<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 12, 1999
REGISTRATION NO. 333-75523
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MYPOINTS.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7311 94-3255692
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
MYPOINTS.COM, INC.
565 COMMERCIAL STREET, 4TH FLOOR
SAN FRANCISCO, CA 94111-3031
(415) 676-3700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEVEN M. MARKOWITZ
CHIEF EXECUTIVE OFFICER
MYPOINTS.COM, INC.
565 COMMERCIAL STREET, 4TH FLOOR
SAN FRANCISCO, CA 94111-3031
(415) 676-3700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
MARIO M. ROSATI, ESQ. LAIRD H. SIMONS III, ESQ.
CHRISTOPHER D. MITCHELL, ESQ. KATHERINE TALLMAN SCHUDA, ESQ.
ADAM D. LEVY, ESQ. CYNTHIA E. GARABEDIAN, ESQ.
WILSON SONSINI GOODRICH & ROSATI, P.C. FENWICK & WEST LLP
650 PAGE MILL ROAD TWO PALO ALTO SQUARE
PALO ALTO, CA 94304 PALO ALTO, CA 94306
(650) 493-9300 (650) 494-0600
</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, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell securities, and we are not soliciting offers to buy these securities, in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 1, 1999
LOGO
SHARES
COMMON STOCK
MyPoints.com, Inc. is offering shares of common stock. This
is MyPoints.com's initial public offering, and no public market currently exists
for our shares. We have applied for approval for quotation of our common stock
on the Nasdaq National Market under the symbol "MYPT." We anticipate that the
initial public offering price will be between $ and $ per share.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discounts and Commissions.................... $ $
Proceeds to MyPoints.com, Inc............................. $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
MyPoints.com has granted the underwriters a 30-day option to purchase up to
an additional shares of common stock to cover over-allotments.
-------------------------
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
WIT CAPITAL CORPORATION
AS e-Manager(TM)
The date of this prospectus is , 1999
<PAGE> 3
[ARTWORK]
[ARTWORK]
<PAGE> 4
YOU SHOULD RELY ONLY ON THE 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. IN THIS PROSPECTUS, REFERENCES TO
"MYPOINTS.COM," "WE," "US" AND "OUR" REFER TO MYPOINTS.COM, INC. AND ITS
SUBSIDIARIES, AND REFERENCES TO "MYPOINTS" REFER TO THE BRAND NAME OF OUR
PRODUCTS AND SERVICES.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Summary..................................................... 4
Risk Factors................................................ 7
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 29
Management.................................................. 40
Certain Transactions........................................ 49
Principal Stockholders...................................... 52
Description of Capital Stock................................ 55
Shares Eligible For Future Sale............................. 58
Underwriting................................................ 60
Legal Matters............................................... 62
Experts..................................................... 62
Where You Can Find Additional Information................... 63
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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MyPoints, BonusMail and Rew@rds are registered trademarks, and
MyPoints.com, the MyPoints logo, the MyPoints BonusMail logo, Digital Loyalty
Engine and Intellipost are trademarks of MyPoints.com, Inc. Prodigy is a
registered trademark, and Prodigy Internet, Prodigy Points and the Prodigy
Internet Logo are trademarks of Prodigy Communications Corporation. Other
service marks, trademarks and trade names referred to in this prospectus are the
property of their respective owners.
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SUMMARY
This summary highlights 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.
MYPOINTS.COM
MyPoints.com is a leading provider of online direct marketing and loyalty
programs. We integrate targeted email and Web-based direct marketing offers with
online loyalty programs to create valuable benefits for both our consumer
members and our business partners. Our approach gives consumers the opportunity
to earn rewards for receiving and responding to offers, and provides businesses
with comprehensive customer acquisition and retention tools.
We have built a proprietary member database containing approximately two
million detailed consumer profiles. We earn revenues by delivering online direct
marketing offers to this membership base. We charge advertisers a fee based on
offers delivered, qualified leads generated or online transactions executed. We
maintain active relationships with more than 200 advertisers, loyalty partners
and rewards providers, including leading brands such as American Express, Barnes
& Noble, Disney, eBay, GTE, Intuit, Macy's, Sprint and Tower Records.
When consumers enroll in the MyPoints program, they give us permission to
send them targeted online offers, and they receive rewards points for completing
a survey that provides us with demographic information. MyPoints members earn
additional points by responding to direct marketing offers and by providing us
with additional demographic and behavioral data on a secure, confidential basis.
Members may redeem points they earn online for products and services from our
rewards providers. Our member profile database is continuously enriched with
transactional data gathered through members' interaction with promotional
offers, completion of surveys and redemption of points.
MARKET OPPORTUNITY
Businesses engage in various forms of offline and online direct marketing
to generate sales of products or services. Traditional forms of offline direct
marketing include catalog mailings, magazine inserts and telesales. Online
direct marketing takes the form of email and Web-based promotional offers.
Online direct marketing allows advertisers to use technology-based tools to give
them rapid feedback on campaigns, which can be used to tailor new messages and
targeted offers.
Advertisers are committing relatively more dollars to online direct
marketing than to other forms of Internet advertising, such as banner-based
brand marketing. Forrester Research, a leading Internet research firm, projects
Internet advertising expenditures to increase from $1.3 billion in 1998 to $10.5
billion in 2003. Forrester estimates that direct marketing will account for
between 30% and 50% of the total online advertising expenditures in 2001, up
from 21% in 1998.
As the number of Internet users increases, the relative importance to
businesses of customer retention is also increasing. As a result, leading online
merchants and content providers are launching and testing programs aimed at
retaining their most valuable customers. The challenges that these businesses
face in establishing online loyalty programs include the cost of implementing
and operating the program and the ability to provide customers with sufficient
opportunities to earn and redeem awards. We believe that these challenges will
lead many companies to outsource their customer retention programs to providers
capable of delivering full-service loyalty management solutions.
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GROWTH STRATEGY
Online direct marketing programs typically have focused on customer
acquisition. As the Internet continues to grow as a commercial medium, companies
doing business online are increasingly focusing on customer retention. This
creates an opportunity for MyPoints.com to build a leading branded membership
service that enables businesses to acquire and retain customers online more
effectively.
To meet this market opportunity, we are implementing the following
strategies:
- expanding our proprietary member database;
- leveraging our direct marketing and loyalty program expertise;
- increasing awareness of our brand;
- maintaining our technology leadership;
- pursuing strategic acquisitions and alliances; and
- expanding internationally.
CORPORATE INFORMATION
MyPoints.com was incorporated in Delaware under the name Intellipost
Corporation in November 1996. In March 1999, we changed our name to
MyPoints.com, Inc. Our principal executive offices are located at 565 Commercial
Street, 4th Floor, San Francisco, California 94111-3031. Our telephone number at
this location is (415) 676-3700. Our corporate email address is
[email protected].
THE OFFERING
Common stock offered by MyPoints.com......... shares
Common stock to be outstanding after the
offering..................................... shares
Use of proceeds.............................. For general corporate purposes,
including working capital,
advertising, sales and
marketing, new technology and
products, and payment of a
license fee. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... MYPT
Common stock to be outstanding after the offering is based on 18,437,120
shares of common stock outstanding as of March 25, 1999, including the sale of
2,000,000 shares of Series E preferred stock which occurred subsequently. It
does not include:
- 2,609,945 shares issuable upon exercise of stock options outstanding
as of March 25, 1999;
- 1,363,780 shares available for future grant or issuance under our
stock option and stock purchase plans as of March 25, 1999; and
- 1,384,028 shares issuable upon exercise of warrants outstanding as of
March 25, 1999.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 7,
1996 YEARS ENDED DECEMBER 31,
(INCEPTION) TO -----------------------------------
DECEMBER 31, PRO FORMA
1996 1997 1998 1998
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<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ -- $ 151 $ 1,286 $ 1,316
Gross profit.............................. -- 73 165 196
Total operating expenses.................. 68 3,018 8,494 17,756
Operating loss............................ (68) (2,945) (8,329) (17,560)
Net loss.................................. (67) (2,889) (8,266) (17,704)
Net loss per share:
Basic and diluted....................... $ (0.08) $ (2.68) $ (4.72) $ (10.12)
Weighted average shares -- basic and
diluted.............................. 891 1,076 1,750 1,750
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 5,089
Working capital deficit................................. (307)
Total assets............................................ 18,306
Long-term obligations, less current portion............. 2,408 2,408
Accumulated deficit..................................... (11,222) (11,222)
Total stockholders' equity.............................. 9,283 19,233
</TABLE>
See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share data.
The pro forma 1998 statement of operations data column assumes that the
acquisition of the Web-based rewards program businesses from affiliates of
Experian was completed on January 1, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Acquisition
Transactions."
In the pro forma balance sheet data column, we have adjusted the actual
data to reflect the issuance of 2,000,000 shares of Series E preferred stock in
1999. In the pro forma as adjusted column, we have adjusted the pro forma
balance sheet data to give effect to receipt of the net proceeds from the sale
in this offering of shares of common stock at an assumed initial public
offering price of $ per share, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses.
Except as otherwise indicated, all of the following information in this
prospectus:
- reflects the sale of 2,000,000 shares of Series E preferred stock in
1999;
- reflects the automatic conversion of each outstanding share of preferred
stock into one share of common stock immediately prior to the closing of
this offering; and
- assumes no exercise of the underwriters' over-allotment option;
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RISK FACTORS
You should consider the risks described below before making an investment
decision. The risks described below are not the only ones facing our company.
Our business, results of operations and financial condition could be materially
and adversely affected by any of the following risks. The trading price of our
common stock could decline due to any of the following risks, and you might lose
all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including the risks faced by us described below and elsewhere in this
prospectus.
WE HAVE A LIMITED OPERATING HISTORY
We have a limited operating history upon which you can evaluate our
business. We commenced operations in November 1996 and did not begin to generate
revenue until July 1997. Although we have experienced revenue growth in recent
periods, these growth rates may not be sustainable or indicative of our future
growth. Our prospects also must be considered in light of the risks and
difficulties frequently encountered by early-stage companies in the electronic
commerce and direct marketing industries. We may not be successful in addressing
these risks, and our business strategy may not be successful. These risks
include our ability to continue to:
- increase membership in our rewards program;
- expand our relationships with advertisers, loyalty partners and rewards
providers;
- increase awareness of our brand;
- expand the number of products and services we offer;
- develop and upgrade our technology to keep pace with the demands of the
electronic commerce and direct marketing industries;
- respond to competitive developments, including the introduction of equal
or superior products or services by our competitors;
- retain and protect our intellectual property rights, which could require
us to incur costs to resolve intellectual property disputes, including
possible royalties and license fees;
- integrate acquired businesses and products;
- attract, retain and motivate qualified personnel; and
- anticipate and adapt to the changing Internet market.
WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES IN THE FORESEEABLE FUTURE
Our accumulated deficit as of December 31, 1998 was $11.2 million. We have
never operated profitably and, given our planned level of operating expenses, we
expect to continue to incur losses in the foreseeable future. We plan to
increase our operating expenses as we continue to build infrastructure to
support the expansion of our business. Our losses may increase in the future,
and we may not be able to achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis. If our revenues grow more slowly than we anticipate,
or if our operating expenses exceed our expectations and cannot be adjusted
accordingly, our business, results of operations and financial condition will be
materially and adversely affected. See "Selected Consolidated
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Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND SEASONALITY
Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors, some of which are outside of our control.
These factors, each of which could adversely affect our results of operations
and our stock price, include:
- the commitment of advertisers to online direct marketing and rewards
programs;
- the advertising budget cycles of individual advertisers;
- the responsiveness of our members to the direct marketing offers we send
to them;
- the number of reward points redeemed by members and the costs associated
with these redemptions;
- changes in marketing and advertising costs that we incur to attract and
retain members;
- changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for Internet advertising generally;
- the introduction of new products and services by us or by our
competitors;
- unexpected costs and delays relating to the expansion of our operations;
- the occurrence of technical difficulties or system downtime; and
- general economic and market conditions.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising, which are typically higher
during the fourth calendar quarter. In addition, expenditures by advertisers
tend to be cyclical, reflecting overall economic conditions and consumer buying
patterns.
Due to the above factors, revenues and operating results are difficult to
forecast and you should not rely on period-to-period comparisons of results of
operations as an indication of our future performance. Any significant shortfall
in revenues in relation to our expectations would have a material adverse effect
on our business, results of operations and financial condition. In addition, in
future periods our operating results may fall below the expectations of public
market analysts and investors. In this event, the market price of our common
stock would likely decline. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WE MAY HAVE DIFFICULTIES INTEGRATING RECENT AND FUTURE ACQUISITIONS
In November and December 1998, through our acquisition of companies
affiliated with Experian Information Solutions, Inc., we acquired Internet and
electronic commerce related assets and technologies to support a Web-based
rewards program known as MyPoints. We integrated MyPoints with our BonusMail
email service during March 1999. This integration involved the combination of
two different marketing programs and technology platforms, as well as operations
in San Francisco and Chicago. In connection with this integration, we have
incurred and expect to continue to incur substantial costs. The integrated
MyPoints program is being relaunched on the Web in early April 1999. During the
initial relaunch period, we may encounter unanticipated difficulties in
operating our integrated program. To the extent that we do encounter problems
with the relaunch, we may need to expend significant additional resources and
management time to resolve them. Any difficulties with the relaunch could also
negatively affect our reputation.
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We may pursue other acquisitions in the future. In connection with the
current integration and with any future acquisitions, we will face numerous
risks and uncertainties generally associated with acquisitions, including:
- potential adverse effects on our reported results of operations from
acquisition-related charges and amortization of goodwill and purchased
technology;
- our ability to maintain customers or the reputation of the acquired
businesses;
- potential dilution to current stockholders from the issuance of
additional equity securities;
- difficulties integrating operations, personnel, technologies, products
and information systems of the acquired businesses;
- diversion of management's attention from other business concerns; and
- potential loss of key employees of acquired businesses.
We are currently facing all of these challenges and our ability to meet
them has not been established. As a result, we cannot assure you that we will be
successful in generating additional sources of members and revenues from the
recent acquisitions or any future acquisitions.
WE ARE GROWING RAPIDLY AND MAY BE UNABLE TO MANAGE THIS GROWTH
As we continue to increase the scope of our operations, we will need an
effective planning and management process to implement our business plan
successfully in the rapidly evolving market for online direct marketing. We have
grown from 20 employees on January 1, 1998 to 79 employees on March 25, 1999. Of
these employees, 28 joined us in connection with our acquisitions in November
and December 1998. We are continuing to integrate these individuals into our
organization. We plan to continue the expansion of our technology, sales,
marketing and administrative organizations. This growth will continue to strain
our management systems and resources. We anticipate the need to continue to
improve our financial and managerial controls and our reporting systems. In
addition, we will need to expand, train and manage our rapidly growing work
force. Our business, results of operations and financial condition will be
materially and adversely affected if we are unable to manage our expanding
operations effectively.
WE DEPEND ON THE ACCEPTANCE OF ONLINE ADVERTISING AND DIRECT MARKETING
We expect to derive a substantial portion of our revenues from online
advertising and direct marketing, including both email and Web-based programs.
We cannot assure you that the demand and market acceptance for online
advertising will develop to a sufficient level to support our continued
operations. The Internet has not existed long enough as an advertising medium to
demonstrate its effectiveness relative to traditional advertising media.
Advertisers 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 email 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. In addition,
advertisers and advertising agencies that have invested substantial resources in
traditional methods of advertising may be reluctant to reallocate their media
buying resources to online advertising. The market for online advertising also
depends on the overall growth and acceptance of electronic commerce. If the
market for online advertising fails to develop or develops more slowly than we
expect, our business, results of operations and financial condition would be
materially and adversely affected.
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The market for email advertising in general is vulnerable to the negative
public perception associated with unsolicited email, known as "spam." We do not
send unsolicited email. However, public perception, press reports or
governmental action related to spam could reduce the overall demand for email
advertising in general and our MyPoints BonusMail service in particular.
WE DEPEND ON THE ACCEPTANCE OF ONLINE REWARDS PROGRAMS
Our success also depends on the continued growth and acceptance of online
rewards programs. Although loyalty and rewards programs have been used
extensively in conventional marketing and sales channels, they have only
recently begun to be used online. The success of our business model will depend
on our ability to attract and retain members, advertisers, loyalty partners and
rewards providers. Our ability to attract and retain members will depend on our
marketing efforts and on the quality of each member's experience, including the
number and relevance of the direct marketing offers we provide and the perceived
value of the rewards we offer. Our ability to generate significant revenue from
advertisers and loyalty partners will depend on our ability to differentiate
ourselves through the technology and services we provide and obtain adequate
participation from consumers in our online direct marketing and rewards
programs. Rewards providers are also a critical element of our business. The
attractiveness of our program to current and potential members, and loyalty
partners, depends in large part on the attractiveness of the rewards and point
redemption opportunities that we offer. To the extent that our online rewards
program does not achieve market acceptance among members, loyalty partners and
rewards providers, our business would be materially and adversely affected.
WE FACE INTENSE COMPETITION
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. Currently, several companies offer competitive online
products or services, including CyberGold and Netcentives. We may also face
competition from established online portals and community Web sites that engage
in direct marketing, as well as 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 materially and adversely affect our business, results
of operations and financial condition. See "Business -- Competition."
THE SUCCESS OF OUR BUSINESS WILL DEPEND ON OUR ABILITY TO ESTABLISH THE MYPOINTS
BRAND
As competitive pressures in the online direct marketing industry increase,
brand strength will become increasingly important. We intend to devote
substantial marketing and advertising resources to
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establish the MyPoints brand. The reputation of the MyPoints brand will depend
on our ability to provide a high-quality member experience. We cannot assure you
that we will be successful in delivering on this objective. If members are not
satisfied with the quality of their experience with the MyPoints program, their
negative experiences might result in publicity that could damage our reputation.
Any damage to our reputation could have a material adverse effect on our
business, results of operations and financial condition. If we expend additional
resources to build the MyPoints brand and do not generate a corresponding
increase in revenues as a result of our branding efforts, or if we otherwise
fail to promote our brand successfully, our business, results of operations and
financial condition would be materially and adversely affected.
WE FACE RISKS RELATED TO THE LEVEL OF POINT REDEMPTION
Our historical and forecasted financial statements reflect our assumptions
as to the percentage of rewards points issued by us that will not be redeemed by
members prior to expiration. This percentage of unredeemed points is known as
"breakage." The breakage rates we have used in preparing our financial
statements and forecasts are based on breakage rates that have been reported by
other operators of loyalty and rewards programs, such as airlines. We have also
considered our limited experience with our own program since its launch in May
1997. Although we believe that the breakage rates we have used are reasonable in
light of our analysis and experience, we cannot assure you that our actual
breakage rates will equal or exceed our assumed breakage rates. If our actual
breakage rates are less than our assumed breakage rates, meaning that a greater
number of points are actually redeemed than we had assumed would be redeemed,
our results of operations could be materially and adversely affected. In
addition, operators of loyalty programs have, from time to time, for competitive
or other reasons, extended the expiration dates for points, miles or other
rewards currency. For example, we plan to extend the expiration date for the
points associated with the email portion of our program when we relaunch our
email and Web-based services. If it becomes necessary for us to extend the
expiration date of a significant balance of outstanding points in the future, it
is possible that our actual breakage rates would be lower than our assumed
breakage rates, which could materially and adversely affect our results of
operations.
A SMALL NUMBER OF OUR ADVERTISING CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF
OUR REVENUES
Although no single advertising customer accounts for more than 10% of our
revenues, our four largest advertising customers were responsible for
approximately 30% of our revenues during 1998. We do not have long-term
contracts with most of our customers, and customers can generally terminate
their relationships with us upon specified notice and without penalties, thus we
may not be able to retain our principal customers. The loss of one or more of
our principal customers could have a material adverse effect on our business,
results of operations and financial condition.
WE DEPEND ON THE SERVICES OF OUR EXECUTIVE OFFICERS TO MANAGE OUR GROWTH
Our future success depends on the continued service of our key senior
management and technical and sales personnel. The loss of any of these persons
could have a material adverse effect on our business. We do not have key-person
insurance on any of our employees. Robert C. Hoyler, our President and Chief
Operating Officer, Virgil Bistriceanu, our Senior Vice President, Technology,
and Frank J. Pirri, our Senior Vice President, Partnership Development, joined
us in December 1998 as the result of acquisition transactions that took place in
the fourth quarter of 1998. Charles H. Berman, our Senior Vice President, Sales,
and Robert Wise, our Senior Vice President, Member Marketing, also joined us in
1998. Our recently integrated management team has limited experience working
together.
11
<PAGE> 13
Our success depends on our ability to attract, retain and motivate highly
skilled employees. Competition for employees in our industry is intense. We may
be unable to retain our key employees or to attract, assimilate and retain other
highly qualified employees in the future. We have experienced difficulty from
time to time in attracting the personnel necessary to support the growth of our
business, and we may experience similar difficulty in the future.
FAILURE TO SAFEGUARD OUR DATABASE AND MEMBER PRIVACY COULD HARM OUR BUSINESS
An important feature of the MyPoints 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. Usage of our MyPoints program could
decline if any well-publicized compromise of security occurred. In addition,
third parties could alter information in our database that would adversely
affect our ability to target direct marketing offers to members. 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 have a material adverse
effect on our business, results of operations and financial condition.
As part of our point redemption services, we maintain a database containing
information on our members' account balances. Our database may be subject to
access by unauthorized users accessing our systems remotely. If we experience a
security breach, the integrity of our points database may be affected. This
breach could lead to financial losses through the unauthorized redemption of
points.
WE ARE VULNERABLE TO SYSTEM FAILURES
The hardware infrastructure on which the MyPoints system operates is
located at the Exodus Communications data center in Jersey City, New Jersey. We
recently completed a transition to Exodus from a combination of internally
maintained systems and systems maintained by another third-party service
provider. We cannot assure you that we will be able to manage this relationship
successfully to mitigate any risks associated with having our hardware
infrastructure maintained by Exodus. Unexpected events such as natural
disasters, power losses and vandalism could damage our systems.
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 redundant systems or a formal disaster recovery plan.
Our Web site must accommodate a high volume of traffic and deliver
accurate, frequently updated information in a timely manner. Our Web site has
experienced in the past and may experience in the future, slower response times
or decreased traffic for a variety of reasons. During the last three months of
1998, we experienced a number of instances of unscheduled system downtime, which
resulted in our Web site being inaccessible for an aggregate of approximately 20
hours. In addition, our members depend on Internet service providers for access
to our Web site. Internet service providers and Web sites have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. These problems
could materially and adversely affect our business, results of operations and
financial condition.
12
<PAGE> 14
WE MUST ADAPT TO RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions, short development cycles and evolving
industry standards. The recent growth of the Internet and intense competition in
our industry exacerbate these market characteristics. Our future success will
depend on our ability to adapt to rapidly changing technologies by maintaining
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 technological
change.
WE DEPEND ON THE DEVELOPMENT OF THE INTERNET INFRASTRUCTURE
A number of factors may inhibit Internet usage, including inadequate
network infrastructure, security concerns, inconsistent quality of service, and
lack of availability of cost-effective, high-speed service. 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. In
addition, a number of Web-based businesses have experienced interruptions in
their services as a result of outages and other delays occurring throughout the
Internet. If outages or delays occur frequently in the future, Internet usage,
as well as electronic commerce and the usage of our products and services, could
grow more slowly or decline, and this could have an adverse effect on our
business.
FUTURE REGULATION OF THE INTERNET COULD HAVE AN ADVERSE AFFECT ON OUR BUSINESS
Laws and regulations that apply to the Internet may become more prevalent
in the future. The laws governing the Internet and email services remain largely
unsettled. There is no single governmental body overseeing our industry, and
many state laws that have been enacted in recent years have different and
sometimes inconsistent application to our business. As a result, we cannot
assure you that we will comply with these state laws, and our noncompliance may
have a material adverse affect on our business. The governments of foreign
countries may also attempt to regulate electronic commerce. New laws could
dampen the growth in use of the Internet generally and decrease the acceptance
of the Internet as a commercial medium. In addition, existing laws such as those
governing intellectual property and privacy may be interpreted to apply to the
Internet. In the event that foreign governments, the federal government, state
governments or other governmental authorities adopt or modify laws or
regulations relating to the Internet, our business, results of operations and
financial condition could be materially and adversely affected.
In 1998, the United States government enacted a three-year moratorium
prohibiting states and local governments from imposing new taxes on electronic
commerce transactions. Upon expiration of this moratorium, if it is not
extended, states or other governments may levy sales or use taxes on electronic
commerce transactions. An increase in the taxation of electronic commerce
transactions may make the Internet less attractive for consumers and businesses.
WE FACE RISKS ASSOCIATED WITH THIRD PARTY CLAIMS AND PROTECTION OF OUR
INTELLECTUAL PROPERTY RIGHTS
Our business activities may infringe upon the proprietary rights of others,
and other parties may assert infringement claims against us. In the past, we
have received one claim, which was resolved through a license agreement.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. An adverse determination in any litigation of this
type could require us to make significant changes to the structure and operation
of our online rewards program, attempt to design around a third
13
<PAGE> 15
party's patent, or license alternative technology from another party.
Implementation of any of these alternatives could be costly and time consuming,
and may not be possible. Accordingly, an adverse determination in any litigation
that may ensue between a third party and us would have a material adverse effect
on our business, results of operations and financial condition. Any intellectual
property litigation would result in substantial costs and diversion of resources
and management attention and could have a material adverse effect on our
business, results of operations and financial condition. Claims and any
resultant litigation, should it occur, might subject us to significant liability
for damages, might result in invalidation of our proprietary rights and, even if
not meritorious, would be time-consuming and expensive to defend and result in
the diversion of management time and attention, any of which might have a
material adverse effect on our business, results of operations and financial
condition.
Our success and ability to compete depends on our internally developed
technologies and trademarks, which we seek to protect through a combination of
patent, copyright, trade secret and trademark laws. Despite actions we take to
protect our proprietary rights, 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. In addition, legal standards relating
to the validity, enforceability and scope of protection of proprietary rights in
Internet-related businesses are uncertain and still evolving. We cannot give any
assurance as to the future viability or value of any of our proprietary rights.
