, the allocation will be on a
first-come basis and the existing contract will take precedence.
4. Rejections. Lycos reserves the right, without liability, to reject, omit or
----------
exclude any advertisement or to reject or terminate any links for any reason at
any time, with or without notice to LifeMinders, and whether or not such
advertisement or link was previously acknowledged, accepted, or published.
5. Limitation of Liability. Lycos shall not be liable for any errors in
-----------------------
content or omissions. Should an error appear in an advertisement, Lycos'
liability will be limited to the cost of the advertisement (prorated for the
publishing completed).
<PAGE>
EXHIBIT D
---------
LYCOS COMPETITORS
-----------------
The term "Lycos Competitors" shall include the following entities:
Alta Vista
AOL
Excite/At Home
FortuneCity
Geocities
Go Network
Go.com
Go2Net
GoTo.com
Infoseek
Infospace
Looksmart
Microsoft
Netscape
Planet Direct
Snap
The Globe
Xoom
Yahoo
Within five business days after the Effective Date, and on a quarterly basis
thereafter, Lycos may update this Exhibit D with additional Competitors, subject
---------
to LifeMinders' approval, which approval shall not be unreasonably withheld or
delayed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the inclusion in this Registration Statement on Form S-1
(File No. 333-_____) of Lifeminders.Com, Inc. of our report dated April 2, 1999
except as to note 1 and note 11 for which the date is September 23, 1999 related
to the financial statements of Lifeminders.Com, Inc. at December 31, 1997 and
1998 and for the period August 9, 1996 (date of inception) to December 31, 1996
and for the each of the two years in the period ended December 31, 1998. We also
consent to the reference of our firm under the headings "Selected Financial
Information" and "Experts".
PricewaterhouseCoopers LLP
McLean, Virginia
September 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 232,073 7,036,864
<SECURITIES> 0 0
<RECEIVABLES> 0 1,016,333
<ALLOWANCES> 0 40,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 232,073 9,013,400
<PP&E> 54,733 816,362
<DEPRECIATION> 8,505 54,551
<TOTAL-ASSETS> 278,301 9,775,211
<CURRENT-LIABILITIES> 477,340 1,902,554
<BONDS> 0 0
2,023,375 16,704,114
0 0
<COMMON> 26,200 26,275
<OTHER-SE> (2,248,614) (8,972,472)
<TOTAL-LIABILITY-AND-EQUITY> 278,301 9,775,211
<SALES> 56,750 1,442,221
<TOTAL-REVENUES> 56,750 1,442,221
<CGS> 59,472 245,913
<TOTAL-COSTS> 59,472 245,913
<OTHER-EXPENSES> 1,968,999 7,872,540
<LOSS-PROVISION> 0 40,000
<INTEREST-EXPENSE> 0 2,874
<INCOME-PRETAX> (1,947,206) (6,608,009)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,947,206) (6,608,009)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,947,206) (6,608,009)
<EPS-BASIC> (0.80) (2.61)
<EPS-DILUTED> (0.80) (2.61)
</TABLE>