In addition, we cannot give any assurance that the steps taken by us will
prevent misappropriation or infringement of our proprietary information. Any
infringement or misappropriation, should it occur, could have a material adverse
effect on our business, results of operations and financial condition. See
"Business -- Intellectual Property and Proprietary Rights."
WE FACE RISKS ASSOCIATED WITH EXPANDING OUR BUSINESS INTERNATIONALLY
We expect to increase the level of our activities outside of the United
States in the future. Our participation in international markets is subject to a
number of risks, including changes in foreign government regulations, export
license requirements, tariffs and taxes, fluctuations in currency exchange
rates, other trade barriers, difficulties and delays in collecting accounts
receivable, difficulties in managing foreign operations, compliance with
stricter privacy regulations and political and economic instability. To the
extent our customers are impacted by currency devaluations or general economic
crises such as those affecting many Asian and Latin American economies, the
ability of such customers to utilize our services could be materially adversely
affected. Furthermore, we cannot assure you that consumers in these foreign
markets will be attracted to rewards-based marketing programs.
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 through the end of 2000.
Thereafter, we may need to raise additional funds to develop or enhance our
services or products, to fund expansion, to respond to competitive pressures, or
to acquire complementary products, businesses or technologies. If additional
funds are raised through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders would be reduced and these
securities might have rights, preferences or privileges senior to those of our
stockholders. We cannot assure you that additional financing will 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 unanticipated 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
materially adversely affected by this limitation. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
14
<PAGE> 16
PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS
The costs we have incurred and expect to incur related to Year 2000
compliance have not been material to our business, results of operations or
financial condition. In the event that our assessment of our Year 2000 readiness
is inaccurate, we could be required to expend substantial resources to remedy
any unanticipated Year 2000 problems. Costs associated with unanticipated Year
2000 problems and difficulties in remedying these problems by year end could
have a material adverse effect on our business, results of operations and
financial condition.
The most likely Year 2000 failure scenario attributable to a supplier or
customer is a systematic failure beyond our control or the supplier's or
customer's immediate control, such as a prolonged data communication,
telecommunications or electrical failure. A failure of this sort could prevent
members from accessing our Web site and prevent us from operating our business.
The primary business risks in the event of such a failure would include lost
advertising revenues, increased operating expenses and loss of members. Any of
these risks could have a material adverse effect on our business, results of
operations and financial condition.
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL RETAIN SUBSTANTIAL CONTROL AFTER THE
OFFERING
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' over-allotment option. 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."
PROVISIONS OF OUR CORPORATE CHARTER DOCUMENTS COULD DELAY OR PREVENT A CHANGE OF
CONTROL
Various provisions of our Certificate of Incorporation and Bylaws could
have the effect of delaying or preventing a change in control and make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. See "Description of Capital Stock."
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE THE PRICE OF OUR SHARES TO DECLINE
Upon completion of this offering, we will have shares of
common stock outstanding. of these shares will be transferable
without restriction or registration under the Securities Act of 1933, or
pursuant to the volume and other limitations of Rule 144 promulgated under the
Securities Act. Following this offering, resales of a substantial number of
shares of our common stock into the public market could cause its price to
decline.
Approximately 13,835,907 shares of common stock are subject to lock-up
agreements between the holders of those shares and the representatives of the
underwriters, pursuant to which the holders have agreed not to offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of their
common stock until 180 days after the date of this prospectus, subject to
limited exceptions. BancBoston Robertson Stephens may release stockholders from
the lockup agreement at any time and without notice. Following the expiration of
this 180-day period, substantially all of the shares subject to the lock-up
agreements will become available for immediate resale in the public market
subject to the volume and other limitations of Rule 144, except for 2,000,000
shares of common stock issuable upon conversion of Series E preferred stock. See
"Shares Eligible for Future Sale."
15
<PAGE> 17
OUR SECURITIES HAVE NO PRIOR MARKET
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. See "Underwriting."
OUR STOCK PRICE COULD BE VOLATILE FOLLOWING THIS OFFERING
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. Investors may not be able to resell their
shares at or above the initial public offering price. In addition, our results
of operations during future fiscal periods following the completion of this
offering may fail to meet the expectations of stock market analysts and
investors. This failure could lead the market price of our common stock to
decline and cause us to become the subject of securities class action lawsuits.
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). See "Dilution." The exercise of outstanding options and warrants may
result in further dilution.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION IN USE OF PROCEEDS
We intend to use the net proceeds from the sale of the common stock for
brand promotion, expansion of sales and marketing, new technology and products,
working capital and general corporate purposes, including possible future
acquisition transactions. We have allocated approximately $2.6 million of the
net proceeds to complete a technology purchase, but have not determined how the
remaining proceeds will be allocated among the other anticipated uses.
Accordingly, our management will have significant flexibility and broad
discretion in applying the net proceeds of this offering. The failure of
management to apply these funds effectively could have a material adverse effect
on our business, results of operations and financial condition. See "Use of
Proceeds."
16
<PAGE> 18
USE OF PROCEEDS
Our proceeds from the sale of the shares of common stock we
are offering are estimated to be $ million ($ million if the underwriters'
over-allotment option is exercised in full) assuming an initial public offering
price of $ per share and after deducting the estimated underwriting
discounts and commissions and our estimated offering expenses.
We intend to use approximately $2.6 million of the proceeds of the offering
to complete the purchase of technology used in operating our loyalty and rewards
program. We plan to use the remainder of the proceeds for general corporate
purposes, including working capital, branding, membership expansion,
advertising, increases in our sales and marketing operations, new technology and
products, funding of points liability and expansion of network infrastructure.
We may also use some of the proceeds to acquire other companies, technologies,
or products that complement our business, although we are not currently planning
any of these transactions. Pending these uses, the net proceeds of this offering
will be invested in short-term, investment-grade, interest-bearing securities.
We are making the license payment under a license agreement entered into in
November 1998 in connection with our acquisitions of Enhanced Response
Technologies, Inc., MotivationNet LLC and Direct Value to You. For additional
information regarding these transactions, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Acquisition
Transactions" and "Certain Transactions." Under the license agreement, the
amount of the payment is based on the present value of a specified royalty
amount discounted using a discount rate equal to the prime rate plus 2.0%. The
$2.6 million estimate set forth above assumes this payment will be made in June
1999. The actual amount of this payment could vary depending upon the timing of
the payment and fluctuations in interest rates. Once this license payment has
been made, our rights under the license will be fully paid and we will not have
any future royalty or other financial obligations regarding the license.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock, to facilitate our future access
to public equity markets and to provide increased visibility and credibility in
a marketplace where many of our current and potential competitors are or will be
publicly held companies.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Covenants in our capital lease and equipment financing
agreements prohibit the payment of cash dividends.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth:
- the actual capitalization of MyPoints.com at December 31, 1998;
- the pro forma capitalization of MyPoints.com after giving effect to the
issuance of 2,000,000 shares of Series E preferred stock in 1999 and the
conversion of all outstanding shares of preferred stock into 12,388,315
shares of common stock immediately prior to completion of this offering;
and
- the pro forma as adjusted capitalization to give effect to the sale in
this offering of shares of common stock at an estimated public
offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, less current portion............. $ 2,408 $ 2,408 $ 2,408
Stockholders' equity:
Preferred stock, $0.001 par value; 13,500,000 shares
authorized, shares issued and outstanding:
Actual: 10,388,315 shares
Pro forma: 0 shares
Pro forma as adjusted: 0 shares.................... 10
Common stock, $0.001 par value; 40,000,000 shares
authorized, shares issued and outstanding:
Actual: 6,204,593 shares
Pro forma: 18,592,909 shares
Pro forma as adjusted: shares............. 6 18
Additional paid-in capital.............................. 23,380 33,328
Stock subscription receivable........................... (350) (350) (350)
Deferred compensation................................... (2,541) (2,541) (2,541)
Accumulated deficit..................................... (11,222) (11,222) (11,222)
-------- -------- -------
Total stockholders' equity....................... 9,283 19,233
-------- -------- -------
Total capitalization............................. $ 11,691 $ 21,641 $
======== ======== =======
</TABLE>
This table excludes the following shares:
- shares issuable upon exercise of stock options outstanding as of
December 31, 1998;
- shares available for future grant or issuance under our stock option and
stock purchase plans as of December 31, 1998; and
- shares issuable upon exercise of warrants outstanding as of December 31,
1998.
See "Management -- Stock Plans," "Description of Capital Stock" and Note 8
of Notes to Consolidated Financial Statements.
18
<PAGE> 20
DILUTION
Our pro forma net tangible book value deficit as of December 31, 1998 was
approximately $1.6 million, or approximately $0.26 per share of common stock.
Pro forma net tangible book value per share represents the amount of tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of our common stock in
this offering and the pro forma net tangible book value per share of our common
stock immediately afterwards. After giving effect to our sale of shares
of common stock in this offering at an assumed public offering price of $
per share and after deduction of the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value as of December 31, 1998 would have been approximately $
million, or $ 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 pro forma net tangible book value of $ per share to
purchasers of common stock in this offering.
<TABLE>
<S> <C>
Assumed public offering price per share.....................
Pro forma net tangible book value per share before
offering...............................................
Increase per share attributable to new investors..........
Pro forma net tangible book value per share after
offering..................................................
Net tangible book value dilution per share to new
investors.................................................
</TABLE>
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. See Note 8 of Notes to Consolidated Financial
Statements. The exercise of outstanding options and warrants having an exercise
price less than the offering price would increase the dilutive effect to new
investors.
The following table sets forth as of December 31, 1998 the total
consideration paid and the average price per share paid by the existing
stockholders and by new investors, before deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by
MyPoints.com at an assumed public offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT NUMBER PERCENT PER SHARE
--------- ------- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.........
New investors.................
Total...............
</TABLE>
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the period from November 7, 1996 (inception) to December 31, 1996, and
the years ended December 31, 1997 and 1998 and the balance sheet data as of
December 31, 1997 and 1998 are derived from our consolidated financial
statements that have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are included elsewhere in this prospectus. The balance sheet
data as of December 31, 1996 are derived from unaudited financial statements
that are not included in this prospectus.
<TABLE>
<CAPTION>
NOVEMBER 7, 1996 YEAR ENDED DECEMBER 31,
(INCEPTION) TO ------------------------ PRO FORMA
DECEMBER 31, 1996 1997 1998 1998(1)
----------------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ -- $ 151 $ 1,286 $ 1,316
Cost of revenues................................. -- 78 1,121 1,120
------ ------- ------- --------
Gross profit................................... -- 73 165 196
------ ------- ------- --------
Operating expenses:
Technology costs............................... 16 560 1,520 3,913
Sales expenses................................. -- 204 1,355 2,061
Marketing expenses............................. 36 1,465 3,158 5,099
General and administrative expenses............ 16 712 2,029 2,762
Amortization of intangible assets.............. -- -- 275 3,300
Stock-based compensation....................... -- 77 157 621
------ ------- ------- --------
Total operating expenses..................... 68 3,018 8,494 17,756
------ ------- ------- --------
Operating loss................................... (68) (2,945) (8,329) (17,560)
Interest and other income (expense), net......... 1 56 63 (144)
------ ------- ------- --------
Net loss....................................... $ (67) $(2,889) $(8,266) $(17,704)
====== ======= ======= ========
Net loss per share:
Basic and diluted.............................. $(0.08) $ (2.68) $ (4.72) $ (10.12)
====== ======= ======= ========
Weighted average shares -- basic and diluted... 891 1,076 1,750 1,750
====== ======= ======= ========
Pro forma net loss per share(2):
Basic and diluted.............................. $ (0.98) $ (2.09)
======= ========
Weighted average shares -- basic and diluted... 8,463 8,463
======= ========
</TABLE>
- ---------------
(1) Assumes the acquisitions of the Web-based rewards program businesses from
affiliates of Experian were completed on January 1, 1998. The pro forma net
loss per share data set forth in this column do not give effect to the
issuance of 2,000,000 shares of Series E preferred stock in 1999.
(2) Assumes conversion of outstanding shares of preferred stock. (See Note 3 to
Consolidated Financial Statements.)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997 1998
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $1,118 $ 2,948 $ 5,089
Working capital (deficit)................................... 1,099 2,381 (307)
Total assets................................................ 1,205 3,474 18,306
Long-term obligations, less current portion................. -- 47 2,408
Accumulated deficit......................................... (67) (2,956) (11,222)
Total stockholders' equity.................................. 1,412 2,692 9,283
</TABLE>
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon current
expectations that involve risks and uncertainties. When used in this prospectus,
the words "intend," "anticipate," "believe," "estimate," "plan" and "expect" and
similar expressions as they relate to MyPoints.com are included to identify
forward-looking statements. 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" and elsewhere in this prospectus.
OVERVIEW
MyPoints.com was founded as Intellipost Corporation in November 1996. In
May 1997, we launched our email direct marketing and rewards program. In
November and December 1998, through our acquisition of companies affiliated with
Experian, we acquired Internet and electronic commerce related assets and
technologies through a series of related transactions. For ease of reference, we
refer to these transactions as the Acquisition Transactions in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section. Through the Acquisition Transactions, we acquired a
technology license for the operation of a Web-based rewards program. In March
1999, we changed our corporate name to MyPoints.com, Inc. in order to unify our
corporate and brand identities. During March 1999, we integrated our email and
Web-based direct marketing and rewards programs under the MyPoints brand.
We generate substantially all of our revenues by delivering promotional
email and providing Web-based direct marketing services for our advertising
customers. In exchange for these services, we receive fees from our advertisers
based on any or all of the following:
- the number of offers delivered to members;
- the number of qualified responses generated; and
- the number of qualified purchases made.
For our email service, we recognize revenues when an email is delivered,
when a qualified response is received or when a product is purchased, depending
upon the pricing arrangement used. For our Web-based service, we recognize
revenues when a member redeems points earned from actions, such as responding to
an offer by clicking through to our offer page or by purchasing the product or
service offered.
Our revenues are driven by a number of factors. These include the number of
advertisers engaging us to send direct marketing offers to our membership base,
the size of our membership base, and the responsiveness of our members to these
direct marketing offers.
We also offer technology licensing arrangements to customers seeking to
develop email or Web-based direct marketing and loyalty programs. In December
1998, we entered into our first license arrangement with Sweden Post, the
Swedish postal service, which is establishing a version of the MyPoints
BonusMail program for the Swedish market. This license agreement provides for a
licensing fee, technical support fees and royalties based on a percentage of
revenues from the program site. We will initially recognize revenues under this
agreement as we perform technical service and support. Once the program is
operational, we will recognize royalty revenue as it is received from Sweden
Post. We expect to enter into additional licensing arrangements, particularly
for international markets.
21
<PAGE> 23
We incurred a net loss of $17.7 million in 1998 on a pro forma basis that
assumes that the Acquisition Transactions were completed on January 1, 1998. We
intend to implement our strategies by spending substantial amounts on member
acquisition and retention, brand development, new product offerings, sales and
marketing strategic relationships, and technology and operating infrastructure
development. As a result, we expect increases in our net losses and negative
cash flows for the next several quarters. We expect to incur net losses at least
through 2001. Our limited operating history makes it difficult to forecast
future operating results. Although we have experienced revenue growth in recent
quarters, we cannot be certain that revenues will increase at a rate sufficient
to achieve and maintain profitability. Even if we were to achieve profitability
in any period, we might fail to sustain or increase that profitability on a
quarterly or annual basis.
PRO FORMA QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited statement of operations
data on a pro forma basis, assuming that the Acquisition Transactions were
completed on January 1, 1998. The financial statements from which these data
have been derived were prepared on substantially the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, that we considered necessary for a fair presentation of
our pro forma results of operations for each quarter. Our pro forma results of
operations for any quarter are not necessarily indicative of the results of
operations to be expected in any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 150 $ 157 $ 296 $ 713
Cost of revenues................................ 137 108 261 614
------- ------- ------- -------
Gross profit............................... 13 49 35 99
------- ------- ------- -------
Operating expenses:
Technology costs.............................. 1,136 813 965 999
Sales expenses................................ 361 578 568 554
Marketing expenses............................ 537 941 1,838 1,783
General and administrative expenses........... 682 522 636 922
Amortization of intangibles................... 825 825 825 825
Stock-based compensation...................... 63 26 199 333
------- ------- ------- -------
Total operating expenses................... 3,604 3,705 5,031 5,416
------- ------- ------- -------
Operating loss.................................. (3,591) (3,656) (4,996) (5,317)
Interest and other expense, net............... (84) (3) (40) (17)
------- ------- ------- -------
Net loss........................................ $(3,675) $(3,659) $(5,036) $(5,334)
======= ======= ======= =======
</TABLE>
Revenues
Pro forma revenues have increased sequentially in each of the last three
quarters. These increases were a direct result of the growth in our membership
base during 1998 and an increase in the number of direct marketing offers
delivered to our members. We experienced more than 450% growth in our membership
base from March 31, 1998 to December 31, 1998, and more than a tenfold increase
in the number of direct marketing offers delivered between the first and fourth
quarters of 1998.
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Email direct marketing offers generated at least 90% of revenues in each
quarter of 1998. Revenues from email offers increased in absolute dollars in
each of the last three quarters of 1998. Revenues from Web-based direct
marketing offers increased in absolute dollars in each of the last three
quarters. The majority of revenues generated from email offers was from
advertisers that paid us based on members' qualified responses to, or purchases
based on, the offers we delivered.
Gross Profit
Gross profit equals revenues less cost of revenues. Cost of revenues
primarily represents the cost of points awarded to our members for receiving,
responding to and purchasing based on our direct marketing offers. Gross profit
as a percentage of revenues increased from the first quarter to the second
quarter, decreased from the second to the third quarter and remained relatively
constant from the third to the fourth quarter. The sequential increase in gross
profit in the last three quarters was due to a higher number of revenue
generating responses to the direct marketing offers.
Technology Costs
Our technology expenses primarily consist of compensation for technology
personnel, fees for outside technology consultants, and an allocation of fixed
costs. We expense technology costs as they are incurred. Technology costs
decreased during the second quarter before increasing over the last two quarters
of 1998. We expect technology costs to increase during the next several quarters
as we integrate our email and Web-based programs into a single technology
platform and provide technical support for the Sweden Post licensing agreement.
Sales Expenses
Our sales expenses primarily represent compensation for sales and
sales-related employees, expenses for trade shows and other advertising and
promotions directed towards the direct marketing advertising community, and an
allocation of fixed costs. Sales expenses remained relatively constant after the
first quarter of 1998. The increase in sales commissions due to higher revenues
was partially offset by lower sales payroll and sales-related expenses during
the last three quarters of 1998. We expect sales expenses to increase over the
next several quarters as we continue to hire additional sales employees to
pursue our objective of increasing advertising sales.
Marketing Expenses
Our marketing expenses primarily consist of member acquisition expenses,
compensation for marketing personnel and an allocation of fixed costs. Member
acquisition expenses consist primarily of online advertising and promotion costs
to attract members to our email and Web-based programs. Also included in member
acquisition expenses is the cost of the points awarded to members for signing up
and completing demographic and behavioral enrollment forms. Significant
increases in online advertising and promotion expenditures in the second half of
1998 contributed to the growth of membership during the same period. This growth
in membership led to higher expenditures related to the cost of points awarded
to members for signing up and completing enrollment forms.
General and Administrative Expenses
Our general and administrative expenses include compensation for
administrative personnel, fees for outside professional advisors and an
allocation of fixed costs. As a percentage of revenues, general and
administrative expenses decreased during the second half of 1998. The absolute
dollar increase in the second half of 1998 was due to higher outside
professional fees and an increase in the number of
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administrative personnel. We expect that general and administrative expenses
will increase in absolute dollars over the next several quarters, but will
decrease as a percentage of revenues.
ANNUAL RESULTS OF OPERATIONS
We completed the Acquisition Transactions during November and December
1998. Accordingly, approximately one month of operations of the acquired
businesses are included in our actual results of operations for the year ended
December 31, 1998. The discussion below is based on the Statement of Operations
Data set forth under "Selected Consolidated Financial Data."
Revenues
Our revenues increased to $1.3 million in 1998 from $151,000 in 1997. We
had no revenues and no material expenditures in 1996. Our email direct marketing
program was launched in May 1997 and began generating revenues in July 1997. Our
email program produced substantially all of our revenues in 1997 and 1998. The
increase in revenues from 1997 to 1998 was due primarily to an increase in the
number of direct marketing offers delivered to our members for advertisers, as
well as to an increase in the size of our membership base.
Gross Profit
Gross profit increased to $165,000 in 1998 from $73,000 in 1997. This
increase was due primarily to an increase in the number of revenue-generating
responses and purchases by members. In addition, during 1998, based on our
experience with members who became inactive in the points program, we recognized
an allowance for estimated points that are likely to expire prior to their
redemption. This allowance has been credited to cost of revenues during 1998.
Technology Costs
Our technology costs increased to $1.5 million in 1998 from $560,000 in
1997. This increase was primarily due to increased hiring of technical employees
and consultants during 1998.
Sales Expenses
Our sales expenses increased to $1.4 million in 1998 from $204,000 in 1997.
An increase in the number of sales and sales support employees led to higher
payroll expenses. Increases in revenues led to higher sales commissions and,
therefore, higher sales expenses. Also contributing to the increase in sales
expenses were increases in travel, advertising and promotions, and other
sales-related expenses.
Marketing Expenses
Our marketing expenses increased to $3.2 million in 1998 from $1.5 million
in 1997. This increase was primarily due to a large increase in member
acquisition expenses, including online advertising and promotion expenditures as
well as the cost of points awarded to members for enrollments and related
activities. Marketing payroll expense also increased in 1998 as we hired
additional marketing staff including a Senior Vice President, Member Marketing.
General and Administrative Expenses
Our general and administrative expenses increased to $2.0 million in 1998
from $712,000 in 1997. The increase resulted from higher professional fees and,
to a lesser extent, occupancy costs relating to
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<PAGE> 26
opening of sales offices and an increase in the size of our San Francisco
headquarters facility. Payroll expenses associated with hiring administrative
personnel also contributed to the increase.
Income Taxes
We recorded a net loss of $2.9 million in 1997 and $8.3 million in 1998.
Accordingly, no provision for income taxes was recorded in these years, and no
tax benefit has been recognized due to the uncertainty of realizing future tax
deductions for these losses.
As of December 31, 1997 and 1998, we had net operating loss carryforwards
of approximately $1,360,000 and $7,810,000 for federal income tax purposes, and
$1,380,000 and $7,820,000 for state income tax purposes. The federal and state
net operating loss carryforwards begin to expire in the years 2011 and 2004,
respectively. Our ability to utilize our net operating loss carryforwards to
offset future taxable income, if any, may be restricted as a result of equity
transactions that give rise to changes in ownership as defined in the Tax Reform
Act of 1986.
STOCK-BASED COMPENSATION
As of December 31, 1998, we recorded aggregate deferred compensation
totaling $2.5 million in connection with the grant of stock options to employees
and consultants prior to December 31, 1998. This charge is being amortized over
the vesting period of the options which ranges from four to five years. In
addition, during the quarter ending March 31, 1999, we anticipate recording an
additional unearned compensation charge of approximately $4.7 million relating
to options granted during this quarter. This charge will also be amortized over
the vesting period of the options granted.
Stock-based compensation of $63,000, $19,000, $43,000 and $33,000 was
recognized in the quarters ended March 31, June 30, September 30 and December
31, 1998. We expect per quarter amortization of approximately $200,000 in 1999
and annual amortization of approximately $1.5 million in 2000, $1.5 million in
2001 and $1.4 million in 2002, $1.1 million in 2003 and $900,000 in 2004
relating to these options. See Note 8 of Notes to Consolidated Financial
Statements.
ACQUISITION TRANSACTIONS
In November and December 1998, we entered into the Acquisition Transactions
to acquire Internet and electronic commerce related assets from companies
affiliated with Experian. The Acquisition Transactions involved the following
principal elements:
- the merger of a subsidiary of MyPoints.com with and into Enhanced
Response Technologies, Inc., where the outstanding shares and options of
Enhanced Response Technologies were exchanged for 1,435,946 shares of our
common stock and options to purchase 402,818 shares of our common stock;
- the acquisition from two subsidiaries of Experian of all of the
outstanding ownership interests of MotivationNet, LLC in exchange for
1,213,592 shares of our Series D preferred stock and 2,164,535 shares of
our common stock; and
- the acquisition from Experian's subsidiary Metromail Corporation of
certain assets relating to the "Direct Value to You" Internet sponsorship
product for $400,000 in cash, payable over 30 months.
The Acquisition Transactions were accounted for using the purchase method.
The aggregate purchase price was $13.6 million, consisting of $9.1 million in
stock and cash, and $4.5 million in liabilities assumed. The purchase price has
been allocated to acquired tangible and intangible assets
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<PAGE> 27
based on their estimated respective fair values as of the date of acquisition.
Estimated fair values were determined using a combination of methods, including
replacement cost estimates for acquired membership base and customer base, and a
risk-adjusted income and cash flow approach for trademark and tradename and the
acquired technology license agreement. The purchase price allocation and the
schedule over which the value attributable to each acquired asset will be
amortized are as follows:
<TABLE>
<CAPTION>
AMORTIZATION
AMOUNT PERIOD
-------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
Tangible assets................................. $ 2,400 3 years
Trademark and tradename......................... 1,800 5 years
Technology license agreement.................... 7,300 4 years
Membership base................................. 800 0.5 to 2.5 years
Customer base................................... 500 0.5 to 3 years
Other intangible assets......................... 800 2 years
-------
Total................................. $13,600
=======
</TABLE>
The amortization periods are based on our estimates of the useful lives of
each acquired asset, as it existed at the time of the acquisition. Upon
completion of the public offering of our capital stock we are obligated to
purchase the licensed technology for a payment equivalent to the then present
value of the future minimum royalty payments. We expect to pay approximately
$2.6 million upon completion of the public offering, representing the net
present value of the $4.2 million royalty obligation. See "Use of Proceeds."
LIQUIDITY AND CAPITAL RESOURCES
Since incorporation, we have financed our operations primarily from the
sale of equity securities to venture capital firms and other individual,
institutional and strategic investors. We have also borrowed funds under
long-term capital lease and equipment financing facilities.
Net cash used in operating activities was $2.3 million in 1997 and $5.5
million in 1998. In 1997, the net cash used by our $2.9 million net loss was
partially offset by a $519,000 increase in points redemption liability, a
$52,000 increase in accounts payable and other accrued liabilities, and non-cash
charges of $77,000 in stock-based compensation. In 1998, the net cash used by
our $8.3 million net loss was partially offset by a $1.7 million increase in
points redemption liability, an $878,000 increase in accounts payable and other
accrued liabilities, and non-cash charges of $157,000 in stock-based
compensation.
Net cash used in investing activities was $353,000 in 1997 and net cash
provided by investing activities in 1998 was $1.4 million, all of which in 1997
was used to acquire property and equipment, primarily computer equipment and
software, and most of which in 1998 was provided by an affiliate of Experian in
connection with the Acquisition Transactions.
Net cash provided by financing activities was $4.5 million in 1997 and $6.2
million in 1998. These amounts included net proceeds of equity financings of
$4.3 million in 1997 and $6.1 million in 1998, a $100,000 equipment term loan
established in 1997 and a $400,000 equipment term loan established in 1998. The
loans have floating interest rates of prime plus 1.5% for the 1997 loan and
prime plus 0.5% for the 1998 loan. Both loans are secured by a pledge of our
assets and require us to comply with certain financial covenants. During 1997
and 1998, we were in compliance with these covenants or were operating under
appropriate waivers.
In addition, in 1997 and 1998, we entered into various non-cancelable
capital lease agreements for certain types of capital expenditures. As a result
of these capital lease agreements, we have an
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outstanding lease payment obligation of $298,000 as of December 31, 1998. These
capital lease agreements have terms ranging three to five years with interest
rates ranging from 7.2% to 18.0%.
At December 31, 1998, we had cash and cash equivalents of $5.1 million. In
1999, we completed an equity financing that resulted in net proceeds to us of
$9.9 million. Upon the completion of this offering, we will be obligated to make
a payment of $2.6 million to acquire licensed technology. For additional
information regarding this payment, see "Use of Proceeds." We estimate that we
will make capital expenditures of approximately $2.0 million during the next 12
months.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements through the end of 2000. We
may need to raise additional funds, however, to fund more rapid expansion, to
develop new or enhance existing services or products, to respond to competitive
pressures or to acquire complementary products, businesses or technologies. If
adequate funds are not available on acceptable terms, our business, results of
operations and financial condition could be materially adversely affected.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP No. 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998. We do
not expect that the adoption of SOP No. 98-1 will have a material impact on our
consolidated financial statements.
In April 1998, the Accounting Standards Executive Committee issued SOP
98-5, Reporting on the Costs of Start-Up Activities. This SOP provides guidance
on the financial reporting of start-up costs and organization costs. It requires
the costs of the start-up activities and organization costs to be expensed as
incurred. The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company adopted the SOP during the year
ended December 31, 1998. The adoption of the SOP did not have a material impact
on the consolidated financial statements.
FACTORS AFFECTING OPERATING RESULTS
Our results of operations have varied widely in the past and we expect that
they will continue to vary significantly in the future due to number of factors,
including those set forth under "Risk Factors." You should read the "Risk
Factors" section of this prospectus carefully. Due to these factors, we believe
that quarter-to-quarter or year-to-year comparisons of our results of operations
are not a good indication of our future performance. Our results of operations
in some future quarter may be below the expectations of public market analysts
and investors. In this event, the price of our common stock is likely to
decline.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, computer systems and
software products used by many companies may need to be upgraded to comply with
these year 2000 requirements.
We designed the software underlying our email and Web-based programs as
well as our Web site and related technology infrastructure to be year 2000
compliant. However, we rely on third-party hardware and software in the
operation of our business. We believe we have identified all of the major
information systems used in our internal operations and have substantially
completed all modifications,
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<PAGE> 29
upgrades or replacements to minimize the possibility of a material disruption of
our business. The expenditures that we have incurred to date and the
expenditures we expect to incur in this regard have not been and are not
expected to be material to our business, results of operations and financial
condition.
We have also contacted the vendors of third-party hardware and software we
use in order to gauge their year 2000 compliance. Based on these vendors'
representations and the activities we have conducted, we believe that the
third-party hardware and software we use are year 2000 compliant. We cannot
assure you, however, that we will not experience unanticipated negative
consequences, including material costs caused by undetected errors or defects in
the technology used in our internal systems. If, in the future, it comes to our
attention that the software underlying our email or Web-based programs requires
modification, or that any of our third-party hardware and software are not year
2000 compliant, then we will seek to make modifications to our systems. In such
case, we expect such modifications to be made on a timely basis and we do not
anticipate that the cost of such modifications will have a material effect on
our results of operations. There can be no assurance, however, that we will be
able to modify such systems in a timely and successful manner to comply with the
year 2000 requirements. Any failure to do so could have a material adverse
effect on our business, results of operations and financial condition.
We are also vulnerable to systemic failures resulting from year 2000
problems. These failures could include prolonged data communications,
telecommunications or electrical failures. A failure of this type could prevent
members from accessing our Web site or prevent us from operating our business.
As a result, we could experience lost advertising revenues, increased operating
expenses and loss of members. Any of these eventualities could have a material
adverse effect on our business, results of operations and financial condition.
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BUSINESS
MyPoints.com is a leading provider of online direct marketing and loyalty
programs. We integrate targeted email and Web-based direct marketing offers with
online loyalty programs to create valuable benefits for both our consumer
members and our business partners. Our approach gives consumers the opportunity
to earn rewards for receiving and responding to offers, and provides businesses
with comprehensive customer acquisition and retention tools.
We have built a proprietary member database containing approximately two
million detailed consumer profiles. We earn revenues by delivering online direct
marketing offers to this membership base. We charge advertisers a fee based on
offers delivered, qualified leads generated or online transactions executed. We
maintain active relationships with more than 200 advertisers, loyalty partners
and rewards providers, including leading brands such as American Express, Barnes
& Noble, Disney, eBay, GTE, Intuit, Macy's, Sprint and Tower Records.
INDUSTRY BACKGROUND
Growth of the Internet and Electronic Commerce
The Internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business electronically.
International Data Corporation (IDC), a leading technology research
organization, estimates that the number of Web users will grow from
approximately 97 million worldwide in 1998 to approximately 320 million
worldwide by the end of 2002.
The growing use of the Web represents a significant opportunity for
businesses to conduct commerce over the Internet. According to IDC, transactions
on the Internet are expected to increase from approximately $32 billion
worldwide in 1998 to approximately $426 billion worldwide in 2002. Businesses
typically use the Internet to offer products and services, such as software,
books, home loans and airline tickets, that do not require the customer's
physical presence to make a purchase decision. The Internet allows these
businesses to develop one-to-one relationships with customers worldwide without
making significant investments in traditional infrastructure such as retail
outlets, distribution networks and sales personnel.
Online Direct Marketing
Businesses operating in the electronic commerce marketplace engage in
various forms of online direct marketing to generate sales of products or
services. Direct marketing is advertising that is intended to generate a
specific response or action from a targeted group of consumers. Examples of
traditional forms of direct marketing include catalog mailings, magazine inserts
and telesales. According to the Direct Marketing Association, 1998 direct
marketing advertising commitments totaled $163 billion in the United States.
Online direct marketing can take the form of email or Web-based promotional
offers. Online direct marketing is particularly attractive because advertisers
can use tools that are not available in traditional media, such as measurement
of "click-through" rates and one-click response to email offers. These tools
give advertisers rapid feedback on their marketing campaigns. This feedback can
be used to tailor new messages and targeted offers.
Because of these advantages, advertisers are committing relatively more
dollars to online direct marketing campaigns than to other forms of Internet
advertising, such as banner-based brand marketing. Forrester Research projects
Internet advertising expenditures in general to increase from $1.3 billion in
1998 to $10.5 billion in 2003. Forrester estimates that direct marketing will
account for between 30% and 50% of the total online advertising expenditures in
2001, up from 21% in 1998.
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Despite this trend, significant barriers to online direct marketing remain:
- Inundation. According to Jupiter Communications, a leading Internet
marketing research firm, the quantity of email messages per user sent in
the United States will surpass the volume of pieces of postal mail per
household in 1999. The sheer number of email messages leads to
competition for the attention of consumers. According to Jupiter, 16.0%
of email recipients immediately delete email from commercial sources, and
another 17.0% delete email unless it is from a familiar source.
- Spam. Unsolicited commercial email -- commonly known as "spam" -- is not
an acceptable medium for major brands that value consumer opinion.
Current and pending state and federal legislation places significant
restrictions on the use of unsolicited commercial email.
- Anonymity. Email addresses are largely anonymous. There is no easy way to
correlate email addresses with users' demographic and behavioral data
without their input. Effective targeting of messages online is difficult
without this input.
Online Loyalty Programs
Membership-based loyalty programs have long been a standard part of the
retail product and service landscape. Consumer loyalty programs now operating in
the United States serve businesses as diverse as supermarkets, telecommunication
companies, airlines, and music and book sellers. As the number of Internet users
increases, the relative importance to businesses of customer retention will also
increase. As a result, leading online merchants and content providers are
increasingly launching and testing programs aimed at retaining their most
valuable customers. The challenges that their businesses face in establishing
online loyalty programs include the cost of implementing and operating the
program and the ability to provide consumers with sufficient opportunities to
earn and redeem awards.
Market Opportunity
Online direct marketing programs offer unique advantages to businesses,
including:
- an interactive advertising format that enables consumers to respond and
purchase online, without the need for telephone calls or store visits;
- high rates of response to direct marketing offers of between 5.0% and
15.0%, compared to banner bar click-through rates, which have reportedly
declined from 2.0% to 0.5% over the past year;
- low cost per email message of between $0.01 and $0.25, compared to $1.00
to $2.00 per piece of direct marketing material sent via postal mail; and
- short campaign life cycles of between 48 and 72 hours, compared to six to
eight weeks offline.
Online direct marketing programs typically have focused on customer
acquisition. As the Internet grows as a commercial medium, companies doing
business online are increasingly focusing on customer retention. This creates an
opportunity for an integrated direct marketing and loyalty rewards program.
THE MYPOINTS.COM SOLUTION
MyPoints.com is a leading provider of online direct marketing and loyalty
programs. We believe that we are the first to combine targeted email and
Web-based direct marketing offers with online loyalty programs to create
valuable benefits for both our consumer members and our business partners. This
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approach provides our consumer members with the opportunity to earn rewards for
their participation and our business partners with effective customer
acquisition and retention tools.
Consumer Benefits
The MyPoints program offers the following benefits to members:
- Relevant Offers. The depth of our member database enables us to target
advertisements to our members with a high degree of accuracy. This helps
us to direct only the most relevant offers to each member and increases
the likelihood that the member will view and respond to a given message.
- Leading Brands. We increase the attractiveness of our program by
providing our members with direct marketing offers from name brands such
as American Express, Disney, eBay, Egghead.com, Intuit, GTE, Macy's and
Sprint.
- Wide Variety of Rewards. We have designed our rewards programs to be
broad-based. Rather than focusing on one particular type of consumer
award, such as frequent flyer miles, we provide a range of redemption
opportunities, including electronic gift certificates from name-brand
retailers, credits in other popular rewards programs, long distance
minutes and travel awards.
- Easily Attainable Rewards. Many of our reward opportunities are at point
levels that are low enough to be earned in a matter of weeks by a typical
active member. These easily attainable rewards include $10 gift
certificates at major retailers such as Barnes & Noble and restaurant
chains such as The Olive Garden. We offer our members a variety of point
earning opportunities that do not require a purchase as well as the
ability to earn points for offline activities including credit card and
long distance telephone usage.
- Attractive Member Experience. Our highly personalized, easy-to-use
interface features one-click purchase and redemption capability. We
provide personalized Web interfaces that feature the member's name and
current point balance. We also deliver email offers in rich media
(HTML-enhanced) format.
- Privacy and Control. We assure members that we will not sell personal
information to third parties without permission. We also give members a
significant amount of control over their experience by allowing them to
set their own daily message levels, screen out unwanted advertisement or
award categories, or opt out of the MyPoints program.
Business Benefits
MyPoints.com provides both our advertising clients and our loyalty partners
a competitive advantage in the acquisition of new customers and the retention of
existing customers:
- Access to Our Proprietary Member Database. Our member database consists
of extensive demographic, behavioral and transactional information
provided to us by approximately two million consumers. We use these
detailed member profiles to target offers, allowing our business partners
to reach the most suitable audience for their promotions and increase
consumer response rates.
- Detailed Real-Time Reporting. Online direct marketing campaigns begin to
generate results in two or three days compared to several weeks in
offline campaigns. We employ sophisticated marketing analytics and
real-time reporting technology to evaluate the initial results of a
campaign and use that information to improve the overall results of
current and future campaigns of our advertisers.
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- High Return on Advertising Investment. We offer direct marketers the
ability to target and reward consumers with online offers for
approximately one-tenth the cost of typical offline direct marketing
promotions. As a consequence of improved testing, targeting and rewarding
capabilities, we expect online direct marketing response rates to be
higher than other online and offline media. This combination of lower
delivery costs and higher response rates generates returns on advertising
investment that are higher than those achieved by competing direct
response media.
- Customized Loyalty Solutions. We offer a variety of cost-effective and
customized solutions to our loyalty partners, including co-branded and
private label versions of our MyPoints rewards program. Our proprietary
Digital Loyalty Engine technology enables our business partners to design
and manage innovative and flexible online loyalty programs. Current
loyalty partners include GTE, Prodigy and Talk City.
- Integrated Approach to Online Direct Marketing. We believe we are the
only direct marketing provider that has integrated online direct
marketing with an online rewards program. This enables our advertisers to
increase consumer response and retention rates by rewarding consumers for
responding to their targeted offers.
STRATEGY
Our objective is to build leading online consumer membership services and
to enable our advertising clients and loyalty partners to better acquire and
retain customers online. Key elements of our strategy to achieve this objective
are to:
Expand Our Proprietary Database
To increase the size of our membership base, we plan to use a variety of
approaches, including online advertising, referrals, and co-branded and private
label loyalty partnerships. We increase the depth of our database by rewarding
consumers for joining our MyPoints program and for completing detailed surveys
from which we collect demographic and behavioral data. We also increase the
depth of our database by tracking the transaction activity of our members in the
MyPoints program. We will continue to use our proprietary and third-party data
sources to build more detailed profiles of our members.
Leverage Our Direct Marketing and Loyalty Program Expertise
We will continue to use our significant experience in managing direct
marketing and loyalty membership programs on the Internet on behalf of our
advertising clients and loyalty partners, to enable them to maximize response
rates to their offers and increase customer retention. We have developed an
in-house expertise in database marketing and provide our advertisers with needed
support services, including the design and delivery of rich-media email and
Web-based offers.
Increase Awareness of Our Brand
We seek to increase awareness of the MyPoints brand through extensive
consumer and trade advertising campaigns, including national print and broadcast
placements and strategic industry sponsorships. We have unified our corporate
and consumer brand names to strengthen the MyPoint brand identity. We also plan
to establish partnerships with high-profile Internet brands. We will seek to
further associate our brand with the strong brands of our advertisers and
partners.
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Maintain Our Technology Leadership
The MyPoints Digital Loyalty Engine, which underlies our rewards programs,
is a highly scalable platform designed to serve the needs of our members and
business partners. The system currently supports approximately two million
member accounts working in proprietary, co-branded and private label loyalty
environments, and serves more than one million email and Web-based direct
marketing offers daily. We plan to continue developing and improving our
technology to meet the needs of a growing online marketplace. We also intend to
leverage the technology and experience of Experian, a leading information
services and database management company.
Pursue Strategic Acquisitions and Alliances
We have made several acquisitions, license arrangements and strategic
alliances to build our membership base and improve our level of services. In our
principal acquisition transaction, we acquired Internet and electronic commerce
assets and technologies to support Web-based rewards programs from companies
affiliated with Experian. This acquisition enabled us to integrate email and
Web-based direct marketing and loyalty programs under the MyPoints name. Through
this acquisition, we believe we have become a key element of Experian's
long-term Internet strategy. We intend to pursue additional strategic alliances
and acquisitions aggressively to increase membership through co-branded and
private label programs, offer new products and services, access new geographic
markets and obtain proprietary technologies.
Expand Internationally
We believe the anticipated international growth of Internet usage has the
potential to generate significant additional revenue opportunities for us.
According to IDC, the number of Web users outside the United States is projected
to increase from approximately 46 million in 1998 to approximately 184 million
in 2002. We currently have one international agreement in place with Sweden
Post, the Swedish postal service, to license a localized version of MyPoints
BonusMail for the Swedish market. Sweden Post operates one of Europe's leading
electronic commerce Web sites. Although we currently only have a single
international arrangement in place, we are committed to pursuing opportunities
for additional international strategic transactions.
MYPOINTS.COM PRODUCTS AND SERVICES
MyPoints and MyPoints BonusMail
The MyPoints program serves two primary constituencies, our members and our
business partners. Members enroll to earn rewards by responding to targeted
offers on the Web at the MyPoints Web site and to targeted offers by email
through MyPoints BonusMail. Advertising clients use MyPoints to reach a selected
group of members with targeted offers and incentives. We believe that MyPoints
is the Internet's only direct marketing program that integrates in a single
program outbound electronic commerce via "rewarded" email with Web-based
point-earning opportunities.
The MyPoints program begins with enrollment, where consumers receive
rewards points for providing key demographic and behavioral information. This
enrollment information is supplemented with transactional data gathered as our
members interact with our services. Once enrolled, MyPoints members receive
points for responding to targeted, personalized HTML-enhanced offers. Members
may also earn points by filling out additional online surveys. After earning a
sufficient number of points, MyPoints members may redeem their points online for
products and services from our rewards partners, including long distance
minutes, travel awards, points in other loyalty programs and electronic gift
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certificates. Members may also spend their points at participating catalog sites
where merchandise prices are denominated in points for MyPoints members.
The list of Web-based point-earning opportunities presented to the member
on the MyPoints "earn page" depends on the profile of the visiting member. Some
of the information that determines the point-earning opportunities directed to a
member include geographic location, leisure time interests, financial
information and investment interests. The MyPoints program features a
sophisticated online account maintenance area, where members may change their
preferences and other personal information, access their earning history and
account balance, contact a member care representative, and redeem points.
We also place a high degree of importance on our commitment to maintaining
the security of member information. We are members of both TRUSTe and the Online
Better Business Bureau, and we adhere to the principles of these organizations.
MyPoints Network
The MyPoints Network is a system of participating Web sites which offer our
members the opportunity to earn points at locations on the Internet other than
the MyPoints Web site. We provide participating Web sites with a supply of
reward points to distribute to their visitors as a loyalty and incentive tool in
exchange for the opportunity to enroll their visitors in our service. These
partnerships can be co-branded in cases such as GTE and Talk City, where the
partners commit to bring us a certain number of new members. In these
partnerships, the currency always retains the MyPoints brand and we retain
direct marketing rights to the members generated by the service.
We compensate loyalty partners with points for each new member the partner
brings to the MyPoints program. We either manage the program externally or
enable our partner to set point-earning opportunities without our direct
involvement using our Digital Loyalty Engine. The Digital Loyalty Engine enables
our partners to reward any action that requires a click on the site, such as
clicking on a banner, registering for a service or purchasing a product. We also
provide each partner with a supply of rewards points based on prospective
membership growth, internal promotion to MyPoints members, and, in some cases,
cooperative advertising to launch the new Web site.
Network partnerships create cost-effective membership growth. They also
increase our brand awareness among new affinity groups. Our network partnership
marketing group focuses on current rewards partners, electronic commerce
alliances, major electronic commerce and entertainment sites, Web-based email
providers, and online community sites and portals.
Private Label Loyalty Programs
We also build and operate fully customized, private label point programs
based on the MyPoints technology. We currently operate two private label
programs, on behalf of Prodigy (Prodigy Points) and NextCard Internet VISA
(NextCard Rew@rds). Private label loyalty programs operate in a manner similar
to the MyPoints Network program, except that the points are branded exclusively
for the partners. We may still market to the partners' members; however, the
marketing material we use is branded for the partners and the points issued for
responses are the partners' branded currency. The private label redemption
options can also be adjusted to maximize support for the partner's branding. We
might also include the partners' own product line in the redemption option,
providing a set of highly relevant awards to the partner's consumer base. At all
levels, a private label loyalty program reinforces the partner's brand and
builds loyalty to the partner's brand, while at the same time expanding our
direct marketing service base.
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Licensing Programs
We offer our technology for license to customers seeking to develop email
or Web-based direct marketing and loyalty programs. As part of our license
agreement, we may receive a set up fee and royalties based on a percentage of
revenues derived from the licensed site. We currently have one licensing
agreement in place with Sweden Post. This agreement establishes a version of the
MyPoints BonusMail program for the Swedish market. Licensing is an attractive
way for us to address most international market opportunities, which typically
require a foreign language Web site as well as advertising and points redemption
opportunities relevant to the local market.
SALES AND MARKETING
Our advertising sales organization consisted of 15 employees located in San
Francisco, New York, Los Angeles and Chicago as of March 25, 1999. This
organization is dedicated to developing and maintaining relationships with
leading advertisers and advertising agencies nationwide. We also seek to enter
into relationships with third-party advertising sales representatives to augment
the efforts of our direct sales personnel. For example, we recently entered into
an agreement with a telesales firm specializing in email advertising sales.
During 1998, over 150 advertisers participated in our direct marketing programs.
Our consumer marketing and business development organization consisted of
20 employees in San Francisco, New York and Chicago as of March 25, 1999. This
organization is dedicated to acquiring members for our online direct marketing
program. The consumer marketing group uses a variety of member acquisition
strategies, including referrals by current members, banner bars or other online
media placements, and affiliate programs. Affiliate programs include
relationships in which partners bring new members to MyPoints by introducing the
service to their own user bases in exchange for exposure of their own services
to the MyPoints membership or a cash payment per member. We have a wide variety
of affiliate programs in place, including one with Microsoft under which
MyPoints BonusMail is listed as a preferred product in the download area for
Microsoft's email product, Outlook Express. These products are complementary in
that Outlook Express enables the user to read rich-media email and MyPoints
BonusMail can deliver email in this format. The business development group uses
loyalty partnerships to acquire members for our online direct marketing program.
These partnerships can take various forms, including membership in the MyPoints
Network and private label loyalty programs.
ADVERTISING CLIENTS AND REWARDS PROVIDERS
Set forth below are representative lists of our advertising clients and
MyPoints rewards providers:
Advertising Clients
<TABLE>
<S> <C> <C>
Automotive -- Clarion, Nissan
Financial Services -- Citibank, E*Trade
Entertainment -- BMG Entertainment, Disney
Health -- BPR Health, OnHealth
Internet -- eBay, iVillage
Membership Services -- Cendant, The Signature Group
Publishing -- U.S. News and World Report, Ziff-Davis
Retail -- eToys, Macy's
Software -- Egghead.com, Intuit
Telecommunications -- Sprint, Working Assets
</TABLE>
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Rewards Providers
<TABLE>
<S> <C>
Barnes & Noble Blockbuster
Carnival Cruise Lines Eddie Bauer
Hilton HHonors Hyatt Hotels
Macy's Marriott
The Sharper Image Sony Music
Sprint Target
Tower Records VacationMiles
</TABLE>
MEMBER CARE
We have established a measurable member care process that is designed to
provide superior service to all program participants.
Automated Inquiry System
We have developed automated online support services for our members, such
as online access to account information and transaction histories. Our new
member inquiry interface, which we expect to release in the second quarter of
1999, is designed to answer member questions automatically. Through this member
inquiry system, customers will contact us via a Web form that generates an email
containing relevant customer account information for efficient handling by our
member care staff.
24/7 Support
We employ an internal staff dedicated to member care and a specialized
customer support vendor, Brigade Solutions, to maximize coverage and minimize
cost and turnaround time. Through this combination, we are able to provide
24-hour, 7-day coverage with immediate automated responses for all online
inquiries and a turnaround time of less than 24 hours for more than 95% of basic
member inquiries. We intend to continue to enhance our member care services
through increased availability of online member self-support and improved
customer reporting systems.
TECHNOLOGY AND INFRASTRUCTURE
We have developed a scalable, secure and reliable technology infrastructure
to support our online direct marketing and loyalty rewards program. The
principal element of our proprietary technology is our Digital Loyalty Engine.
The Digital Loyalty Engine enables our loyalty partners to set the parameters of
point-earning transactions without our direct involvement. Customizable elements
include the number of times in a given period an award may be earned, the number
of points per transaction, the maximum number of transactions per member and the
maximum aggregate numbers of points that can be awarded in a given campaign.
Partners can use the Digital Loyalty Engine to take advantage of market
opportunities on a real-time basis by establishing new point-earning
opportunities or altering the parameters of existing opportunities.
Scalability
Our technology is designed to support tens of millions of users. To date,
we have demonstrated the scalability of our architecture with approximately two
million consumers enrolled in our direct marketing and loyalty programs as well
as programs such as MyPoints by GTE, NextCard Rew@rds and Prodigy Points. Our
system is also designed to capture a large amount of data from our members,
which is critical
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to the creation of a successful online loyalty rewards program. Our systems can
also be integrated with our partners' own databases, thereby enhancing data
exchange and data mining for marketing purposes.
Security
We incorporate a variety of encryption techniques meant to protect the
privacy of consumer information and the integrity of client transactions. We
also employ a variety of automated fraud detection procedures to identify
patterns of abuse and potential fraudulent use of the system. Our fraud
detection systems can automatically disable accounts in which fraud is
suspected. The data center where our system is located provides 24/7 security
management.
Reliability
Our software system architecture uses industry standard technologies to
maximize reliability. We use Secure Socket Layer for secure transactions, Oracle
databases, the UNIX operating system and the Netscape Web server within our
infrastructure. All of these platforms have demonstrated a high degree of
reliability. Our databases are also distributed among clients and among
functions. In particular, each Digital Loyalty Engine, where transactions are
recorded, is separate from the main database of account records. As a result a
database failure will typically affect only a particular client or function and
will not adversely impact our entire system. We back up our Oracle databases to
long-term tape storage on a daily basis.
Our network servers are housed separately at Exodus Communications' data
center in Jersey City, New Jersey. The Exodus data center provides redundant
network connections, redundant connections to power grids, diesel generators for
emergency power, air conditioning and 24/7 engineering support. Our
infrastructure is built to maximize reliability through the use of multiple
central processor units and redundant power supplies, networking and
input/output controllers. Our Web servers use dynamic load balancing for
increased throughput and availability.
COMPETITION
We face intense competition from both traditional and online advertising
businesses. We expect competition to 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 a greater number of media companies across a
wide range of advertising and direct marketing services. Currently, several
companies offer competitive online products or services, including CyberGold and
Netcentives. We may also face competition from established online portals and
community Web sites that engage in direct marketing, as well as from traditional
advertising agencies and direct marketing companies that may seek to offer
online products or services.
Our ability to compete depends upon many factors, including:
- the timing and market acceptance of new products and services developed
either by us or our competitors;
- our ability to demonstrate the effectiveness of our service to
advertisers;
- our ability to increase the number of members who participate in our
online programs;
- our ability to increase the depth of information in our database
regarding our members by capturing demographic, behavioral and
transactional data;
- our ability to increase awareness of our brand;
- the capacity of our technology infrastructure to meet the needs of our
members, advertisers and loyalty partners; and
- sales and marketing efforts by us or our competitors.
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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 patent, copyright, trade secret and trademark law. We
have filed four patent applications in the United States. We also plan to file
corresponding international patent applications. 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 "MyPoints," "BonusMail" and "Rew@rds" in the United States.
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. We cannot give any assurance as to the future
viability or value of any of our proprietary rights. In addition, we cannot give
any assurance as to the future viability or value, if any, of our proprietary
rights. In addition, we cannot give any assurance that the steps taken by us
will prevent misappropriation or infringement of our proprietary information.
Any infringement or misappropriation, should it occur, could have a material
adverse effect on our business, results of operations and financial condition.
In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Any intellectual
property litigation would result in substantial costs and diversion of resources
and management attention and could have a material adverse effect on our
business, results of operations and financial condition. 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,
should it occur, may subject us to significant liability for damages, may result
in invalidation of our proprietary rights and, even if not meritorious, would be
time-consuming and expensive to defend and would result in the diversion of
management time and attention, any of which may have a material adverse effect
on our business, results of operations and financial condition.
We have licensed, and may license in the future, elements of our
trademarks, trade dress and similar proprietary rights to third parties. While
we attempt to ensure that the quality of our brand is maintained by these
business partners, they may take actions that could materially and adversely
affect the value of our proprietary rights or reputation.
EMPLOYEES
As of March 25, 1999, we employed 79 people, including 35 in sales and
marketing, 31 in technology and production and 13 in support, administration,
finance, management and human resources. We believe that we maintain good
relations with our employees.
FACILITIES
We are currently leasing approximately 7,878 square feet of office space in
San Francisco, California, approximately 5,650 square feet of office space in
Schaumburg, Illinois and approximately 4,500 square feet of office space in New
York, New York. Our sales, marketing, finance and administration functions are
based in San Francisco. Our technology and production groups are based in
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Schaumburg. We are currently in the process of expanding our Schaumburg facility
by leasing additional space in our current building and we believe we will be
able to obtain such additional space on commercially reasonable terms. We also
currently plan to increase our office space in San Francisco during 1999. We do
not have any commitments for this additional space, but we believe we can obtain
additional space on commercially reasonable terms. We believe that the
additional space we intend to lease in San Francisco and Schaumburg will meet
our space requirements for the next several years. The lease for the San
Francisco facility expires in November 1999, with an option to extend the lease
for one additional three-year term. The leases for the existing Schaumburg
facility expire in May 1999 and March 2001.
DIRECT MARKETING BOARD OF ADVISORS
We have assembled a board of advisors with significant experience in the
direct marketing industry. Our board of advisors consists of:
Steve Carbone
President, Grey Direct e.marketing
G. Steven Dapper
Chief Executive Officer of Hawkeye Media
Former Chairman and Chief Executive Officer, Rapp Collins Worldwide
Rashi Glazer
Editor-in-Chief, Interactive Marketing Journal
Professor of Marketing, Haas School of Business, University of
California at Berkeley
Worthington Linen
Chairman and Chief Executive Officer, The Signature Group
Former President and Chief Executive Officer, BMG Direct
George S. Wiedemann
Chairman and Chief Executive Officer, Grey Direct Marketing Group
Chairman of the Direct Marketing Association
Lester Wunderman
Founder and former Chairman, Wunderman Cato Johnson
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, as of December 31, 1998, certain
information concerning our executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven M. Markowitz.................. 28 Chief Executive Officer and Chairman of the Board
Robert C. Hoyler..................... 48 President, Chief Operating Officer and Director
Charles H. Berman.................... 47 Senior Vice President, Sales
Virgil Bistriceanu................... 40 Senior Vice President, Technology
Frank J. Pirri....................... 58 Senior Vice President, Partnership Development
Robert Wise.......................... 39 Senior Vice President, Member Marketing
Layton S. Han........................ 33 Vice President, Finance and Chief Financial Officer
Howard L. Morgan..................... 53 Director
Thomas Newkirk....................... 45 Director
Lawrence E. Phillips................. 32 Director
Mario M. Rosati...................... 52 Director
Lester Wunderman..................... 78 Director
</TABLE>
Steven M. Markowitz is a founder of MyPoints.com and has served as our
Chief Executive Officer and Chairman of the Board since November 1996. Mr.
Markowitz also served as our President from November 1996 until December 1998.
From May 1995 to August 1996, Mr. Markowitz was a securities analyst with
Fidelity Management & Research (Far East), a unit of Fidelity Investments. Mr.
Markowitz is also the founder of a specialty catalog for the Japanese software
market and has acted as an advisor to that company since 1992. From 1992 to
1994, Mr. Markowitz was a Tokyo-based correspondent for Dow Jones & Co., Inc., a
business and financial news publishing company. Mr. Markowitz holds an A.B. from
the University of California at Berkeley and an M.B.A. from the Haas School of
Business, University of California at Berkeley.
Robert C. Hoyler has served as our President and Chief Operating Officer
since December 1998 and has served as one of our directors since January 1999.
Prior to joining MyPoints.com, Mr. Hoyler had served as Chief Executive Officer
of MotivationNet since July 1996. From July 1993 to March 1996, Mr. Hoyler
served as Senior Vice President of Diversified Businesses at Keebler, a leading
consumer products company, where he was responsible for sales, marketing and
manufacturing for Keebler's non-store door businesses. Mr. Hoyler holds a B.A.
from Loyola University and a Master of Management from J.L. Kellogg Graduate
School of Management, Northwestern University.
Charles H. Berman has served as our Senior Vice President, Sales since
October 1998. From September 1998 to October 1998, Mr. Berman served as our
Director of Business Development. From February 1998 to September 1998, Mr.
Berman served as our Director of Consumer Marketing where he was responsible for
all membership acquisition. From July 1994 to December 1997, Mr. Berman served
as President of Goodstuffs, a gourmet food and wine company. From 1988 to June
1994, Mr. Berman served as President of WineWrights, a wine membership
organization company, where he managed the company from inception. Mr. Berman
holds a B.A. from Case Western Reserve University and an M.B.A. from San
Francisco State University.
Virgil Bistriceanu has served as our Senior Vice President, Technology
since November 1998. Since August 1994 Mr. Bistriceanu has also been an
instructor in the Computer Science Department of the Illinois Institute of
Technology. From May 1997 to November 1998, Mr. Bistriceanu served as Chief
Technology Officer of MotivationNet where he designed the architecture and
managed implementation
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of its rewards program. Mr. Bistriceanu holds an M.S. in Electrical Engineering
from the Polytechnic Institute of Bucharest, Romania.
Frank J. Pirri has served as our Senior Vice President, Partnership
Development since December 1998. From May 1997 to November 1998 Mr. Pirri served
as Executive Vice President of MotivationNet. From January 1994 to May 1997, Mr.
Pirri served as the President and Chief Executive Officer of Life Facts, Inc., a
medical information products company. From January 1993 to January 1994, Mr.
Pirri served as the Vice Chairman of S&H Citadel, Inc., an incentives marketing
services company, following its merger with S&H Motivation and Citadel
Motivation. From 1987 to January 1993, Mr. Pirri served as President and Chief
Executive Officer of S&H Motivation, a consumer and business-to-business
performance improvement company. Prior to S&H Motivation, Mr. Pirri held
numerous positions over a 24-year period at The Sperry & Hutchinson Company (S&H
Green Stamps). Mr. Pirri holds a B.B.A. from Pace University and a Master of
Management from J.L. Kellogg Graduate School of Management, Northwestern
University.
Robert Wise has served as our Senior Vice President, Member Marketing since
June 1998. From July 1995 to February 1998, Mr. Wise served as Vice President,
Acquisition Marketing for the Consumer Card Group at American Express Travel
Related Services where he led the new customer database marketing business. From
May 1994 to July 1995, Mr. Wise managed acquisition marketing for American
Express' Optima Card. Mr. Wise also managed the first American Express Card
loyalty program. Mr. Wise holds a B.S. and a B.A. from the University of
Pennsylvania and an M.B.A. from the Stern School of Business, New York
University.
Layton S. Han has served as our Vice President, Finance and Chief Financial
Officer since November 1996. From May 1996 to August 1996, Mr. Han served with
the strategy and business development group of US West Media Group, a
telecommunication company. From 1989 to January 1996, Mr. Han served as an
Account Executive of Travelers Insurance Company where he underwrote insurance
and risk financing products for corporate clients. Mr. Han holds a B.S. from the
University of California, Davis and an M.B.A. from the Haas School of Business,
University of California at Berkeley.
Howard L. Morgan has served as one of our directors since November 1996.
Since 1989, Dr. Morgan has been President of the Arca Group, Inc., a consulting
and investment management firm specializing in the areas of computer and
communications technologies. Dr. Morgan also has served as a General Partner of
Idealab! Corporation, an incubator of internet and e-commerce companies, since
January 1999. Dr. Morgan also served as Chief Executive Officer of Franklin
Electronic Publishers, Inc. in early 1998. Dr. Morgan was Professor of Decision
Sciences at the Wharton School of Business at the University of Pennsylvania
from 1972 through 1986. Dr. Morgan serves as director for a number of public
companies, including Cylink Corp., Franklin Electronic Publishers, Inc.,
Infonautics Corporation, Kentek Information Systems, Inc., MetaCreations
Corporation, Segue Software, Inc. and Unitronix Corp. Dr. Morgan holds a B.S.
from City College of New York and a Ph.D. from Cornell University.
Thomas Newkirk has served as one of our directors since January 1999. Mr.
Newkirk has served as the Chairman of Experian and Experian Marketing Solutions,
a subsidiary of the information services company Experian, since 1998. Mr.
Newkirk founded Direct Marketing Technology in 1981 and has served as Chairman
since 1990. Mr. Newkirk holds a B.S. from Massachusetts Institute of Technology
and attended the M.B.A. program at Cornell University.
Lawrence E. Phillips has served as one of our directors since December
1998. In April 1998, Mr. Phillips formed and presently serves as Managing
Director of Primedia Ventures, a venture capital fund of Primedia, a media and
publishing company, where he directs investing activities in early-stage
Internet software, commerce and advertising companies. Prior to founding
Primedia Ventures, from February 1995 to April 1998, Mr. Phillips founded and
managed an Internet division for Primedia's
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Magazine Group, where he had general management responsibilities for the launch
and operation of several Web sites. From September 1992 to February 1995, Mr.
Phillips was a Vice President at Unterberg Harris, an investment banking firm.
Mr. Phillips holds an A.B. from Cornell University and an M.B.A. from Harvard
Business School.
Mario M. Rosati has served as one of our directors since November 1996. Mr.
Rosati has been with the Palo Alto, California law firm of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, since 1971, first as an associate
and then as a member since 1975. Mr. Rosati also serves on the boards of
directors of Sanmina Corporation, Ross Systems, Inc., Vivus, Inc., Meridian
Data, Inc., Genus, Inc. and Aehr Test Systems. Mr. Rosati holds a B.A. from the
University of California, Los Angeles and a J.D. from the University of
California at Berkeley, Boalt Hall School of Law.
Lester Wunderman has served as one of our directors since January 1999. Mr.
Wunderman served as Chairman of Wunderman Cato Johnson, a world-wide direct
marketing agency, which he founded in 1958. Mr. Wunderman is also Visiting
Professor of Direct Marketing at the School for Continuing Education at New York
University. He has served as Chairman of the Executive Committee of the Center
for Direct Marketing at New York University and is a Trustee of the Children's
Television Workshop. Mr. Wunderman serves as a director of Infonautics
Corporation. Mr. Wunderman holds an honorary doctorate from City University of
New York.
BOARD COMPOSITION
Our bylaws currently authorize seven directors. Our certificate of
incorporation and bylaws that become effective upon the completion of this
offering 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. Morgan, Markowitz and Rosati, will stand for
reelection at the 2000 annual meeting of stockholders. The Class II directors,
Messrs. Hoyler and Phillips, will stand for reelection at the 2001 annual
meeting of stockholders. The Class III directors, Messrs. Newkirk and Wunderman,
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. There are no family relationships among any of our
directors, officers or key employees.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has a compensation committee and an audit committee.
Our compensation committee consists of Messrs. Morgan, Newkirk and
Phillips. The compensation committee makes recommendations regarding our various
incentive compensation and benefit plans and determines salaries for our
executive officers and incentive compensation for our employees and consultants.
Our audit committee consists of Messrs. Phillips and Wunderman. The audit
committee makes recommendations to the board of directors regarding the
selection of our independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors and reviews and
evaluates our control functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee was, at any time since
our formation, an officer or employee of MyPoints.com. None of our executive
officers serves as a member of the board of
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directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee. See "Certain Transactions" for a description of transactions between
MyPoints.com and entities affiliated with members of our compensation committee.
DIRECTOR COMPENSATION
We do not currently pay any cash compensation to our directors for their
services as members of the board of directors, although we reimburse them for
reasonable expenses in connection with attending our board and committee
meetings. We do not provide additional compensation for committee participation
or special assignments of the board of directors. From time to time, we have
granted our outside directors options to purchase shares of our common stock
under the 1996 stock plan or the 1999 stock plan. In January 1997, we granted
Mr. Morgan an option to purchase 133,333 shares at a per share exercise price of
$0.05. In September 1997, we granted Mr. Rosati an option to purchase 113,333
shares at a per share exercise price of $0.10. In February 1998, we granted Mr.
Rosati an option to purchase 20,000 shares at a per share exercise price of
$0.10 and Mr. Wunderman, then in his capacity as a member of our board of
advisors, an option to purchase 10,000 shares at a per share exercise price of
$0.05. In January 1999, we granted Mr. Newkirk an option to purchase 25,000
shares, Mr. Phillips an option to purchase 25,000 shares and Mr. Wunderman an
option to purchase 50,000 shares, all at a per share exercise price of $1.00.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us during 1998 to
our Chief Executive Officer and our four other most highly compensated executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY($) OPTIONS(#)
---------------------------- ------------ ------------
<S> <C> <C>
Steven M. Markowitz......................................... $100,000 --
Chief Executive Officer and Chairman of the Board of
Directors
Robert C. Hoyler............................................ 139,682 --
President and Chief Operating Officer
Virgil Bistriceanu.......................................... 108,184 96,675
Senior Vice President, Technology
Frank J. Pirri.............................................. 109,384 --
Senior Vice President, Partnership Development
Robert Wise................................................. 94,583 112,000
Senior Vice President, Member Marketing
</TABLE>
Messrs. Hoyler's, Bistriceanu's and Pirri's salaries include amounts earned
at MotivationNet before its acquisition by MyPoints.com. Mr. Wise joined
MyPoints.com in June 1998 at an annual salary of $145,000.
43
<PAGE> 45
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information relating to stock options
granted during 1998 to our Chief Executive Officer and our four other most
highly compensated executive officers. All such options were awarded under our
1996 stock plan or our 1999 stock plan and have a term of ten years from the
date of grant.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------------ STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTIONS
UNDERLYING GRANTED TERM($)
OPTIONS IN FISCAL EXERCISE EXPIRATION -----------------
NAME GRANTED(#) 1998 PRICE($/SH.) DATE 5% 10%
---- ------------- ------------- --------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Markowitz............. -- -- -- -- -- --
Robert C. Hoyler................ -- -- -- -- -- --
Virgil Bistriceanu.............. 96,675 9.0% $0.26 12/23/2008 $15,808 $40,060
Frank J. Pirri.................. -- -- -- -- -- --
Robert Wise..................... 112,000 10.4 0.20 7/06/2008 14,087 35,700
</TABLE>
In 1998, we granted options to purchase an aggregate of 1,079,562 shares of
common stock to our employees, directors and consultants. Generally, we grant
options at an exercise price equal to the fair market value of the underlying
common stock on the date of grant, as determined by our board of directors, and
the options vest over four years from the date of grant. Mr. Bistriceanu's
option vests over three years beginning May 1, 1997.
In accordance with the rules of the Securities and Exchange Commission, the
above table sets forth the potential realizable value over the ten-year period
from the grant date to the expiration date, assuming rates of stock appreciation
of 5.0% and 10.0%, compounded annually. These amounts do not represent our
estimate of future stock price performance. Actual realizable values, if any, of
stock options will depend on the future performance of the common stock.
In addition, in January 1999, we granted Mr. Markowitz an option to
purchase 350,000 shares, Mr. Hoyler an option to purchase 250,000 shares and Mr.
Bistriceanu options to purchase 138,595 shares of common stock. These options
were granted under our 1999 stock plan at an exercise price of $1.00 per share.
44
<PAGE> 46
FISCAL YEAR-END OPTION VALUES
The following table sets forth information for our Chief Executive Officer
and our four other most highly compensated executive officers relating to the
number and value of securities underlying exercisable and unexercisable options
held at December 31, 1998. These executive officers did not exercise any options
during 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1998(#) DECEMBER 31, 1998($)
------------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven M. Markowitz.............. -- -- -- --
Robert C. Hoyler................. -- -- -- --
Virgil Bistriceanu............... 62,435 34,240 -- --
Frank J. Pirri................... -- -- -- --
Robert Wise...................... -- 112,000 -- $6,720
</TABLE>
The value of unexercised in-the-money options at December 31, 1998 above is
based on a value of $0.26 per share, the fair market value of our common stock
as of December 23, 1998, as determined by our board of directors, less the per
share exercise price, multiplied by the number of shares issued upon exercise of
the option. All options were granted under our 1996 stock plan or our 1999 stock
plan.
STOCK PLANS
1999 Stock Plan. Our 1999 stock plan was adopted by the board of directors
in November 1998. In March 1999, our board of directors amended the 1999 stock
plan to increase the number of shares reserved for issuance to a total of
2,966,962 shares. As of March 25, 1999, options to purchase an aggregate of
1,828,300 shares were outstanding, 6,550 shares of common stock had been
purchased pursuant to exercises of stock options and stock purchase rights, and
1,132,112 shares were available for future grant.
The 1999 stock plan provides for the grant of incentive stock options, as
defined in Section 422 of the Internal Revenue Code, to employees and
nonstatutory stock options, stock purchase rights and stock bonus rights to
employees, directors and consultants. The 1999 stock plan may be administered by
different committees with respect to different groups of service providers.
Options granted as performance-based compensation within the meaning of Section
162(m) are administered by a committee of two or more outside directors. Option
administration committees may make final and binding determinations regarding
the terms and conditions of the awards granted, including the exercise prices,
the numbers of shares subject to the awards and the exercisability of the
awards, forms of agreement for use under the plan and interpretation of plan
terms.
The exercise price of incentive stock options granted under the 1999 stock
plan must be at least equal to the fair market value of our common stock on the
date of grant. However, for any employee holding more than 10% of the voting
power of all classes of our stock, including the stock of any parent or
subsidiary of MyPoints.com, the exercise price will be no less than 110% of the
fair market value and for any service provider, the exercise price will be no
less than 85% of the fair market value. The exercise price of nonstatutory stock
options is set by the administrator of the 1999 stock plan. However, for any
person holding more than 10% of the voting power of all classes of our stock,
the exercise price will be no less than 110% of the fair market value. The
maximum term of options granted under the 1999 stock plan is ten years.
An optionee whose relationship with us or any related corporation ceases
for any reason, other than death or total and permanent disability, may exercise
options in the three-month period following such cessation, or such other period
of time as determined by the administrator, unless these options terminate or
expire sooner, or for nonstatutory stock options, later, by their terms. The
three-month period is
45
<PAGE> 47
extended to 12 months for terminations due to death or total and permanent
disability. In the event of a merger, sale or reorganization of MyPoints.com
into another corporation that results in a change of control of us, options that
would have become vested within 18 months after the closing date of the merger
transaction will accelerate and become fully vested upon the closing of the
transaction. In the event of a change of control transaction, either other
outstanding options that are not accelerated would be assumed by the successor
company or an equivalent option would be substituted by the successor company.
If any of these options are not assumed or substituted, they would terminate.
None of our employees may be granted options to purchase more than 500,000
shares in any fiscal year, or more than 500,000 shares in the case of a new
employee's initial employment with us. The 1999 stock plan will terminate in
November 2008, unless sooner terminated by the board of directors.
The board of directors may also grant stock purchase rights to employees,
directors and consultants under the 1999 stock plan. These grants are made
pursuant to restricted stock purchase agreements, and the price to be paid for
the shares granted thereunder is determined by the administrator. We are
generally granted a repurchase option exercisable on the voluntary or
involuntary termination of the purchaser's employment with us for any reason,
including death or disability. The repurchase price must be the original
purchase price paid by the purchaser. The repurchase option lapses at a rate
determined by the administrator. Once the stock purchase right has been
exercised, the purchaser will have the rights equivalent to those of a
stockholder.
1996 Stock Plan. Our 1996 stock plan was adopted by the board of directors
in November 1996. In November 1998, the 1996 stock plan was amended to decrease
the number of shares of common stock reserved for issuance to 935,833 shares. As
of March 25, 1999, options to purchase an aggregate of 781,645 shares were
outstanding, 122,520 shares of common stock had been purchased pursuant to
exercises of stock options and stock purchase rights and 31,668 shares were
available for future grant.
The 1996 stock plan provides for the grant of incentive stock options, as
defined in Section 422 of the Internal Revenue Code, to employees and
nonstatutory stock options, stock purchase rights and stock bonus rights to
employees, directors and consultants. The 1996 stock plan may be administered by
the board of directors or a committee appointed by the board. The option
administration committee may make final and binding determinations regarding the
terms and conditions of the awards granted, including the exercise prices, the
numbers of shares subject to the awards and the exercisability of the awards,
forms of agreement for use under the plan and interpretation of plan terms.
The exercise price of incentive stock options granted under the 1996 stock
plan must be at least equal to the fair market value of our common stock on the
date of grant. However, for any employee holding more than 10% of the voting
power of all classes of our stock, the exercise price will be no less than 110%
of the fair market value. The exercise price of nonstatutory stock options is as
follows: for any person holding more than 10% of the voting power of all classes
of our stock including the stock of any parent or subsidiary of MyPoints.com,
the exercise price will be no less than 110% of the fair market value, and for
any service provider, the exercise price will be no less than 85% of the fair
market value. The maximum term of options granted under the 1996 stock plan is
generally ten years. The maximum term of options granted to holders of at least
10% of our stock is five years.
An optionee whose relationship with us or any related corporation ceases
for any reason, other than death or total and permanent disability, may exercise
options in the three-month period following such cessation, or such other period
of time as determined by the administrator, unless these options terminate or
expire sooner, or for nonstatutory stock options, later, by their terms. The
three-month period is extended to 12 months for terminations due to death or
total and permanent disability. In the event of a merger, sale or reorganization
of MyPoints.com into another corporation that results in a change of control of
us, options that would have become vested within 18 months after the closing
date of the merger transaction will accelerate and become fully vested upon the
closing of the transaction. In the event of a change of control transaction,
either other outstanding options that are not accelerated would
46
<PAGE> 48
be assumed by the successor company or an equivalent option would be substituted
by the successor company. If any these options are not assumed or substituted,
they would terminate. The 1996 stock plan will terminate in November 2006,
unless sooner terminated by the board of directors.
The board of directors may also grant stock purchase rights to employees,
directors and consultants under the 1996 stock plan. These grants are made
pursuant to restricted stock purchase agreements, and the price to be paid for
the shares granted thereunder is determined by the administrator. We are
generally granted a repurchase option exercisable on the voluntary or
involuntary termination of the purchaser's employment with us for any reason,
including death or disability. The repurchase price must be the original
purchase price paid by the purchaser. The repurchase option lapses at a rate
determined by the administrator. Once the stock purchase right has been
exercised, the purchaser will have the rights equivalent to those of a
stockholder.
1999 Employee Stock Purchase Plan. Our 1999 employee stock purchase plan
provides employees of MyPoints.com with an opportunity to purchase our common
stock through accumulated payroll deductions. A total of 200,000 shares of
common stock has been reserved for issuance under the purchase plan, none of
which has been issued. The purchase plan will be administered by our board of
directors or by a committee appointed by the board. The purchase plan permits
eligible employees to purchase common stock through payroll deductions of up to
15.0% of an employee's compensation, up to a maximum of $25,000, determined by
the fair market value of the shares at the time the stock is purchased, for all
purchases ending within the same calendar year. Employees are eligible to
participate if they are customarily employed by us for at least 20 hours per
week and more than five months in any calendar year. Unless the board of
directors or its committee determines otherwise, each offering period will run
for six months. The first offering period will commence on the date of this
prospectus and will terminate on December 31, 1999. Thereafter, new six-month
offering periods will begin on January 1 and July 1 of each year. In the event
of an acquisition of MyPoints.com, the offering period then in progress will be
shortened and all rights automatically exercised if the purchase rights are not
assumed or substituted by the successor corporation. The price at which common
stock will be purchased under the purchase plan is equal to 85.0% of the fair
market value of the common stock on the first day of the offering period or the
last day of the offering period, whichever is lower. Employees may end their
participation in an offering period at any time, and participation automatically
ends on termination of employment. The board may amend, modify or terminate the
purchase plan at any time as long as the amendment, modification or termination
does not impair vesting rights of plan participants. The purchase plan will
terminate in March 2009, unless terminated earlier in accordance with its
provisions.
Senior Management Incentive Plan. In 1999, we adopted a senior management
incentive plan under which our executive officers may receive grants of options
upon our achievement of various revenue and cash flow targets. The plan sets
quarterly, semi-annual and annual targets.
401(K) PLAN
In February 1997, we adopted a 401(k) plan covering our full-time employees
located in the United States. The 401(k) plan is intended to qualify under
Section 401(k) of the Internal Revenue Code, so that contributions to the 401(k)
plan by employees or by us, and the investment earnings thereon, are not taxable
to employees until withdrawn from the 401(k) plan, and so that we can deduct our
contributions, if any, when made. Pursuant to the 401(k) plan, employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit ($10,000 in 1999) and to have the amount of the reduction
contributed to the 401(k) plan. The 401(k) plan permits, but does not require,
that we provide additional matching contributions to the 40l(k) plan on behalf
of all participants in the 401(k) plan. To date, we have not made any
contributions to the 401(k) plan.
47
<PAGE> 49
INDEMNIFICATION AND LIMITATION OF LIABILITY
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware 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 of the
following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our bylaws provide that we must indemnify our directors and executive
officers and may indemnify our other officers and employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
Prior to the completion of this offering, we will have entered into
agreements to indemnify our directors and executive officers, in addition to
indemnification provided for in our bylaws. These agreements, among other
things, indemnify our directors and executive officers for certain expenses,
including attorneys' fees, judgments, fines and settlement amounts incurred by
them in any action or proceeding, including any action by us arising out of
their services as directors or executive officers of MyPoints.com, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
48
<PAGE> 50
CERTAIN TRANSACTIONS
MYPOINTS.COM TRANSACTIONS WITH EXPERIAN AND RELATED ENTITIES
In November 1998 and December 1998, we entered into a series of
transactions to acquire Internet and electronic commerce related assets from
companies affiliated with Experian. As part of these transactions, Experian
acquired shares of our common stock equal to 19.9% of our then outstanding
shares of common stock. These transactions involved the following principal
elements:
- The merger of a subsidiary of MyPoints.com with and into Enhanced
Response Technologies, Inc., where the outstanding shares and options of
Enhanced Response Technologies were exchanged for 1,435,946 shares of our
common stock and options to purchase 402,818 shares of our common stock;
- The acquisition from two subsidiaries of Experian of all of the
outstanding ownership interests of MotivationNet, LLC in exchange for
1,213,592 shares of our Series D preferred stock and 2,164,535 shares of
our common stock;
- The acquisition from Metromail Corporation, an affiliate of Experian, of
certain assets relating to the "Direct Value to You Internet" sponsorship
product for $400,000 in cash, payable over 30 months;
- A services agreement between Direct Marketing Technology, Inc., a
wholly-owned subsidiary of Experian, and MyPoints.com in which Direct
Marketing Technology agreed to continue to provide demographic data and
other list processing services that is required for MyPoints.com to
operate and administer its problems; and
- A license agreement between Direct Marketing Technology, Inc. and
MyPoints.com that grants us the right to use certain intellectual
property rights associated with the MyPoints program, in exchange for
royalties specified in the license agreement.
The license agreement provides for an aggregate royalty payment of $4.2
million, payable in monthly installments equal to the greater of $35,000 or 3.0%
of our monthly revenues generated through the operation of the MyPoints program.
The license agreement also provides that, in the event of our initial public
offering, we must prepay the royalty by making a payment equal to the present
value of the $4.2 million royalty amount, less any monthly royalties previously
paid, discounted using a rate equal to the prime rate, as published in The Wall
Street Journal, plus 2.0%. MyPoints estimates that this prepayment will equal
approximately $2.6 million upon the completion of this offering. This estimate
assumes this payment will be made in June 1999. The actual amount of this
payment could vary depending upon the timing of the payment and fluctuations in
interest rates. Once we have made this license payment, our obligations under
the license will be fully satisfied and we will have no future royalty
obligations.
OUR FORMATION
In connection with our incorporation in November 1996, we issued 843,775
shares of common stock to Steven M. Markowitz, 593,750 shares to Mark S. Smith,
593,750 shares to Noah J. Doyle, 250,000 shares to Layton S. Han and 150,000
shares to Daniel K. Kihanya, at a purchase price of $0.001 per share paid in
cash. These founders' shares are subject to a right of repurchase by us at the
original purchase of $0.001 per share. This repurchase right lapses over a
period of four years from the original date of issuance of the shares.
49
<PAGE> 51
PREFERRED STOCK FINANCINGS
In November and December 1996, MyPoints.com issued to various investors a
total of 3,000,000 shares of Series A preferred stock at a purchase price of
$0.50 per share. In several transactions from October 1997 through April 1998,
MyPoints.com issued to various investors a total of 2,926,666 shares of Series C
preferred stock at a purchase price of $1.50 per share. In November 1998, we
issued to various investors a total of 3,961,649 shares of Series D preferred
stock and warrants to purchase 1,374,028 additional shares of Series D preferred
stock at a purchase price of $2.06 per share. In March 1999, we entered into a
binding commitment to sell to various investors, all of whom entered into
binding agreements to purchase, an aggregate of 2,000,000 shares of Series E
preferred stock at a purchase price of $5.00 per share.
Investors in our preferred stock include, among others, the following
directors and holders of more than 5% of our outstanding stock:
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------------------
PREFERRED STOCKHOLDER SERIES A SERIES C SERIES D SERIES E(1)
--------------------- --------- -------- --------- -----------
<S> <C> <C> <C> <C>
HOLDERS OF MORE THAN 5%:
Direct Marketing Technology, Inc........ -- -- 1,213,592(2) 296,229
S-7 Associates, L.L.C................... 866,667 300,000 400,485(3) 160,447
Long Island Venture Fund, L.P........... 1,000,000 333,333 -- --
Harold M. Brierley...................... 1,000,000 200,000(4) -- --
Primedia Ventures....................... -- -- 1,165,049(5) 68,109
Auber Investments Limited............... -- 666,667 436,893(6) 132,622
Applewood Associates, L.P............... -- 666,666 436,893(6) 84,001
DIRECTORS:
Thomas Newkirk.......................... -- -- 1,213,592(7) 296,229(8)
Lawrence E. Phillips.................... -- -- 1,165,049(9) 68,109(10)
Howard L. Morgan........................ 133,333 33,333 36,408(11) 16,743
Lester Wunderman........................ -- 16,667 36,408(11) 4,986
</TABLE>
- -------------------------
(1) On March 30, 1999, we entered into a binding commitment to sell 2,000,000
shares of Series E preferred stock, including those shares listed here.
(2) Represents shares issued in exchange for the acquisition of MotivationNet,
LLC.
(3) Includes 133,495 shares issuable pursuant to a warrant to purchase Series D
preferred stock.
(4) Includes 200,000 shares of Series C preferred stock held by Targeted
Marketing Systems, Inc. Mr. Brierley, President of Targeted Marketing
Systems, disclaims beneficial ownership of the shares held by that entity,
except to the extent of his proportionate pecuniary interest therein based
on his beneficial ownership of the capital stock of Targeted Marketing
Systems.
(5) Includes 388,350 shares issuable pursuant to a warrant to purchase Series D
preferred stock.
(6) Includes 145,631 shares issuable pursuant to a warrant to purchase Series D
preferred stock.
(7) Represents 1,213,592 shares held by Direct Marketing Technology. Mr.
Newkirk, the Chairman of Direct Marketing Technology, disclaims beneficial
ownership of the shares held by that entity, except to the extent of his
proportionate pecuniary interest therein based upon his beneficial
ownership of the capital stock of Direct Marketing Technology.
(8) Represents 296,229 shares held by Direct Marketing Technology. Mr. Newkirk
disclaims beneficial ownership of the shares held by that entity, except to
the extent of his proportionate pecuniary interest therein based upon his
beneficial ownership of the capital stock of Direct Marketing Technology.
(9) Represents 776,699 shares held by Primedia Ventures and 388,350 shares
issuable pursuant to a warrant held by Primedia Ventures to purchase Series
D preferred stock. Mr. Phillips, a managing director of Primedia Ventures,
50
<PAGE> 52
disclaims beneficial ownership of the shares and warrant held by Primedia
Ventures, except to the extent of his proportionate pecuniary interest
therein.
(10) Represents 68,109 shares held by Primedia Ventures. Mr. Phillips disclaims
beneficial ownership of the shares held by Primedia Ventures, except to the
extent of his proportionate pecuniary interest therein.
(11) Includes 12,136 shares issuable pursuant to a warrant to purchase Series D
preferred stock.
Holders of our preferred stock are entitled to registration rights with
respect to the shares of common stock that they will hold following this
offering. See "Description of Capital Stock -- Registration Rights."
OTHER TRANSACTIONS
A former member of our board of directors founded Targeted Marketing
Systems, Inc. a service provider that we engaged for creative services to assist
in the development of our marketing program and Web site. We made total payments
to Targeted Marketing Systems of $223,000 in 1997 and none in 1996 or 1998. As
of December 31, 1997 and 1998, we owed no amounts to Targeted Marketing Systems.
Mario M. Rosati, one of our directors, is also a member of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, which has served as our outside
corporate counsel since our formation.
Prior to the completion of this offering, we plan to enter into
indemnification agreements with each of our directors and executive officers.
See "Management -- Indemnification and Limitation of Liability Matters."
POLICY REGARDING TRANSACTIONS WITH AFFILIATES
It is our policy that future transactions with affiliates, including any
loans we make to our officers, directors, principal stockholders or other
affiliates will be on terms no less favorable to us than we could have obtained
from unaffiliated third parties. These transactions will be approved by a
majority of our board of directors, including a majority of the independent and
disinterested members or, if required by law, a majority of disinterested
stockholders.
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<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock, as of March 25, 1999, by the following
individuals or groups:
- each person, or group of affiliated persons, whom we know beneficially
owns more than 5% of our outstanding stock;
- each of our executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder on this table
is c/o MyPoints.com, Inc., 565 Commercial Street, 4th Floor, San Francisco,
California 94111. Except as otherwise noted, and subject to applicable community
property laws, to the best of our knowledge, the persons named in this table
have sole voting and investing power with respect to all of the shares of common
stock held by them.
This table lists applicable percentage ownership based on 18,437,120 shares
of common stock outstanding as of March 25, 1999, as adjusted to reflect the
conversion of all outstanding shares of preferred stock upon the closing of this
offering, and also lists applicable percentage ownership based on
shares of common stock outstanding after completion of this
offering. Options and warrants to purchase shares of our common stock that are
exercisable within 60 days of March 25, 1999 are deemed to be beneficially owned
by the persons holding these options or warrants for the purpose of computing
percentage ownership of that person, but are not treated as outstanding for the
purpose of computing any other person's ownership percentage.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------
PERCENT BEFORE PERCENT AFTER
BENEFICIAL OWNER NUMBER OFFERING OFFERING
---------------- --------- -------------- -------------
<S> <C> <C> <C>
Direct Marketing Technology, Inc..................... 3,674,356 19.9% %
505 City Parkway West, 10th Floor
Orange, CA 92868
S-7 Associates, L.L.C.(1)............................ 1,727,599 9.3
800 Third Avenue, 33rd Floor
New York, NY 10022
Long Island Venture Fund, L.P. ...................... 1,333,333 7.2
145 Hofstra University, Suite 213
Business Development Center
Hempstead, NY 11550-1090
Harold M. Brierley(2)................................ 1,275,000 6.9
1201 Main Street, Suite 2500
Dallas, TX 75202
Primedia Ventures(3)................................. 1,233,158 6.6
745 Fifth Avenue, 24th Floor
New York, NY 10022
Auber Investments Limited(4)......................... 1,236,182 6.7
505 Park Avenue
New York, NY 10022
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------
PERCENT BEFORE PERCENT AFTER
BENEFICIAL OWNER NUMBER OFFERING OFFERING
---------------- --------- -------------- -------------
<S> <C> <C> <C>
Applewood Associates, L.P.(4)........................ 1,187,560 6.4%
767 Fifth Avenue
45th Floor
New York, NY 10153
Steven M. Markowitz(5)............................... 953,150 5.1
Robert C. Hoyler(6).................................. 516,867 2.8
Layton S. Han(7)..................................... 265,625 1.4
Frank J. Pirri....................................... 112,819 *
Virgil Bistriceanu(8)................................ 91,309 *
Charles H. Berman(9)................................. 3,281 *
Robert Wise.......................................... 0 *
Thomas Newkirk(10)................................... 3,674,356 19.9
Lawrence E. Phillips(11)............................. 1,233,158 6.6
Howard L. Morgan(12)................................. 330,928 1.8
Mario M. Rosati(13).................................. 130,277 *
Lester Wunderman(14)................................. 63,478 *
All directors and executive officers as a group (12
persons) (15)...................................... 7,375,248 38.1% %
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 133,495 shares issuable pursuant to a warrant exercisable within
60 days of March 25, 1999.
(2) Includes 200,000 shares held by Targeted Marketing Systems, Inc. Mr.
Brierley, President of Targeted Marketing Systems, disclaims beneficial
ownership of the shares held by that entity, except to the extent of his
proportionate pecuniary interest therein based upon his beneficial
ownership of the capital stock of Targeted Marketing Systems.
(3) Includes 388,350 shares issuable pursuant to a warrant exercisable within
60 days of March 25, 1999.
(4) Includes 145,631 shares issuable pursuant to a warrant exercisable within
60 days of March 25, 1999.
(5) Includes 109,375 shares issuable pursuant to stock options exercisable
within 60 days of March 25, 1999. Mr. Markowitz is our Chief Executive
Officer and Chairman of the Board.
(6) Includes 78,125 shares issuable pursuant to stock options exercisable
within 60 days of March 25, 1999. Mr. Hoyler is our President, Chief
Operating Officer and a member of our board of directors.
(7) Includes 15,625 shares issuable pursuant to stock options exercisable
within 60 days of March 25, 1999. Mr. Han is our Vice President, Finance
and Chief Financial Officer.
(8) Includes 72,506 shares issuable pursuant to stock options exercisable
within 60 days of March 25, 1999. Mr. Bistriceanu is our Senior Vice
President, Technology.
(9) Includes 3,281 shares issuable pursuant to stock options exercisable within
60 days of March 25, 1999. Mr. Berman is our Senior Vice President, Sales.
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<PAGE> 55
(10) Represents 3,674,356 shares held by Direct Marketing Technology. Mr.
Newkirk, the Chairman of Direct Marketing Technology, disclaims beneficial
ownership of the shares held by that entity, except to the extent of his
proportionate pecuniary interest therein based upon his beneficial
ownership of the capital stock of Direct Marketing Technology. Mr. Newkirk
is a member of our board of directors.
(11) Represents 844,808 shares held by Primedia Ventures and 388,350 shares
issuable pursuant to a warrant held by Primedia Ventures exercisable within
60 days of March 25, 1999. Mr. Phillips, a managing director of Primedia,
disclaims beneficial ownership of the shares and warrant held by Primedia,
except to the extent of his proportionate pecuniary interest therein. Mr.
Phillips is a member of our board of directors.
(12) Includes 111,111 shares issuable pursuant to stock options and 12,136
shares issuable pursuant to a warrant exercisable within 60 days of March
25, 1999. Mr. Morgan is a member of our board of directors.
(13) Includes 22,500 shares held by WS Investment Company 96B and 105,277 shares
issuable pursuant to stock options exercisable within 60 days of March 25,
1999. Mr. Rosati is a general partner of WS Investment Company 96B and
disclaims beneficial ownership of the shares held by that entity, except to
the extent of his proportionate partnership interest therein. Mr. Rosati is
a member of our board of directors.
(14) Includes 5,417 shares issuable pursuant to stock options and 12,136 shares
issuable pursuant to a warrant exercisable within 60 days of March 25,
1999. Mr. Wunderman is a member of our board of directors.
(15) Includes 500,717 shares issuable pursuant to options and 412,622 shares
issuable pursuant to warrants exercisable within 60 days of March 25, 1999.
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<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our certificate of incorporation that becomes effective upon the closing of
this offering authorizes the issuance of 100,000,000 shares of common stock,
$0.001 par value, and authorizes the issuance of 10,000,000 shares of
undesignated preferred stock, no par value. From time to time, our board of
directors may establish the rights and preferences of the preferred stock. As of
March 25, 1999, 18,437,120 shares of common stock were issued and outstanding
and held by 77 stockholders, and options to purchase 2,609,945 shares of common
stock were issued and outstanding and held by 86 optionholders.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably the
dividends, if any, that are declared from time to time by the board of directors
out of funds legally available for that purpose. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of MyPoints.com, the holders
of common stock are entitled to share in our assets remaining after the payment
of liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights 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. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series
of preferred stock that we may designate in the future.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of this preferred stock. However, the effects
might include, among other things:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of MyPoints.com without
further action by the stockholders.
Upon the closing of this offering, no shares of preferred stock will be
outstanding, and MyPoints.com has no present plans to issue any shares of
preferred stock.
WARRANTS AND OTHER OBLIGATIONS TO ISSUE CAPITAL STOCK
As of March 25, 1999, we have outstanding warrants to purchase an aggregate
of 1,374,028 shares of Series D preferred stock at an exercise price of $2.06
per share. These warrants are currently exercisable
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<PAGE> 57
in full and will expire in 2003. We also have outstanding a warrant to purchase
10,000 shares of Series C preferred stock at an exercise price of $1.50 per
share. This warrant is currently exercisable in full and will expire in 2008.
Upon the closing of this offering, all of these warrants will become exercisable
for a like number of shares of common stock.
REGISTRATION RIGHTS
After this offering, holders of 13,253,897 shares of common stock and
1,384,028 shares of common stock issuable upon exercise of outstanding warrants
(the "registrable securities") or their transferees are entitled to certain
rights with respect to the registration of their shares under the Securities
Act. These rights are provided under the terms of an agreement between
MyPoints.com and the holders of the registrable securities. Beginning 180 days
after the date of this prospectus, holders of at least 20% of the registrable
securities may require, on two occasions, that we use our best efforts to
register the registrable securities for public resale. MyPoints.com is obligated
to register these shares only if the outstanding registrable securities have an
anticipated public offering price of at least $5,000,000. Also, holders of 10.0%
of the registrable securities may require, no more than once during any
six-month period, that MyPoints.com register their shares for public resale on
Form S-3 or similar short-form registration if the value of the securities to be
registered is at least $500,000. Furthermore, in the event MyPoints.com elects
to register any of its shares of common stock for purposes of effecting any
public offering, the holders of registrable securities are entitled to include
their shares of common stock in the registration, but MyPoints.com may reduce
the number of shares proposed to be registered in view of market conditions.
These registration rights have been waived with respect to this offering.
MyPoints.com will bear all expenses in connection with any registration, other
than underwriting discounts and commissions. All registration rights will
terminate five years following the consummation of this offering or, with
respect to each holder of registrable securities, at such time as the holder is
entitled to sell all of its shares in any 90-day period under Rule 144 of the
Securities Act.
ANTITAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CHARTER AND BYLAWS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:
- the acquisition of MyPoints.com by means of a tender offer;
- the acquisition of MyPoints.com by means of a proxy contest or otherwise;
or
- the removal of MyPoints.com's incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
MyPoints.com to negotiate first with MyPoints.com's board. MyPoints.com believes
that the benefits of increased protection of its potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure MyPoints.com outweigh the disadvantages of discouraging such
proposals because negotiation of any proposals of this type could result in an
improvement of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
with MyPoints.com's stockholders electing one class each year. See
"Management -- Board Composition." This system of electing and removing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of MyPoints.com, because it generally
makes it more difficult for stockholders to replace a majority of the directors.
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<PAGE> 58
Stockholder Meetings. Under our bylaws, only the board of directors, the
chairman of the board or the president may call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures for stockholder
proposals and for the nomination of candidates for election as directors, other
than nominations made by or at the direction of the board of directors or a
committee of the board.
Delaware Antitakeover Law. MyPoints.com is subject to Section 203 of the
Delaware General Corporation Law, an antitakeover law. In general, 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 business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a business
combination includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, 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. The existence of
this provision may have an antitakeover effect with respect to transactions not
approved in advance by the board of directors, including discouraging attempts
that might result in a premium over the market price for the shares of common
stock held by stockholders.
Elimination of Stockholder Action by Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
No Cumulative Voting. Our certificate of incorporation and bylaws do not
provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of MyPoints.com. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or
management of MyPoints.com.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66.7% of the
outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Norwest Bank
Minnesota, N.A.
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "MYPT."
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<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock, including shares issued upon exercise of outstanding options
and warrants, in the public market following this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through sale of our equity securities. As described below, no
shares currently outstanding will be available for sale immediately after this
offering because of certain contractual restrictions on resale. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect its prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding
shares of common stock based upon shares outstanding as of March
25, 1999, assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options or warrants that do not expire prior to
completion of this offering. This number also does not reflect our sale of
2,000,000 shares of Series E preferred stock in 1999. Of these shares, the
shares sold in this offering will be freely tradable without
restriction under the Securities Act, except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act. The remaining
13,835,907 shares of common stock held by existing stockholders are "restricted
shares" as defined in Rule 144. All of these restricted shares are subject to
lock-up agreements providing that the stockholder will not offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights
with respect to any shares of common stock or any securities that are
convertible into common stock, owned as of the date of this prospectus or
subsequently acquired, for a period of 180 days after the date of this
prospectus without the prior written consent of BancBoston Robertson Stephens.
As a result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, none of
these shares will be resellable until 181 days after the date of this
prospectus.
Beginning 181 days after the date of this prospectus, approximately
6,382,593 restricted shares will be eligible for sale in the public market. All
of these shares are subject to volume limitations under Rule 144, except
2,980,037 shares eligible for sale under Rule 144(k) and 129,747 shares eligible
for sale under Rule 701, subject in some cases to repurchase rights of
MyPoints.com.
In addition, as of March 25, 1999, there were outstanding warrants to
purchase 1,384,028 shares of preferred stock convertible into a like number of
shares of common stock, some of which may be exercised prior to this offering.
All of the shares issuable pursuant to these warrants are subject to lock-up
agreements. BancBoston Robertson Stephens may, in its sole discretion and at any
time without notice, release all or any portion of the restricted shares subject
to lock-up agreements.
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1.0% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about MyPoints.com. Under Rule 144(k), a person who is not deemed to have been
an affiliate of MyPoints.com at any time during the three months
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<PAGE> 60
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years including the holding period of any prior owner except an
affiliate, is entitled to sell those shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of or
consultant to MyPoints.com who purchased shares pursuant to a written
compensatory plan or contact may be entitled to rely on the resale provisions of
Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule
144 without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell their Rule 701 shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling their Rule 701 shares. However, all Rule 701 shares
are subject to lock-up agreements and will only become eligible for sale at the
earlier of the expiration of the 180-day lock-up agreements or the receipt of
the written consent of BancBoston Robertson Stephens more than 90 days after the
date of this prospectus.
After this offering, we intend to file a registration statement on Form S-8
registering shares of common stock subject to outstanding options or reserved
for future issuance under our stock plans. As of March 25, 1999, options to
purchase a total of 2,609,945 shares were outstanding and 1,163,780 shares were
reserved for future issuance under our stock plans. Common stock issued upon
exercise of outstanding vested options or issued pursuant to our employee stock
purchase plan, other than common stock issued to our affiliates will be
available for immediate resale in the open market following expiration of the
180-day lock-up agreements.
Also beginning six months after the date of this offering, holders of
11,253,897 restricted shares and holders of warrants to purchase preferred stock
convertible into 1,384,028 shares of common stock will be entitled to certain
rights with respect to registration of these shares for sale in the public
market. See "Description of Capital Stock -- Registration Rights." Registration
of these shares under the Securities Act would result in their becoming freely
tradable without restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of the registration.
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UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc., Salomon Smith
Barney, Inc. and Wit Capital Corporation, as e-Manager(TM), have severally
agreed with MyPoints.com, subject to the terms and conditions of the
underwriting agreement, to purchase from MyPoints.com the number of shares of
common stock set forth opposite their names below. The underwriters are
committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...........................
Bear, Stearns & Co. Inc.....................................
Salomon Smith Barney, Inc...................................
Wit Capital Corporation.....................................
--------
Total.....................................................
========
</TABLE>
The representatives of the underwriters have advised us that the
underwriters propose to offer the shares of common stock to the public at the
public offering price set forth on the cover page of this prospectus and to
dealers at this price less a concession of not in excess of $ per share, of
which $ may be reallowed to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the representatives. No reduction of this type will change the
amount of proceeds to be received by us as set forth on the cover page of this
prospectus. The common stock is offered by the underwriters as stated in this
prospectus, subject to receipt and acceptance by them and subject to their right
to reject any order in whole or in part. BancBoston Robertson Stephens Inc.
expects to deliver the shares of common stock to purchasers on ,
1999.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Internet Distribution. The underwriters, at the request of MyPoints.com,
have reserved for sale at the initial public offering price up to shares of
common stock to members and visitors to Wit Capital's services or Web site who
express an interest in purchasing these shares. The sale of these shares will be
made by Wit Capital acting as e-Manager in this offering. Purchases of the
reserved shares will be made through an account at Wit Capital in accordance
with Wit Capital's procedures for opening an account and transacting in
securities. Any reserved shares not purchased by visitors to and users of Wit
Capital's services or Web site will be offered by the underwriters on the same
basis as the other shares offered hereby.
Internet Prospectus. A prospectus in electronic format is being made
available on a Web site maintained by Wit Capital. In addition, pursuant to an
e-Dealer Agreement, all dealers purchasing shares from Wit Capital in the
offering, the e-Dealers, similarly have agreed to make a prospectus in
electronic format available on the Web sites that they maintain.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of
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common stock at the same price per share as we will receive for the
shares that the underwriters have agreed to purchase from us. To
the extent that the underwriters exercise this option, each of the underwriters
will have a firm commitment to purchase approximately the same percentage of
these additional shares that the number of shares of common stock to be
purchased by it shown in the above table represents as a percentage of the
shares offered hereby. If purchased, these additional shares will be sold by the
underwriters on the same terms as those on which the shares are
being sold. We will be obligated, under the terms of the option, to sell shares
to the extent the option is exercised. The underwriters may exercise the option
only to cover over-allotments made in connection with the sale of the shares of
common stock offered hereby. If the option is exercised in full, the total
public offering price will be $ , the total underwriting discounts and
commissions will be $ and the total proceeds to us will be $ .
The expenses of this offering are estimated at $ and are payable
entirely by MyPoints.com.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and MyPoints.com against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Our executive officers, directors, stockholders of
record, optionholders and warrantholders have agreed, for a period of 180 days
after the date of this prospectus, not to offer to sell, contract to sell or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into or exchangeable for shares of common
stock owned as of the date of this prospectus or thereafter acquired directly by
such holders or with respect to which they have or hereafter acquire the power
of disposition, without the prior written consent of BancBoston Robertson
Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. There are no agreements between the
representatives and any of our stockholders providing consent by the
representatives to the sale of shares prior to the expiration of the period of
180 days after the date of this prospectus.
Future Sales. In addition, we have agreed that during the period of 180
days after the date of this prospectus, we will not, subject to certain
exceptions, without the prior written consent of BancBoston Robertson Stephens
Inc., issue, sell, contract to sell or otherwise dispose of any shares of common
stock, any options or warrants to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock, other than our sale of shares in this offering, the issuance of
shares of common stock upon the exercise of outstanding options or warrants and
the grant of options to purchase shares of common stock under existing employee
stock option or stock purchase plans. See "Shares Eligible For Future Sale."
Reserved Shares. The underwriters intend to reserve for sale, at the
initial public offering price, a number of shares of common stock (not to exceed
5.0% of the total number of shares offered in this offering) for our customers,
partners and business associates. In addition, the underwriters may reserve, at
the initial public offering price, up to $3.0 million of common stock offered in
this offering for entities affiliated with Technology Crossover Ventures, all of
which are existing stockholders. As a result, the number of shares of common
stock available for sale to the general public in the offering will be reduced
to the extent these entities purchase the reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the general public on
the same terms as the other shares.
Share Purchase. In 1999, Bayview Investors Ltd. purchased 50,000 shares of
Series E preferred stock at a price of $5.00 per share. Bayview is affiliated
with BancBoston Robertson Stephens Inc.
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No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered hereby will be determined through negotiations between
us and the representatives. Among the factors to be considered in these
negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Exchange Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of our common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering. A "penalty bid" is
an arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with the
offering if the common stock originally sold by that underwriter or syndicate
member is purchased by the representatives in a syndicate covering transaction
and has therefore not been effectively placed by the underwriter or syndicate
member. The representatives have advised us that transactions of these types may
be effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California will pass upon the validity of the common stock offered hereby for
MyPoints.com. Fenwick & West LLP, Palo Alto, California will pass upon certain
legal matters in connection with this offering for the underwriters. As of March
25, 1999, an investment partnership and members of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, beneficially owned an aggregate of 130,277
shares of common stock of MyPoints.com. Mario M. Rosati, one of our directors
and our secretary, is a member of Wilson Sonsini Goodrich & Rosati.
EXPERTS
The consolidated financial statements of MyPoints.com, Inc. at December 31,
1997 and 1998, and for the period from November 7, 1996 (inception) to December
31, 1996, and for each of the two years in the period ended December 31, 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.
The combined financial statements of Enhanced Response Technologies, Inc.
at December 31, 1997, and for the period from June 25, 1996 (inception) to
December 31, 1996 and the year ended December 31, 1997, 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.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
MyPoints.com has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement, exhibits and schedule
thereto. For further information with respect to MyPoints.com and our common
stock, we refer you to the registration statement, exhibits and schedule
thereto. Statements contained in this prospectus regarding the contents of any
contract or any other document to which we refer are not necessarily complete.
In each instance, reference is made to the copy of the contract or document
filed as an exhibit to the registration statement, and each statement is
qualified in all respects by such reference. Copies of the registration
statement, exhibits and schedule thereto, may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C., or
obtained at prescribed rates from the Public Reference Section of the Securities
and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Securities and Exchange Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The address of the site is http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MYPOINTS.COM, INC. -- CONSOLIDATED FINANCIAL STATEMENTS
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
ENHANCED RESPONSE TECHNOLOGIES, INC. -- FINANCIAL STATEMENTS
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-23
Combined Balance Sheets..................................... F-24
Combined Statements of Operations........................... F-25
Combined Statements of Stockholders' Deficiency............. F-26
Combined Statements of Cash Flows........................... F-27
Notes to Combined Financial Statements...................... F-28
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
MyPoints.com, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
MyPoints.com, Inc. (formerly Intellipost Corporation) at December 31, 1997 and
1998, and the results of its operations and its cash flows for the period from
November 7, 1996 (date of inception) to December 31, 1996, and 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 audits 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.
PricewaterhouseCoopers LLP
March 26, 1999, except for Note 12
as to which the date is March 30, 1999
San Francisco, California
F-2
<PAGE> 67
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------ DECEMBER 31,
1997 1998 1998
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,948 $ 5,089
Accounts receivable, net.................................. 116 586
Unbilled receivables, net................................. -- 413
Deposits and prepaid expenses............................. 52 220
------- --------
Total current assets................................... 3,116 6,308
Intangible assets........................................... -- 10,888
Property and equipment, net................................. 345 1,041
Other assets................................................ 13 69
------- --------
Total assets........................................... $ 3,474 $ 18,306
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 106 $ 1,702
Bank overdraft............................................ 54 --
Notes payable, current portion............................ 50 143
Obligations under capital leases, current portion......... 6 91
Other current liabilities................................. -- 852
Deferred revenue.......................................... -- 258
Software license liability, current portion............... -- 842
Points redemption liability............................... 519 2,727
------- --------
Total current liabilities.............................. 735 6,615
Notes payable, less current portion......................... 32 179
Long-term debt.............................................. -- 240
Obligations under capital leases, less current portion...... 15 207
Software license liability, less current portion............ -- 1,782
------- --------
782 9,023
------- --------
Commitments and contingencies (Note 10)
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 13,500,000
shares authorized; 5,900,000 and 10,388,315 shares
issued and outstanding at December 31, 1997 and 1998,
respectively, aggregate liquidation preference
$14,552................................................ 6 10 --
Common stock, $.001 par value; 40,000,000 shares
authorized; 2,500,000 and 6,204,593 shares issued and
outstanding at December 31, 1997 and 1998,
respectively........................................... 3 6 16
Additional paid-in capital................................ 6,027 23,380 23,380
Stock subscription receivable............................. -- (350) (350)
Deferred compensation..................................... (388) (2,541) (2,541)
Accumulated deficit....................................... (2,956) (11,222) (11,222)
------- -------- --------
Total stockholders' equity............................. 2,692 9,283 $ 9,283
------- -------- ========
Total liabilities and stockholders' equity........ $ 3,474 $ 18,306
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 68
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 7, 1996 DECEMBER 31,
(INCEPTION) TO ------------------
DECEMBER 31,1996 1997 1998
-------------------- ------- -------
<S> <C> <C> <C>
Revenues........................................ $ -- $ 151 $ 1,286
Cost of revenues................................ -- 78 1,121
------ ------- -------
Gross profit.................................. -- 73 165
------ ------- -------
Operating expenses:
Technology costs.............................. 16 560 1,520
Sales expenses................................ -- 204 1,355
Marketing expenses............................ 36 1,465 3,158
General and administrative expenses........... 16 712 2,029
Amortization of intangible assets............. -- -- 275
Stock-based compensation...................... -- 77 157
------ ------- -------
Total operating expenses................... 68 3,018 8,494
------ ------- -------
Operating loss.................................. (68) (2,945) (8,329)
Interest income................................. 1 64 87
Interest expense................................ -- (7) (31)
Other (expense) income.......................... -- (1) 7
------ ------- -------
Net loss................................... $ (67) $(2,889) $(8,266)
====== ======= =======
Net loss per share:
Basic and diluted............................. $(0.08) $ (2.68) $ (4.72)
====== ======= =======
Weighted average shares -- basic and
diluted.................................... 891 1,076 1,750
====== ======= =======
Pro forma net loss per share (unaudited):
Basic and diluted............................. $ (0.98)
=======
Weighted average shares -- basic and
diluted.................................... 8,463
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 69
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM NOVEMBER 7, 1996 (DATE OF INCEPTION) TO
DECEMBER 31, 1996, AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK
CONVERTIBLE COMMON STOCK ADDITIONAL STOCK
---------------- ---------------- PAID-IN SUBSCRIPTION DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
------ ------- ------ ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders........ -- $ -- 2,500 $ 3 $ -- $ (2) $ --
Issuance of Series A preferred stock for
cash, net of issuance costs of $21........ 3,000 3 1,475
Net loss....................................
------ ------- ----- ------- -------- ----- -------
BALANCE, DECEMBER 31, 1996.................. 3,000 3 2,500 3 1,475 (2) --
Issuance of Series B preferred stock for
cash, net of issuance costs of $4......... 500 1 496
Receipt of subscription receivable from
common stock.............................. 2
Issuance of Series C preferred stock for
cash, net of issuance costs of $7......... 2,400 2 3,591
Deferred compensation....................... 465 (388)
Net loss....................................
------ ------- ----- ------- -------- ----- -------
BALANCE, DECEMBER 31, 1997.................. 5,900 6 2,500 3 6,027 -- (388)
Issuance of Series C preferred stock for
cash, net of issuance costs of $6......... 527 784
Issuance of common stock upon exercise of
stock options............................. 104 9
Issuance of stock options to
non-employees for services................ 13
Issuance of warrants to non-employees....... 12
Issuance of Series D preferred stock for
cash, net of issuance costs of $12........ 2,748 3 5,646 (350)
Issuance of Series D preferred stock, net of
issuance costs of $28, pursuant to an
acquisition............................... 1,214 1 2,939
Issuance of common stock pursuant to an
acquisition............................... 3,600 3 5,375
Issuance of stock options pursuant to an
acquisition............................... 264
Deferred compensation....................... 2,311 (2,153)
Net loss....................................
------ ------- ----- ------- -------- ----- -------
BALANCE, DECEMBER 31, 1998.................. 10,389 $ 10 6,204 $ 6 $ 23,380 $(350) $(2,541)
====== ======= ===== ======= ======== ===== =======
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- -------
<S> <C> <C>
Issuance of common stock to founders........ $ -- $ 1
Issuance of Series A preferred stock for
cash, net of issuance costs of $21........ 1,478
Net loss.................................... (67) (67)
-------- -------
BALANCE, DECEMBER 31, 1996.................. (67) 1,412
Issuance of Series B preferred stock for
cash, net of issuance costs of $4......... 497
Receipt of subscription receivable from
common stock.............................. 2
Issuance of Series C preferred stock for
cash, net of issuance costs of $7......... 3,593
Deferred compensation....................... 77
Net loss.................................... (2,889) (2,889)
-------- -------
BALANCE, DECEMBER 31, 1997.................. (2,956) 2,692
Issuance of Series C preferred stock for
cash, net of issuance costs of $6......... 784
Issuance of common stock upon exercise of
stock options............................. 9
Issuance of stock options to
non-employees for services................ 13
Issuance of warrants to non-employees....... 12
Issuance of Series D preferred stock for
cash, net of issuance costs of $12........ 5,299
Issuance of Series D preferred stock, net of
issuance costs of $28, pursuant to an
acquisition............................... 2,940
Issuance of common stock pursuant to an
acquisition............................... 5,378
Issuance of stock options pursuant to an
acquisition............................... 264
Deferred compensation....................... 158
Net loss.................................... (8,266) (8,266)
-------- -------
BALANCE, DECEMBER 31, 1998.................. $(11,222) $ 9,283
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 70
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 7, 1996 YEARS ENDED
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, ------------------
1996 1997 1998
---------------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (67) $(2,889) $(8,266)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 1 70 555
Provision for bad debts................................. -- -- 60
Points redemption liability............................. -- 519 1,732
Barter revenues, net.................................... -- (20) (59)
Issuance of stock options to non-employees for
services.............................................. -- -- 15
Stock-based compensation................................ -- 77 158
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables.......... (1) (116) (639)
Deposits and prepaid expenses......................... (33) 2 (138)
Other assets.......................................... -- -- (28)
Accounts payable and accrued liabilities.............. 54 52 878
Deferred revenue...................................... -- -- 258
------ ------- -------
Net cash used in operating activities.............. (46) (2,305) (5,474)
------ ------- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (40) (353) (358)
Organization costs........................................ (14) -- --
Proceeds received pursuant to acquisition................. -- -- 1,747
------ ------- -------
Net cash (used in) provided by investing
activities....................................... (54) (353) 1,389
------ ------- -------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance
costs................................................... 1,218 4,350 6,084
Proceeds from issuance of common stock.................... -- 2 --
Bank overdraft............................................ -- 54 (54)
Borrowings under line of credit........................... -- 100 400
Repayments of borrowings under line of credit............. -- (18) (160)
Principal payments under capital lease obligations........ -- -- (53)
Exercise of stock options................................. -- -- 9
------ ------- -------
Net cash provided by financing activities.......... 1,218 4,488 6,226
------ ------- -------
Net increase in cash and cash equivalents.......... 1,118 1,830 2,141
Cash and cash equivalents, beginning of period.............. -- 1,118 2,948
------ ------- -------
Cash and cash equivalents, end of period.................... $1,118 $ 2,948 $ 5,089
====== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ -- $ 12 $ 34
====== ======= =======
Noncash transactions:
Equipment acquired under capital leases................... $ -- $ 22 $ 329
====== ======= =======
Exchange of advertising services.......................... $ -- $ 20 $ 128
====== ======= =======
Issuance of capital stock for business acquisition........ $ -- $ -- $(8,582)
====== ======= =======
Stock subscription receivable............................. $ -- $ -- $ 350
====== ======= =======
Stock options issued to non-employees..................... $ -- $ -- $ 277
====== ======= =======
Warrants issued to non-employeees......................... $ -- $ -- $ 12
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 71
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
MyPoints.com, Inc. (formerly Intellipost Corporation) and its wholly owned
subsidiaries (together, the "Company") was founded in November 1996. The Company
offers advertisers the ability to target Internet users enrolled as members of
its direct marketing and loyalty programs. The Company's programs award enrolled
members reward points for receiving and viewing advertisements. Rewards points
may be redeemed by members for promotional awards provided by the Company.
2. LIQUIDITY
The Company has sustained net losses and negative cash flows from
operations since its inception. The Company's ability to meet its obligations in
the ordinary course of business is dependent upon its ability to establish
profitable operations or to obtain additional funding through public or private
equity financing, collaborative or other arrangements with corporate sources, or
other sources. Management is seeking to increase revenues through continued
marketing of its services while controlling costs to meet working capital needs;
however, additional financing will be required (see Note 12 -- Subsequent
Events).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements as of December 31, 1998 and for the year then
ended are consolidated and include the accounts of the Company and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated in the consolidation process.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Such estimates include the levels of valuation allowances for doubtful accounts
receivable, deferred taxes, points redemption liability and the value of the
Company's capital stock. Actual results could differ from those estimates, and
such differences could be material.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their respective estimated useful lives, which range
from three to five years. Maintenance and repairs are charged to expense as
incurred, and improvements and betterments are capitalized. When assets are
F-7
<PAGE> 72
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
retired or otherwise disposed of, the cost and accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is
reflected in the consolidated statement of operations for the period in which it
is realized.
INTANGIBLE ASSETS
Intangible assets resulting from the acquisition of Enhanced Response
Technologies, Inc. ("ERT") and MotivationNet LLC ("MNet") were estimated by
management to be primarily associated with the acquired trademark and trade
name, customer base, membership base, technology license agreement and other
intangible assets. Intangible assets are amortized on a straight-line basis over
the estimated periods of benefit which, because of the rapid technological
changes occurring in the Internet industry and the intense competition for
qualified Internet professionals, range from six to 60 months (see Note 4 --
Acquisition).
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred tax assets and liabilities are determined based on
temporary differences between the financial statement and tax bases of assets
and liabilities and net operating loss and credit carryforwards using enacted
tax rates in effect for the year in which the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. A provision for income tax
expense is recognized for income taxes payable for the current period, plus the
net changes in deferred tax amounts.
POINTS REDEMPTION LIABILITY
Points redemption liability represents the estimated costs associated with
the Company's obligation to redeem points, which may be converted by enrolled
members into various third party gift certificates, airline frequent flyer
miles, coupons and other items. Points are awarded to members when they receive
and read direct marketing offers delivered by the Company, or purchase goods
from the advertisers. The Company is liable for purchasing the rewards provided
to members. The cost of points is determined by the weighted average cost of
gift and awards that may be redeemed. Under the current program, points are
valid for two or more years from the date they are awarded to a member and may
be redeemed at any time prior to expiration.
REVENUE RECOGNITION
The Company earns revenues from corporate advertisers by charging fees for
sending targeted email to its members. Under the terms of advertising contracts,
the Company earns revenues generally based on three components: (1) transmission
of email advertisements to enrolled members, (2) receipt of qualified responses
to email sent and (3) actual purchases of goods by members over the Internet. It
is the Company's policy to recognize revenues when email are transmitted to
members, when responses are received and when the Company is notified of
purchases.
Under certain advertising contracts entered into by the Company's
subsidiary prior to acquisition, the Company sold points to advertisers for use
in the advertisers' Web-based campaigns. The Company is responsible for
redeeming points upon request by the recipients of points. Revenues under these
contracts are deferred until the time points are redeemed and an award is
provided by the Company.
F-8
<PAGE> 73
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BARTER TRANSACTIONS
The Company historically traded advertisements on its Web sites for
advertisements on the Web sites of other companies. Barter revenues and expenses
are recorded at the fair market value of the services provided or received,
whichever is more determinable in the circumstances. Revenues from barter
transactions are recognized as income when the Company delivers advertisements
for other companies on its Web site. Barter expense is recognized when the
Company's advertisements are delivered on the Web properties of other companies,
which is typically in the same period as that when the barter revenues are
recognized. Advertising barter revenues were approximately $0, $20,000 and
$128,000 for the period ended December 31, 1996 and the years ended December 31,
1997 and 1998, respectively. The Company expects that barter revenues will
represent a smaller percentage of its revenues in the future.
TECHNOLOGY COSTS
Product development costs and enhancements to existing products are charged
to technology costs as incurred. Software development costs are required to be
capitalized beginning when a product's technological feasibility has been
established by completion of a working model of the product, and ending when the
product is available for general release to customers. To date, completion of a
working model of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any software development
costs since such costs have not been significant.
BUSINESS RISK AND CONCENTRATION OF CREDIT RISK
The Company has a limited operating history and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
new and rapidly evolving markets for Internet products and services. These risks
include the failure to develop and extend the Company's online service brands,
the rejection of the Company's services by Web consumers and/or advertisers and
the inability of the Company to maintain and increase the levels of traffic on
its online services, as well as other risks and uncertainties. Failure to
address these risks successfully may have a material adverse impact on the
Company's operations and financial position.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments,
including money market mutual fund accounts, and accounts receivable. The
Company deposits its temporary cash investments with two financial institutions
and these deposits exceed insured amounts. The Company does not require
collateral for accounts receivable, but does evaluate customer creditworthiness
and establish allowances as necessary based on management estimates of
collectibility.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB
No. 25, compensation expense is based on the difference, if any, on the date of
the grant, between the estimated fair value of the Company's stock and the
exercise price of options to purchase that stock.
F-9
<PAGE> 74
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the
provisions of SFAS No. 128 and SAB No. 98, basic net income per share is
computed by dividing the net income available to common stockholders for the
period by the weighted average number of vested common shares outstanding during
the period. Diluted net income per share is computed by dividing the net income
for the period by the weighted average number of vested common and common
equivalent shares outstanding during the period. However, as the Company
generated net losses in all periods presented, common equivalent shares,
composed of incremental common shares issuable upon the exercise of stock
options and warrants and upon conversion of Series A, Series B, Series C and
Series D convertible preferred stock, are not included in diluted net loss per
share because such shares are anti-dilutive.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net loss........................................ $ (67) $ (2,889) $ (8,266)
---------- ----------- -----------
Net loss available to common stockholders....... $ (67) $ (2,889) $ (8,266)
========== =========== ===========
Denominator:
Weighted average shares......................... 2,500 2,500 2,856
Weighted average unvested common shares subject
to repurchase agreements..................... (1,609) (1,424) (1,106)
---------- ----------- -----------
Denominator for basic calculation............... 891 1,076 1,750
Weighted average effect of dilutive securities:
Net effect of dilutive stock options......... -- -- --
Net effect of dilutive stock warrants........ -- -- --
---------- ----------- -----------
Denominator for diluted calculation............. 891 1,076 1,750
========== =========== ===========
Net loss per share:
Basic........................................... $ (0.08) $ (2.68) $ (4.72)
========== =========== ===========
Diluted......................................... $ (0.08) $ (2.68) $ (4.72)
========== =========== ===========
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1998 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, Series B, Series C and Series D preferred stock into shares of the
Company's common stock effective upon the closing of the Company's initial
public offering (see Note 12 -- Subsequent Events) as if such conversion
occurred on January 1, 1998, or at the date of original issuance, if later. 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 6,713,000 shares
for the year ended December 31, 1998. Pro forma common equivalent shares,
composed of unvested restricted common stock and incremental common shares
issuable upon the exercise of stock options and warrants, are not included in
pro forma diluted net loss per share because they would be anti-dilutive.
F-10
<PAGE> 75
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, Series B, Series C and Series D preferred stock
will automatically convert into 3,000,000, 500,000, 2,926,667 and 3,961,649
shares of common stock, respectively. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro forma
consolidated balance sheet at December 31, 1998 (see Note 12 -- Subsequent
Events).
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current period's presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for the year
ended December 31, 1998. The Company has determined that it does not have any
separately reportable business segments as of December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, Software for Internal Use, which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.
4. ACQUISITION
Effective November 30, 1998, the Company agreed to acquire all the
outstanding shares of MotivationNet, LLC, and Enhanced Response Technologies,
Inc., two companies operating as affiliates under common management. The
acquisition has been accounted for using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
relative fair values on the acquisition date. The fair value of intangible
assets was determined using a combination of the income approach and cost
approach.
F-11
<PAGE> 76
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The total purchase price of approximately $13.6 million consisted of
3,600,481 shares of the Company's common stock with an estimated fair value of
approximately $5.4 million, 1,213,592 shares of the Company's Series D preferred
stock with an estimated fair value of approximately $3.0 million, 189,115 vested
shares of the Company's stock options with an estimated fair value of
approximately $264,000, $400,000 in cash and $4.5 million of assumed
liabilities. Of the total purchase price, $2.4 million was allocated to tangible
assets and $11.2 million to intangible assets, including a technology license
agreement of $7.3 million, purchased trademark and trade name of $1.8 million,
membership base of $0.8 million, customer base of $0.5 million and workforce of
$0.8 million. The intangible assets will be amortized over their estimated
useful lives of six to 60 months.
Among the liabilities assumed in the acquisition is an obligation under a
software license agreement. According to the terms of the agreement, the Company
is to pay the licensor a royalty, payable in monthly installments of the greater
of 3.0% of monthly revenues, or $35,000, up to a maximum cumulative royalty of
$4.2 million. The Company has recorded the obligation at its estimated fair
value as determined by estimated future cash payments, discounted at an assumed
market rate of 30.0%. The Company has an option to purchase the licensed
software at the conclusion of the ten-year license term. Under the agreement,
upon the completion of an initial public offering of the Company's stock, the
Company is obligated to purchase the rights to the software. The purchase price
in such event will be the then existing present value of future required minimum
payments.
Certain portions of the acquisition were structured as a tax-free exchange
of stock. Therefore, the differences between the recognized fair values of
certain acquired assets, including tangible assets, and their historical tax
bases are not deductible for tax purposes.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the year ended December 31, 1998, as if
the acquisition had occurred on January 1, 1998, after giving effect to purchase
accounting adjustments. These pro forma results have been prepared for
comparative purposes only, do not purport to be indicative of what operating
results would have been had the acquisition actually taken place on January 1,
1998, and may not be indicative of future operating results (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1998
-----------
(UNAUDITED)
<S> <C>
Revenues.................................................... $ 1,316
Operating loss.............................................. (17,560)
Net loss.................................................... (17,704)
Net loss per share:
Basic and diluted......................................... $ (10.12)
Weighted average shares - basic and diluted............... 1,750
</TABLE>
5. RELATED PARTY TRANSACTIONS
A former member of the Company's Board of Directors founded Targeted
Marketing Systems, Inc., a service provider that the Company engaged for
creative services to assist in the development of the Company's marketing
program and Web site. Total payments made to Targeted Marketing Systems amounted
to $223,000 in 1997 and none in 1996 or 1998. As of December 31, 1997 and 1998,
there were no amounts due to Targeted Marketing Systems.
F-12
<PAGE> 77
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
One of the Company's directors, is also a member of the law firm that has
served as the Company's corporate counsel since inception. From inception
through December 31, 1998, the Company has accrued a total of $227,737 in fees
to the law firm.
The Company has entered into a two-year services agreement with Direct
Marketing Technology, Inc., a wholly owned subsidiary of Experian, a stockholder
of the Company, in which Direct Marketing Technology agreed to provide
demographic data and other market research services for the Company. Through
December 31, 1998, no expenses have been incurred under this agreement.
6. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 and 1998 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Computer equipment and software......................... $359 $1,493
Furniture and fixtures.................................. 24 152
Leasehold improvements.................................. 15 22
---- ------
398 1,667
Accumulated depreciation................................ (53) (626)
---- ------
$345 $1,041
==== ======
</TABLE>
Depreciation expense amounted to $632, $49,000 and $265,000 for the period
ended December 31, 1996, and the years ended December 31, 1997 and 1998,
respectively.
7. NOTES PAYABLE
On January 27, 1997, the Company entered into a promissory note with a bank
to borrow $100,000 at an interest rate of prime plus 1.5% (initial rate of
9.75%). The Company was required to make monthly payments of accrued interest
beginning in February 1997 and principal payments in 24 equal installments
beginning on July 31, 1997. The loan agreement contains certain negative
covenants including financial covenants related to minimum liquidity coverage
ratios. The loan is collateralized by all of the assets and property of the
Company.
On December 19, 1997, the Company entered into a promissory note with a
bank to borrow $400,000 at an interest rate of prime plus 0.5% (initial rate of
8.50%). The Company was required to make 36 equal payments from July 31, 1998
through June 30, 2001. The agreement contains certain negative covenants
including financial covenants related to minimum liquidity coverage ratios and
monthly minimum points redemption liability. During 1998, the Company was in
default on the monthly minimum points redemption liability balance and the
liquidity covenant contained in the agreement. The Company obtained waivers of
the violations and was in compliance with these covenants as of December 31,
1998.
F-13
<PAGE> 78
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Annual maturities of notes payable are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1999............................................. $143
2000............................................. 115
2001............................................. 64
----
$322
====
</TABLE>
8. CAPITAL STRUCTURE
The Company is authorized to issue 40,000,000 shares of $0.001 par value
common stock and 13,500,000 shares of $0.001 par value preferred stock. The
Board of Directors has the authority to issue the undesignated preferred stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof.
PREFERRED STOCK
The Company is authorized to issue 13,500,000 shares of preferred stock of
which 4,000,000 are designated as Series A preferred stock, 1,000,000 are
designated as Series B preferred stock, 3,000,000 are designated as Series C
preferred stock, and 5,500,000 are designated as Series D preferred stock.
DIVIDENDS
The holders of Series D preferred stock are entitled to receive dividends,
in preference to any dividend on common stock or other series of preferred
stock, at an annual rate of 7.0% of the original issue price, whenever funds are
legally available and when and if declared by the Company's Board of Directors.
The holders of all other series of preferred stock are entitled to receive
annual dividends, in preference to any dividends, issued on common stock, at a
rate of 6.0% of the original issuance price, whenever funds are legally
available and when and if declared by the Company's Board of Directors. The
right to dividends is not cumulative except in the event of liquidation. No
dividends have been declared or paid to date.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company
either voluntary or involuntary, the holders of Series D preferred stock will be
entitled to receive, in preference to the holders of common stock or other
series of preferred stock, an amount equal to the original issue price of the
Series D preferred stock plus all declared and unpaid dividends, if any.
Thereafter, the holders of other series of preferred stock will be entitled to
receive, in preference to the holders of common stock, an amount equal to the
original issue price of their respective series of preferred stock, plus all
declared and unpaid dividends, if any. Holders of Series D preferred stock are
entitled to receive a cumulative dividend, only in the event of liquidation,
accrued at an annual rate of 7.0%. Series A, B and C preferred stock are
entitled to receive a cumulative dividend, only in the event of liquidation,
accrued at an annual rate of 6.0%. Thereafter, holders of common stock are
entitled to receive on a pro-rata basis assets and funds of the Company in
proportion to the number of shares held by them.
F-14
<PAGE> 79
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONVERSION RIGHTS
Each share of preferred stock is convertible at the option of the holder,
at any time, into shares of common stock. The number of shares of common stock
into which each share of preferred stock may be converted is equal to the
original purchase price of preferred stock divided by the conversion price of
$0.50, $1.00, $1.50 and $2.06 for Series A, Series B, Series C and Series D
preferred stock, respectively, subject to certain adjustments as provided in the
Company's Restated Certificate of Incorporation. Preferred stock will
automatically convert into common stock, at the then applicable conversion rate,
(i) in the event of the closing of an underwritten public offering of the
Company's common stock pursuant to the Securities Act of 1933 where the public
offering price is $5.00 per share or more and the proceeds are at least
$10,000,000, or (ii) upon the election of the holders of at least a majority of
the outstanding shares of preferred stock. The preferred stock also has
provisions that protect the holders of such securities from dilution caused by
capital reorganizations, stock splits or other such capital changes.
VOTING RIGHTS
The holders of preferred stock are entitled to vote on all matters and are
entitled to a number of votes equal to the number of shares of common stock into
which their preferred stock could be converted pursuant to the conversion
rights. Except as otherwise required by law, the holders of preferred stock have
voting rights equal to those of the common stock holders. The holders of the
preferred stock are entitled to directly elect two of the Company's directors.
This right terminates upon the closing of the Company's initial public offering.
WARRANTS
During the year ended December 31, 1998, the Company issued a warrant to
purchase 10,000 shares of Series C preferred stock with an exercise price of
$1.50. The warrant is exercisable until the later of ten years from its issuance
date or five years from the initial public offering of the Company's common
stock. In connection with the issuance of Series D preferred stock, the Company
issued warrants to the holders of Series D preferred stock to purchase 1,374,027
additional shares of Series D with an exercise price of $2.06 per share. The
warrants became exercisable three months from the closing date of the Stock
Purchase Warrant Agreement and are exercisable for a period up to five years.
The Company determined that the fair value of the warrants approximated $1.5
million on the date of grant.
COMMON STOCK OPTIONS
On November 7, 1996, the Company adopted the 1996 Stock Plan and on
November 13, 1998, the Company adopted the 1999 Stock Plan (together, the
"Plans"). The Plans provide for the grant of incentive stock options and
nonstatutory stock options to employees and consultants of the Company.
The Company has reserved 2,402,795 shares of common stock for issuance
under the Plans. The Company has granted incentive stock options with vesting
equal to either 25.0% at the first anniversary date and 1/48th per month
thereafter or 25.0% immediately with the remainder vesting 1/48th per month
thereafter. These options are exercisable for a period of no more than ten years
from the date of grant.
The Company accounts for the Plans in accordance with APB No. 25 and
related Interpretations. In connection with certain stock option grants during
the years ended December 31, 1997 and 1998, the
F-15
<PAGE> 80
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company recognized unearned compensation that is being amortized over the
four-year vesting periods of the related options. Amortization expense
recognized during the years ended December 31, 1997 and 1998 totaled $77,000 and
$157,000, respectively.
Following is a summary of incentive stock option activity for the years
ended December 31, 1997 and 1998. There was no activity in the Plans prior to
January 1, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE
SHARES PRICE
----------- --------
<S> <C> <C>
Outstanding as of January 1, 1997......................... -- --
Granted................................................. 687,166 $0.074
Exercised............................................... -- --
Canceled................................................ (2,500) 0.100
--------- ------
Outstanding as of December 31, 1997....................... 684,666 0.074
Granted................................................. 1,079,562 0.210
Exercised............................................... (104,174) 0.063
Canceled................................................ (245,704) 0.112
--------- ------
Outstanding as of December 31, 1998....................... 1,414,350 $0.172
========= ======
Options vested as of December 31, 1998.................... 254,585 $0.103
========= ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
--------------------------------------- ---------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE VESTED PRICE
------------------------ ----------- ------------ -------- -------- ---------
<S> <C> <C> <C> <C> <C>
$0.05 - $0.15.................. 626,333 8.28 $0.087 214,214 $0.081
$0.20 - $0.26.................. 788,017 9.12 0.239 40,371 0.219
--------- ---- ------ ------- ------
1,414,350 8.75 $0.172 254,585 $0.103
========= ==== ====== ======= ======
</TABLE>
The following disclosures are provided in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation. The weighted average fair values of
options granted in 1997 and 1998 were $0.53 and $2.27, respectively.
Had compensation cost for the Plans been determined based on fair value at
the grant date consistent with the method prescribed by SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts below (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ------- -------
<S> <C> <C> <C>
Net loss as reported................................ $(67) $(2,889) $(8,266)
Net loss pro forma.................................. -- (2,969) (8,524)
</TABLE>
F-16
<PAGE> 81
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of employee stock option grants has been estimated on the
date of grant using the minimum value model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997 1998
---- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................... -- 5.72% 4.59%
Expected life......................................... -- 5 years 5 years
Dividends............................................. -- -- --
</TABLE>
OTHER
A portion of the common stock issued to the Company's founders at inception
is subject to restricted stock purchase agreements which provide that one-third
of the Company's repurchase right lapses on the vesting start date and 1/48th of
the Company's remaining repurchase right lapses at the end of the each month
thereafter. Upon a merger or sale of the Company, one-half of the remaining
shares subject to the Company's right of repurchase will become vested.
9. 401(K) SAVINGS PLAN
In February 1997, the Company established a 401(k) Savings Plan (the
"401(k) Plan") that covers substantially all employees. Under the 401(k) Plan,
employees are permitted to contribute a portion of gross compensation not to
exceed standard limitations provided by the Internal Revenue Service.
Discretionary contributions may be made by the Company; however, no
contributions have been made to date.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through the year 2001. Rent
expense amounted to $5,000, $57,000 and $180,000 for the period ended December
31, 1996 and the years ended December 31, 1997 and 1998, respectively.
Future minimum lease payments under non-cancelable capital leases and
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1999........................................................ $ 113 $146
2000........................................................ 125 --
2001........................................................ 98 --
------- ----
Total minimum lease payments................................ 336 $146
====
Less amount representing interest........................... 38
-------
Present value of capital lease obligations.................. 298
Less current portion........................................ 91
-------
Long-term portion........................................... $ 207
=======
</TABLE>
F-17
<PAGE> 82
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LEGAL
In the normal course of business, the Company is at times subject to
pending and threatened legal actions and proceedings. After reviewing pending
and threatened actions and proceedings with counsel, management believes that
the outcome of such actions or proceedings is not expected to have a material
adverse effect on the financial position or results of operations of the
Company.
OTHER
The Company is obligated to pay commissions to certain third parties for
the referral of members to the Company. Commissions are determined based on
revenues derived from these members over the first two years of membership. For
the year ended December 31, 1998, the referral commissions amounted to $26,000.
11. INCOME TAXES
As of December 31, 1997 and 1998, the Company had net operating loss
carryforwards of approximately $1,360,000 and $7,810,000 for federal income tax
purposes, and $1,380,000 and $7,820,000 for state income tax purposes. The
federal and state net operating loss carryforwards begin to expire in the years
2011 and 2004, respectively. As of December 31, 1998, the Company had research
and experimentation credit carryforwards of approximately $26,000 for federal
and $11,000 for state income taxes purposes. The federal and state research and
experimentation credit carryforwards expire in the year 2001.
The Company's ability to utilize its net operating loss carryforwards to
offset future taxable income, if any, may be restricted as a result of equity
transactions that give rise to changes in ownership as defined in the Tax Reform
Act of 1986. These restrictions may limit, on an annual basis, the Company's
future use of its net operating loss carryforwards and research and
experimentation credit carryforwards.
The difference between the income tax benefit at the federal statutory rate
of 34.0% and the Company's effective tax rate is due primarily to recognition of
a full valuation allowance to offset the deferred tax assets.
F-18
<PAGE> 83
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated tax effects of significant temporary differences and
carryforwards that give rise to deferred income tax assets as of December 31,
1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Non-deducted start-up costs.......................... $ 369 $ 303
Net operating loss carryforwards..................... 545 3,177
Non-deducted research and experimental costs......... 0 1,328
Points redemption liability.......................... 259 1,185
Accrued liabilities and other........................ 53 106
Non-deducted intangible assets....................... -- (834)
----------- -----------
Gross deferred tax assets............................ 1,226 5,265
Valuation allowance.................................. (1,226) (5,265)
----------- -----------
Net deferred tax assets.............................. $ -- $ --
=========== ===========
</TABLE>
The Company has recorded a valuation allowance against gross deferred tax
assets due to uncertainties surrounding their realization.
12. SUBSEQUENT EVENTS
In January 1999, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission for
the purpose of an initial public offering of the Company's common stock. Upon
the completion of this offering, if requirements set forth in its Certificate of
Incorporation are met, the Company's preferred stock will be converted into
10,388,315 shares of common stock, and all outstanding shares of preferred stock
will be cancelled and retired. Upon the conversion of the preferred stock, all
rights to accrued and unpaid dividends will be waived.
During March 1999, the Company entered into a binding commitment to sell,
and the investors entered into a binding commitment to purchase, 2,000,000
shares of Series E preferred stock at $5.00 per share for gross proceeds of
$10.0 million. The holders of Series E preferred stock have rights and
preferences substantially the same as those of the Series D preferred stock.
In October 1998, the Company was notified by an online incentives company
that it believes the Company was infringing its patent rights. The Company has
entered into a settlement agreement with the third party, which provides for an
upfront payment plus ongoing royalties.
Subsequent to December 31, 1998, the Company issued to employees options to
purchase 1,319,937 shares of the Company's common stock. In addition, the
Company repurchased 181,420 shares of common stock from one of its founders at
$0.001 per share.
F-19
<PAGE> 84
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
PROFORMA CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
Effective November 30, 1998, the Company agreed to acquire all the
outstanding shares of MotivationNet, LLC, and Enhanced Response Technologies,
Inc. (the acquired companies). The acquisition has been accounted for using the
purchase method of accounting and accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities assumed
on the basis of their respective fair values on the acquisition date. The fair
value of intangible assets was determined using the income approach and the cost
approach.
The total purchase price of approximately $13.6 million consisted of
3,600,481 shares of the Company's common stock with an estimated fair value of
approximately $5.4 million, 1,213,592 shares of the Company's Series D preferred
stock with an estimated fair value of approximately $3.0 million, 189,115 vested
shares of the Company's stock options with an estimated fair value of
approximately $264,000, $400,000 in cash and $4.5 million of assumed
liabilities. Of the total purchase price, $2.4 million was allocated to tangible
assets and $11.2 million to intangible assets, including a technology license
agreement of $7.3 million, purchased trademark and trade name of $1.8 million,
membership base of $0.8 million, customer base of $0.5 million and workforce of
$0.8 million. The intangible assets will be amortized over their estimated
useful lives of six to 60 months.
The acquisition of Enhanced Response Technologies, Inc. has been structured
as a tax free exchange of stock, therefore, the differences between the
recognized fair values of the acquired assets, including tangible assets, and
their historical tax bases are not deductible for tax purposes. The acquisition
of MotivationNet, LLC, was made under an interest purchase agreement.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the year ended December 31, 1998, as if
the acquisition had occurred on January 1, 1998, after giving effect to purchase
accounting adjustments. These pro forma results have been prepared for
comparative purposes only, do not purport to be indicative of what operating
results would have been had the acquisition actually taken place on January 1,
1998, and may not be indicative of future operating results.
F-20
<PAGE> 85
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
ACQUIRED PRO
MYPOINTS.COM, INC. COMPANIES ADJUSTMENTS FORMA
------------------ --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues............................. $ 1,234 $ 82 $ -- $ 1,316
Cost of revenues..................... 1,078 42 1,120
------- ------- ------- --------
Gross profit....................... 156 40 196
------- ------- ------- --------
Operating expenses:
Technology costs................... 1,325 2,588 3,913
Sales expenses..................... 1,269 792 2,061
Marketing expenses................. 2,947 2,152 5,099
General and administrative
expenses........................ 1,984 778 2,762
Amortization of intangible
assets.......................... 3,300 3,300
Stock-based compensation........... 157 464 621
------- ------- ------- --------
Total operating expenses........ 7,682 6,774 3,300 17,756
------- ------- ------- --------
Operating loss....................... (7,526) (6,734) (3,300) (17,560)
Interest income...................... 87 87
Interest expense..................... (31) (230) (261)
Other income......................... 30 30
------- ------- ------- --------
Net loss............................. $(7,470) $(6,934) $(3,300) $(17,704)
======= ======= ======= ========
Pro forma net loss per share:
Basic and diluted................................................................ $ (10.12)
========
Weighted average shares -- basic and diluted..................................... 1,750
========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-21
<PAGE> 86
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
The following adjustments were applied to the Company's historical
financial statements and those of the acquired companies to arrive at the pro
forma consolidated financial information.
A. To record amortization of a technology license agreement totaling $7.3
million over the estimated period of benefit of 48 months.
B. To record amortization of acquired customer base totaling $500,000 over
the estimated period of benefit of 32 months, and acquired membership
base totaling $800,000 over the estimated period of benefit of 27
months.
C. To record amortization of acquired employee workforce totaling $800,000
for employees of ERT subsequently retained by the Company over the
estimated period of benefit of 24 months.
D. To record amortization of acquired trademark and trade name totaling
$1.8 million over the estimated period of benefit of 60 months.
E. Pro forma basic net loss per share for the year ended December 31, 1998
is computed using the weighted average number of common shares
outstanding, including the pro forma effect of the automatic conversion
of the Company's Series A, Series B, Series C and Series D preferred
stock into shares of the Company's common stock effective upon the
closing of the Company's proposed initial public offering as if such
conversion occurred on January 1, 1998 or on the date of original
issuance, if later. Pro forma diluted net loss per share is computed
excluding the pro forma weighted average number of common and common
equivalent shares outstanding because such common equivalents are
anti-dilutive. Differences between historical weighted average shares
outstanding and pro forma weighted average shares outstanding used to
compute net loss per share result from the inclusion of shares issued in
conjunction with the acquisition as if such shares were outstanding from
January 1, 1998 and from the automatic conversion of the Company's
Series A, Series B, Series C and Series D preferred stock effective upon
the completion of the Company's proposed initial public offering.
F-22
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Enhanced Response Technologies, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of shareholders' deficiency and of cash flows present fairly, in
all material respects, the financial position of Enhanced Response Technologies,
Inc., formerly MotivationNet, Inc. (the Company), as of December 31, 1997, and
the results of its operations and its cash flows for the period from June 25,
1996 (date of inception) to December 31, 1996, and the year ended December 31,
1997, 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.
PricewaterhouseCoopers LLP
March 26, 1999
Chicago, Illinois
F-23
<PAGE> 88
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 32 $ 42
Accounts receivable....................................... 40 183
Deposits and prepaid expenses............................. 87 51
------- ------
Total current assets................................... 159 276
Property and equipment, net................................. 567 473
Other assets................................................ 5 45
------- ------
Total assets........................................... $ 731 $ 794
======= ======
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Notes payable............................................. $ 4,117 $2,808
Accounts payable.......................................... 324 408
Accrued expenses.......................................... 258 444
Points redemption liability............................... 17 400
Deferred compensation..................................... 100 100
Deferred revenue.......................................... 83 387
------- ------
Total current liabilities.............................. 4,899 4,547
------- ------
Commitments and contingencies (Note 9 and Note 11)
Shareholders' deficiency:
Common stock, no par value; 6,000,000 shares authorized;
2,048,000 and 2,228,000 shares outstanding as of
December 31, 1997 and September 30, 1998,
respectively........................................... 119 131
Additional paid-in capital................................ 17 5,398
Accumulated deficit....................................... (4,291) (9,282)
Unearned compensation..................................... (13) --
------- ------
Total shareholders' deficiency......................... (4,168) (3,753)
------- ------
Total liabilities and shareholders' deficiency......... $ 731 $ 794
======= ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-24
<PAGE> 89
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD YEAR NINE MONTHS ENDED
ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ---------------------------
1996 1997 1997 1998
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................ $ -- $ -- $ -- $ 30
Cost of revenues.................... -- -- -- 6
----- ------- ------- -------
Gross profit...................... -- -- -- 24
----- ------- ------- -------
Operating expenses:
Technology costs.................. -- 3,213 1,979 1,979
Sales expenses.................... -- 146 54 596
Marketing......................... 35 417 -- 1,484
General and administrative
expenses....................... 177 178 13 784
----- ------- ------- -------
Total operating expenses....... 212 3,954 2,046 4,843
----- ------- ------- -------
Operating loss...................... (212) (3,954) (2,046) (4,819)
Interest expense.................... -- (116) (41) (196)
Other, net.......................... -- (9) 24
----- ------- ------- -------
Net loss....................... $(212) $(4,079) $(2,087) $(4,991)
===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-25
<PAGE> 90
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
COMBINED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
FOR THE PERIOD FROM JUNE 25, 1996 (DATE OF INCEPTION) TO
DECEMBER 31, 1996, AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN ACCUMULATED UNEARNED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
--------- ------ ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders for cash.............. 1,000 $104 $ -- $ -- $ -- $ 104
Net loss......................... (212) (212)
--------- ---- ------ ------- ---- -------
BALANCE, DECEMBER 31, 1996....... 1,000 104 (212) (108)
Stock option award............... 17 (17)
Amortization of unearned
compensation................... 4 4
Stock issued for services........ 24 15 15
Stock split -- 2000 for 1........ 2,046,976
Net loss......................... -- -- -- (4,079) -- (4,079)
--------- ---- ------ ------- ---- -------
BALANCE, DECEMBER 31, 1997....... 2,048,000 119 17 (4,291) (13) (4,168)
(UNAUDITED)
Conversion of notes payable and
accrued interest to capital in
MNet........................... 5,230 5,230
Exercise of stock options........ 180,000 12 151 13 176
Net loss......................... (4,991) (4,991)
--------- ---- ------ ------- ---- -------
BALANCE, SEPTEMBER 30, 1998...... 2,228,000 $131 $5,398 $(9,282) $ -- $(3,753)
========= ==== ====== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE> 91
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD YEAR NINE MONTHS ENDED
ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -----------------
1996 1997 1997 1998
------------ ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(212) $(4,079) $(2,087) $(4,991)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 2 94 40 173
Stock-based compensation............................ -- 4 -- 164
Stock issued for services........................... -- 15 15 --
Changes in operating assets and liabilities:
Accounts receivable.............................. -- (41) (142) (144)
Deposits and prepaid expenses.................... (2) (85) (5) 37
Accounts payable................................. 27 297 204 84
Accrued expenses................................. 16 242 167 416
Point redemption liability....................... -- 18 -- 382
Deferred compensation............................ 51 49 49 --
Deferred revenue................................. -- 83 -- 304
----- ------- ------- -------
Net cash used in operating activities............ (118) (3,403) (1,759) (3,575)
----- ------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment.................... (13) (649) (593) (79)
Other................................................. -- (6) -- (40)
----- ------- ------- -------
Net cash used in investing activities............ (13) (655) (593) (119)
----- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock................ 104 -- -- --
Proceeds from note payable............................ -- 4,057 2,332 3,752
Proceeds from officer notes payable................... 30 30 30 --
Repayments of officer notes payable................... -- -- -- (60)
Exercise of stock options............................. -- -- -- 12
----- ------- ------- -------
Net cash provided by financing activities........ 134 4,087 2,362 3,704
----- ------- ------- -------
Net increase in cash and cash equivalents........ 3 29 10 10
Cash and cash equivalents, beginning of period.......... -- 3 3 32
----- ------- ------- -------
Cash and cash equivalents, end of period................ $ 3 $ 32 $ 13 $ 42
===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-27
<PAGE> 92
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
Enhanced Response Technologies, Inc., formerly known as MotivationNet, Inc.
(the "Company"), was founded in June 1996. The Company offers advertisers the
ability to target Internet users enrolled as members of its "MyPoints" incentive
program. The Company's MyPoints program awards points to enrolled members for
receiving and responding to email communications, accessing and responding to
advertisers' and MyPoints's Internet Web page offers, purchasing advertisers'
products, and completing of surveys to obtain demographic information. MyPoints
points may be redeemed by members for a variety of goods and services.
NOTE 2 -- BASIS OF PRESENTATION (UNAUDITED)
The Company's primary source of funding for the development of the
technology supporting the MyPoints program was obtained from Direct Marketing
Technology, Inc. ("DMT") through a note payable. In early 1998, DMT informed the
Company that it wanted to convert the note payable to an equity interest. On
March 31, 1998, the Company and DMT entered into an agreement whereby the
Company transferred its MyPoints technology, which was carried at zero net book
value, a $5,209,600 note payable to DMT and certain other assets and liabilities
to MotivationNet, LLC ("MNet"), with $5,000,000 of the note payable to DMT and
related accrued interest being converted by DMT to a capital interest in MNet.
Upon the formation of MNet, the Company's and DMT's interest in MNet were 34.0%
and 66.0%, respectively. To avoid confusion with MotivationNet, LLC, the Company
changed its name from MotivationNet, Inc. to Enhanced Response Technologies,
Inc. Also, on March 31, 1998, the Company established a wholly-owned subsidiary,
MyPoints.Com, LLC ("MyPoints.Com"), to which the Company contributed the
MyPoints operations.
In connection with its formation, MNet licensed the MyPoints technology
back to the Company. Beginning in April 1998, the MyPoints program was operated
on MNet's computer systems for which MNet began charging MyPoints.Com for use of
the computer system and technical support. In addition, MNet provided
fulfillment services related to the redemption of MyPoints points for goods and
services for which MNet charged MyPoints.Com based on the face value of the
points redeemed, $.01 per point.
Pursuant to the agreement to establish MNet, DMT agreed to provide MNet
additional financing through a note payable to fund the operations of MNet, as
well as to allow MNet to provide financing to the Company through a note payable
to fund the Company's operations, including the operations of MyPoint.Com.
In the fourth quarter of 1998, the Company and MNet were acquired by
Intellipost Corporation (subsequently renamed "MyPoints.com, Inc.").
The financial statements for periods prior to March 31, 1998 reflect the
operations of the Company as a stand-alone entity. The financial statements for
periods subsequent to March 31, 1998 reflect the operations of the Company and
MNet on a combined basis as (a) the companies have common management, (b) both
companies were acquired by Intellipost Corporation and (c) the presentation is
considered most meaningful. All intercompany transactions have been eliminated.
F-28
<PAGE> 93
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- LIQUIDITY
The Company has sustained net losses and negative cash flows from
operations since its inception. The Company's ability to meet its obligations in
the ordinary course of business is dependent upon its ability to establish
profitable operations or to obtain additional funding through public or private
equity financing, collaborative or other arrangements with corporate sources, or
other sources. Management is seeking to increase revenues through continued
marketing of its services while controlling costs to meet working capital needs;
however, additional financing will be required.
To support its working capital requirements in 1998, the Company received
additional funding from DMT through MNet. Since the merger with Intellipost
Corporation in late 1998, Intellipost Corporation has been funding the Company's
operations. Intellipost has committed to fund the Company's working capital
needs through at least December 31, 1999.
NOTE 4 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL DATA (UNAUDITED)
The financial statements as of September 30, 1998 and for the nine-month
periods ended September 30, 1997 and 1998 are unaudited. In the opinion of
management, these financial statements reflect all adjustments necessary for a
fair presentation of the financial statements for such periods. These
adjustments consist of normal, recurring items. The results of operation for the
nine-month period ended September 30, 1998 are not necessarily indicative of the
results of operations that may be expected for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Such estimates include the levels of valuation allowances for accounts
receivable and deferred taxes. Actual results could differ from those estimates
and such differences could be material.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less when purchased.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their respective estimated useful lives, generally
three years. Maintenance and repairs are charged to expense as incurred, and
improvements and betterments are capitalized. When assets are retired or
otherwise disposed of, the cost and accumulated depreciation and amortization
are removed from the accounts and any resulting gain or loss is reflected in the
statement of operations for the period realized.
F-29
<PAGE> 94
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are determined based on temporary
differences between the financial statement and tax bases of assets and
liabilities and net operating loss and credit carryforwards using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
POINTS REDEMPTION LIABILITY
Points redemption liability represent the estimated costs associated with
the accumulation of MyPoints points earned by MyPoints members in conjunction
with the Company's internal marketing activities. These MyPoints may be
converted by members into various third party goods and services. The Company is
liable for purchasing the goods and services redeemed by members.
REVENUE RECOGNITION
The Company earns revenues from the sale of MyPoints points to corporate
advertisers that use these points for Internet-based promotional campaigns which
award members for certain actions desired by corporate advertisers. In
connection with the sale of the MyPoints points, the Company is responsible for
redeeming the points upon the member's request. The Company recognizes revenues
when the MyPoints points are redeemed by the MyPoints members.
TECHNOLOGY COSTS
Product development costs and enhancements to existing products are charged
to operations as incurred. Software development costs are required to be
capitalized when a product's technological feasibility has been established by
completion of a working model of the product and ending when a product is
available for general release to customers. To date, completion of a working
model of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any software development
costs since such costs have not been significant. Product development costs,
along with other technology related costs, are reported as technology costs in
the Company's statements of operations.
BUSINESS RISK AND CONCENTRATION OF CREDIT RISK
The Company has a limited operating history and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and extend the Company's online service
brands, the rejection of the Company's services by Web consumers and/or
advertisers, the inability of the Company to maintain and increase the levels of
traffic on its online services, as well as other risks and uncertainties.
Failure to successfully address these risks may have a material adverse impact
on the Company's operations and financial position.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and accounts receivable. The Company deposits its cash with one major financial
institution and such deposits do not exceed insured amounts. The Company's
F-30
<PAGE> 95
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
customers range from large corporations to relatively small organizations. The
Company does not require collateral for accounts receivable. The Company
evaluates each customer's credit worthiness and establishes allowances as
necessary.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. Under APB No. 25, compensation expense
is based on the difference, if any, on the date of the grant, between the fair
value of the Company's stock and the exercise price of options to purchase that
stock.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for year
ended December 31, 1998. The Company has determined that it does not have any
separately reportable business segments as of December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, Software for Internal Use, which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its financial
statements.
F-31
<PAGE> 96
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997
----
<S> <C>
Computer equipment.......................................... $321
Furniture and fixtures...................................... 7
Computer software........................................... 335
----
663
Accumulated depreciation and amortization................... (96)
----
$567
====
</TABLE>
NOTE 6 -- NOTES PAYABLE
During 1997, DMT provided funding to the Company of approximately
$4,056,000 through a non-interest bearing note payable. The Company recognized
imputed interest expense on the note payable based on the prime rate plus 1.0%
(9.5% as of December 31, 1997). The note payable and related accrued interest
were transferred to MNet as of March 31, 1998 in connection with its formation.
Upon the formation of MNet, $5,000,000 of the note payable balance then
outstanding and the related accrued interest of $229,550 were transferred to
MNet and converted by DMT to a capital interest in MNet (see Note 2).
The Company had notes payable to an officer of $60,000 as of December 31,
1997. Borrowings under the notes payable bore interest at 7.0% and were repaid
in April 1998.
Interest expense was $0 and $116,400 in 1996 and 1997, respectively.
NOTE 7 -- CAPITAL STRUCTURE
COMMON STOCK
Upon formation in June 1996, the Company was authorized to issue 1,000,000
shares of no par value common stock. The Company issued 1,000 shares of common
stock in connection with its initial capitalization. Pursuant to the unanimous
consent of the stockholders on June 17, 1997, the authorized shares of common
stock were increased to 6,000,000 and the Company declared a 2000-for-one stock
split effective July 1, 1997.
COMMON STOCK OPTIONS
On November 17, 1997, the Company adopted the MotivationNet, Inc. 1997
Incentive Stock Option Plan (the "Plan"). As of December 31, 1997, the Company
had reserved 200,000 shares of common stock for issuance under the Plan.
Effective August 12, 1998 the Board of Directors increased the common stock
reserved for the Plan from 200,000 shares to 650,000 shares. Pursuant to the
Plan provisions, grant prices of options issued under the Plan can be no less
than the fair market value of the Company's common stock as of the date of
grant, the options vest at a rate of no less than 20% per year and the term of
the options can be no more than seven years from the date of grant. During 1997,
the Company granted 140,100 shares under the Plan, with one-third of the options
originally vesting as of
F-32
<PAGE> 97
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
January 1, 1998, 1999 and 2000. In connection with the formation of MNet (see
Note 2), these options became fully vested.
Pursuant to an employment agreement, an executive of the Company was
granted options to purchase 0.5% of the shares outstanding as each of the
following dates: May 7, 1997, December 31, 1997, June 30, 1998 and December 31,
1998. The aggregate option price for such shares was fixed at $12,500. The
employment agreement was amended in August 1998 to the allow executive to
purchase 180,000 shares for the $12,500, upon which the executive exercised such
options.
The Company accounts for stock-based compensation in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for employee stock options is
measured as the excess, if any, of the fair market value the Company's common
stock at the date of grant over the amount the employee must pay to acquired. In
connection with certain stock option grants during the year ended December 31,
1997, the Company recognized unearned compensation, which is being amortized
over the service period for which the options were granted. The unearned
compensation as of December 31, 1997 is reported as component of shareholders'
deficiency.
Following is a summary of incentive stock option activity for the year
ended December 31, 1997. There was no activity in the Plan prior to January 1,
1997.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE
SHARES PRICE
----------- --------
<S> <C> <C>
Outstanding as of December 31, 1996....................... -- --
Granted................................................. 140,100 $1.00
Exercised............................................... -- --
Canceled................................................ (15,000) 1.00
------- -----
Outstanding as of December 31, 1997....................... 125,100 $1.00
======= =====
Options vested as of December 31, 1997.................... -- --
======= =====
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
AT DECEMBER 31, 1997 AT DECEMBER 31, 1997
------------------------------------------ ---------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDINGS LIFE (YEARS) PRICE VESTED PRICE
-------------- ------------ ------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
$1.00 125,100 6.83 $1.00 -- --
------- ---- ----- -- --
</TABLE>
The weighted average fair value of options granted in 1997 was $0.73.
F-33
<PAGE> 98
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Had compensation cost for the Company's Plan been determined based on fair
value at the grant date consistent with the method prescribed by SFAS 123, the
impact on the Company's net loss would have been increased to the pro forma
amounts below (in thousands):
<TABLE>
<CAPTION>
1996 1997
----- -------
<S> <C> <C>
Net loss as reported.................................. $(212) $(4,079)
Net loss -- pro forma................................. -- $(4,087)
</TABLE>
The fair value of employee stock option grants has been estimated on the
date of grant using the minimum value model with the following weighted average
assumptions used for grants in 1997:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Risk-free interest rate..................................... 5.72%
Expected life............................................... 5 years
Dividends................................................... --
</TABLE>
NOTE 8 -- SAVINGS PLAN
In November 1997 the Company established the MotivationNet, Inc. 401-K Plan
(the "Savings Plan"), which covers substantially all employees. Under the
Savings Plan, employees are permitted to contribute up to 15.0% of their gross
compensation, subject to limitations of the Internal Revenue Code. The Company
does not make matching contributions to the Savings Plan.
NOTE 9 -- LEASES
The Company leases office space and equipment under noncancelable operating
leases with various expiration dates through 1999. Under the terms of office
space lease, the Company is responsible for certain real estate taxes and other
operating costs. The Company's rent expense was $16,000 and $46,000 in 1996 and
1997, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
DECEMBER 31, LEASES
------------ ---------
<S> <C>
1998........................................................ $65
1999........................................................ 24
---
Total minimum lease payments...................... $89
===
</TABLE>
NOTE 10 -- INCOME TAXES
As of December 31, 1997, the Company has net operating loss carryforwards
of approximately $161,000 for federal income tax reporting purposes. The net
operating loss carryforwards expire in 2011.
The difference between the income tax benefit at the federal statutory rate
and the Company's effective tax rate is due primarily to recognition of a full
valuation allowance to offset the net deferred tax assets.
F-34
<PAGE> 99
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The estimated tax effect of significant temporary differences and
carryforwards that give rise to deferred income tax assets as of December 31,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Net operating loss carryforwards............................ $ 64
Non-deducted research and experimentation costs............. 1,475
Accrued expenses............................................ 110
Deferred compensation....................................... 39
Non-deducted start-up costs................................. 20
-------
Gross deferred tax assets................................... 1,708
Valuation allowance......................................... (1,708)
-------
Net deferred tax asset...................................... $ --
=======
</TABLE>
The Company has recorded a valuation allowance against the net deferred tax
assets due the Company operating at a net loss since inception and due to
uncertainties surrounding their realization.
NOTE 11 -- CONTINGENCIES
The Company is the subject of various claims and actions in the ordinary
course of its business. All such matters are subject to uncertainties that are
not predictable with assurance. However, it is management's opinion that the
disposition of such matters will not have a material impact on the Company's
financial position, results of operations or cash flows.
NOTE 12 -- SUBSEQUENT EVENTS
On November 30, 1998, the shareholders of the Company reached an agreement
to sell the Company to MyPoints.com, Inc. (formerly Intellipost Corporation).
F-35
<PAGE> 100
DESCRIPTION OF GRAPHICS
FRONT-COVER GATE FOLD
MyPoints logo with flow chart of our Web pages illustrating aspects of
member interaction including joining the program, and opportunities to earn and
redeem points.
INSIDE FRONT COVER:
MyPoints logo with logos of rewards providers above two half-circle flow
charts illustrating MyPoints online Loyalty Solutions and Online Direct
Marketing Solutions.
INSIDE BACK COVER
MyPoints logo with Web pages representative of co-branding of the MyPoints
rewards program.
<PAGE> 101
LOGO
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses payable by
MyPoints.com in connection with the registration of the common stock hereunder.
All of the amounts shown are estimates except for the SEC registration fee, NASD
filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-------------
<S> <C>
SEC Registration Fee........................................ $ 19,182.00
NASD Filing Fee............................................. 7,400.00
Nasdaq National Market Listing Fee.......................... 90,000.00
Printing and Engraving Expenses............................. 200,000.00
Legal Fees and Expenses..................................... 300,000.00
Accounting Fees and Expenses................................ 250,000.00
Transfer Agent and Registrar Fees and Expenses.............. 25,000.00
Blue Sky fees and expenses.................................. 10,000.00
Miscellaneous Expenses...................................... 98,418.00
-------------
Total............................................. $1,000,000.00
=============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our certificate of incorporation and our bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General Corporation
Law. We have also entered into agreements with our directors and executive
officers that require MyPoints.com among other things to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors and executive officers to the fullest extent permitted by Delaware
law. We have also purchased directors and officers liability insurance, which
provides coverage against certain liabilities including liabilities under the
Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since our formation in November 1996, we have issued and sold the
following unregistered securities:
(1) In November 1996, we issued and sold an aggregate of 2,500,000
shares of common stock to the founding officers and directors of
MyPoints.com and to certain other individuals for an aggregate purchase
price of $2,500.00.
(2) Since our inception, we have granted options to purchase 3,073,498
shares of common stock to employees, directors and consultants under our
1996 and 1999 stock plans at exercise prices ranging from $0.05 to $5.00
per share. Of the 3,073,498 shares granted, 2,623,091 remain outstanding,
112,924 shares of common stock have been purchased pursuant to exercises of
stock options and 337,483 shares have been canceled and returned to the
1996 and 1999 stock plans.
II-1
<PAGE> 103
(3) In November and December 1996, we sold an aggregate of 3,000,000
shares of Series A preferred stock at a price of $0.50 per share to a total
of four investors.
(4) In March of 1998, we sold an aggregate of 500,000 shares of Series
B preferred stock at a price of $1.00 per share to one institutional
investor.
(5) Between October 1997 and April 1998, we sold an aggregate of
2,926,666 shares of Series C preferred stock at a price of $1.50 per share
to a total of 19 investors. On May 1, 1998, in conjunction with entering an
equipment lease, we issued a warrant for the purchase of 10,000 shares of
Series C preferred stock to Phoenix Leasing Inc. at an exercise price of
$1.50.
(6) In November 1998, we issued 3,600,481 shares of common stock
pursuant to our acquisition transactions with Experian.
(7) In November 1998, we sold an aggregate of 3,961,649 shares of
Series D preferred stock at a price of $2.06 per share and warrants for the
purchase of 1,374,028 shares of Series D preferred stock with an exercise
price of $2.06 per share to a total of 23 investors.
(8) In March 1999, we entered into a binding commitment to sell an
aggregate of 2,000,000 shares of Series E preferred stock at a price of
$5.00 per share to a total of 41 investors, all of whom have entered into
binding agreements to purchase such shares. All of these investors
qualified as "accredited investors" under Securities and Exchange
Commission Rule 501.
.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in such transactions. All
recipients had adequate access, through their relationship with MyPoints.com, to
information about us.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1(a)** Amended and Restated Certificate of Incorporation, as
currently in effect
3.1(b) Certificate of Incorporation to be filed upon completion of
the offering
3.2(a)** Bylaws of the registrant as currently in effect
3.2(b) Bylaws of the registrant as in effect upon completion of the
offering
4.1** Form of Lock-Up Agreements
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Amended and Restated Investors Rights Agreement dated March
30, 1999
</TABLE>
II-2
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
10.2** 1996 Stock Plan and forms of agreements thereunder
10.3** 1999 Stock Plan and forms of agreements thereunder
10.4 1999 Employee Stock Purchase Plan
10.5** Form of Director and Executive Officer Indemnification
Agreement
10.6** Representative form of Stock Purchase Warrant
10.7** Lease between the registrant and Louis N. Haas dated
November 15, 1996 for office space located at 565 Commercial
Street, San Francisco, California, and addenda thereto
10.8 Lease dated March 18, 1999 between registrant and
TA/Western, L.L.C. for office space located at 1375 E.
Woodfield Road, Suite 520, Schaumburg, Illinois
10.9** Lease dated January 22, 1998 between MotivationNet, Inc. and
The Mutual Life Insurance Company of New York for office
space located at 1375 E. Woodfield Road, Suite 540,
Schaumburg, Illinois
10.10** Agreement and Plan of Merger dated November 30, 1998 among
the registrant, IPOST Acquisition Subsidiary, Inc. and
Enhanced Response Technologies, Inc.
10.11** Interest Purchase Agreement dated November 30, 1998 among
registrant, Direct Marketing Technology, Inc. and Brigar
Computer Services, Inc.
10.12** Asset Purchase Agreement dated November 30, 1998 between
registrant and Metromail Corporation
10.13** License Agreement dated November 30, 1998 between registrant
and Direct Marketing Technologies, Inc.
10.14** Services Agreement dated November 30, 1998 between
registrant and Direct Marketing Technologies, Inc.
10.15** Business Loan Agreement dated January 27, 1997 between
registrant and Silicon Valley Bank and related promissory
notes
10.16** Master Equipment Lease Agreement dated May 1, 1998 between
registrant and Phoenix Leasing Incorporated
10.17 Patent License Agreement dated March 31, 1999 between
registrant and Netcentives, Inc.
23.1** Consent of PricewaterhouseCoopers LLP, independent
accountants
23.2** Consent of PricewaterhouseCoopers LLP, independent
accountants
23.3* Consent of Counsel (included in exhibit 5.1)
24.1** Power of Attorney (see page II-5)
27.1** Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
** Exhibit previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
II-3
<PAGE> 105
ITEM 17. UNDERTAKINGS
Insofar as indemnification by MyPoints.com for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of MyPoints.com, we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by MyPoints.com of expenses incurred or paid by a director, officer
or controlling person of MyPoints.com in the successful defense of any action,
suit or proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
MyPoints.com is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
We hereby undertake that:
(a) We will provide to the underwriters at the closing as specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
(b) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by MyPoints.com pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(c) 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> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
MyPoints.com has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Francisco, State of California, on the 12th day of April, 1999.
MYPOINTS.COM, INC.
By: /s/ STEVEN M. MARKOWITZ
---------------------------------------
Steven M. Markowitz
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEVEN M. MARKOWITZ Chief Executive Officer and April 12, 1999
- ------------------------------------------------ Chairman of the Board (Principal
Steven M. Markowitz Executive Officer)
/s/ LAYTON S. HAN* Vice President, Finance April 12, 1999
- ------------------------------------------------ (Principal Financial and
Layton S. Han Accounting Officer)
/s/ ROBERT C. HOYLER* President and Chief April 12, 1999
- ------------------------------------------------ Operating Officer, Director
Robert C. Hoyler
/s/ HOWARD L. MORGAN* Director April 12, 1999
- ------------------------------------------------
Howard L. Morgan
/s/ THOMAS NEWKIRK* Director April 12, 1999
- ------------------------------------------------
Thomas Newkirk
/s/ LAWRENCE E. PHILLIPS* Director April 12, 1999
- ------------------------------------------------
Lawrence E. Phillips
/s/ MARIO M. ROSATI* Director April 12, 1999
- ------------------------------------------------
Mario M. Rosati
/s/ LESTER WUNDERMAN* Director April 12, 1999
- ------------------------------------------------
Lester Wunderman
*By: /s/ STEVEN M. MARKOWITZ
------------------------------------------
Steven M. Markowitz
Attorney-in-fact
</TABLE>
II-5
<PAGE> 107
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
AT BALANCE AT
BEGINNING END OF
DESCRIPTION OF YEAR ADDITIONS DEDUCTIONS YEAR
----------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts for the years ended:
December 31, 1997.................................... -- -- -- --
December 31, 1998.................................... -- 60 -- 60
</TABLE>
S-1
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- ------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1(a)** Amended and Restated Certificate of Incorporation, as
currently in effect
3.1(b) Certificate of Incorporation to be filed upon completion of
the offering
3.2(a)** Bylaws of the registrant as currently in effect
3.2(b) Bylaws of the registrant as in effect upon completion of the
offering
4.1** Form of Lock-Up Agreements
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Amended and Restated Investors Rights Agreement dated March
30, 1999
10.2** 1996 Stock Plan and forms of agreements thereunder
10.3** 1999 Stock Plan and forms of agreements thereunder
10.4 1999 Employee Stock Purchase Plan
10.5** Form of Director and Executive Officer Indemnification
Agreement
10.6** Representative form of Stock Purchase Warrant
10.7** Lease between the registrant and Louis N. Haas dated
November 15, 1996 for office space located at 565 Commercial
Street, San Francisco, California, and addenda thereto
10.8 Lease dated March 18, 1999 between registrant and
TA/Western, L.L.C. for office space located at 1375 E.
Woodfield Road, Suite 520, Schaumburg, Illinois
10.9** Lease dated January 22, 1998 between MotivationNet, Inc. and
The Mutual Life Insurance Company of New York for office
space located at 1375 E. Woodfield Road, Suite 540,
Schaumburg, Illinois
10.10** Agreement and Plan of Merger dated November 30, 1998 among
the registrant, IPOST Acquisition Subsidiary, Inc. and
Enhanced Response Technologies, Inc.
10.11** Interest Purchase Agreement dated November 30, 1998 among
registrant, Direct Marketing Technology, Inc. and Brigar
Computer Services, Inc.
10.12** Asset Purchase Agreement dated November 30, 1998 between
registrant and Metromail Corporation
10.13** License Agreement dated November 30, 1998 between registrant
and Direct Marketing Technologies, Inc.
10.14** Services Agreement dated November 30, 1998 between
registrant and Direct Marketing Technologies, Inc.
10.15** Business Loan Agreement dated January 27, 1997 between
registrant and Silicon Valley Bank and related promissory
notes
10.16** Master Equipment Lease Agreement dated May 1, 1998 between
registrant and Phoenix Leasing Incorporated
10.17 Patent License Agreement dated March 31, 1999 between
registrant and Netcentives, Inc.
23.1** Consent of PricewaterhouseCoopers LLP, independent
accountants
23.2** Consent of PricewaterhouseCoopers LLP, independent
accountants
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- ------------------------------------------------------------
<S> <C>
23.3* Consent of Counsel (included in exhibit 5.1)
24.1** Power of Attorney (see page II-5)
27.1** Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
** Exhibit previously filed.
<PAGE> 1
Draft of March 31, 1999
UNDERWRITING AGREEMENT
___________, 1999
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
Salomon Smith Barney, Inc.
Wit Capital Corporation
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. MyPoints.com, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares (the "Firm Shares")
of its Common Stock, par value $0.001 per share (the "Common Shares"). In
addition, the Company has granted to the Underwriters an option to purchase up
to an additional [___] Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "Shares". BancBoston Robertson
Stephens Inc., Bear, Stearns & Co. Inc., Salomon Smith Barney, Inc. and Wit
Capital Corporation have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-[___]), which contains a form of prospectus to be used in
connection with the public offering and sale of the Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such
<PAGE> 2
prospectus, in the form first used by the Underwriters to confirm sales of the
Shares, is called the "Prospectus"; provided, however, if the Company has, with
the consent of BancBoston Robertson Stephens Inc., elected to rely upon Rule 434
under the Securities Act, the term "Prospectus" shall mean the Company's
prospectus subject to completion (each, a "preliminary prospectus") dated [___]
(such preliminary prospectus is called the "Rule 434 preliminary prospectus"),
together with the applicable term sheet (the "Term Sheet") prepared and filed by
the Company with the Commission under Rules 434 and 424(b) under the Securities
Act and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus or the Term Sheet, or any amendments or supplements
to any of the foregoing, shall include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters
as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all subsequent times, complied and will comply in all material
respects with the Securities Act and did not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date and at all subsequent
times, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or
2
<PAGE> 3
any post-effective amendment thereto, or the Prospectus, or any amendments or
supplements thereto, made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by the
Representatives expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as exhibits
to the Registration Statement which have not been described or filed as
required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to each of the Representatives one complete conformed copy of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement. The document entitled "Intellipost
Corporation Overview" is a business plan of the Company that was circulated on a
confidential basis to a limited number of persons and entities.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent,
3
<PAGE> 4
not in the ordinary course of business nor entered into any material transaction
or agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or,
except for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by the
Company or any of its subsidiaries of any class of capital stock.
(h) Independent Accountants. PricewaterhouseCoopers LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) of the Company and of
Enhanced Response Technologies, Inc. and supporting schedule filed with the
Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants as required
by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and Enhanced Response Technologies and their respective subsidiaries as
of and at the dates indicated and the results of their operations and cash flows
for the periods specified. The supporting schedule included in the Registration
Statement presents fairly the information required to be stated therein. Such
financial statements and supporting schedule have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Prospectus Summary--Summary
Financial Data", "Selected Consolidated Financial Data" and "Capitalization"
fairly present the information set forth therein on a basis consistent with that
of the audited financial statements contained in the Registration Statement. The
pro forma consolidated financial information of the Company and its subsidiaries
and the related notes thereto included under the captions "Prospectus
Summary--Summary Financial Data", "Selected Consolidated Financial Data", "Pro
Forma Consolidated Financial Information" and elsewhere in the Prospectus and in
the Registration Statement present fairly the information contained therein,
have been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly presented on
the bases described therein, and the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein. No other pro forma
financial information is required to be included in the Registration Statement
pursuant to Regulation S-X.
(j) Company's Accounting System. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the
4
<PAGE> 5
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21 to the Registration Statement.
(l) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly organized and is validly
existing as a corporation or limited liability company, as the case may be, in
good standing under the laws of the jurisdiction in which it is organized with
full corporate power and authority to own its properties and conduct its
business as described in the prospectus, and is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.
(m) Capitalization of the Subsidiaries. All the outstanding shares of
capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned subsidiaries
free and clear of any security interests, claims, liens or encumbrances.
(n) No Prohibition on Subsidiaries from Paying Dividends or Making Other
Distributions. No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus.
(o) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Shares (including the Shares) conform in all material
respects to the description thereof contained in the Prospectus. All of the
issued and outstanding Common Shares have been duly authorized and validly
issued, are fully paid and nonassessable and have been issued in compliance with
federal and state securities laws. None of the outstanding Common Shares were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company or any of its subsidiaries other than those accurately described in the
Prospectus. The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
5
<PAGE> 6
(p) Stock Exchange Listing. The Shares have been approved for inclusion
on the Nasdaq National Market, subject only to official notice of issuance.
(q) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(r) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of
its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its or their
properties.
(s) No Defaults or Violations. Neither the Company nor any subsidiary is
in violation or default of (i) any provision of its charter or by-laws, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or such subsidiary or any
of its properties, as applicable, except any such violation or default which
would not, singly or in the aggregate, result in a Material Adverse Change
except as otherwise disclosed in the Prospectus.
(t) No Actions, Suits or Proceedings. No action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries or its or their property is
pending or, to the best knowledge of the Company, threatened that (i) could
reasonably be expected to have a Material Adverse Effect on the performance of
this Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to result in a Material Adverse
Effect.
(u) All Necessary Permits, Etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct their
6
<PAGE> 7
respective businesses, and neither the Company nor any subsidiary has received
any notice of proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, could result in a Material Adverse Change.
(v) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned in
the financial statements referred to in Section 1 (i) above, in each case free
and clear of any security interests, mortgages, liens, encumbrances, equities,
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company or such subsidiary. The real
property, improvements, equipment and personal property held under lease by the
Company or any subsidiary are held under valid and enforceable leases, with such
exceptions as are not material and do not materially interfere with the use made
or proposed to be made of such real property, improvements, equipment or
personal property by the Company or such subsidiary.
(w) Tax Law Compliance. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns or have properly requested extensions thereof and have paid all taxes
required to be paid by any of them and, if due and payable, any related or
similar assessment, fine or penalty levied against any of them. The Company has
made adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1 (i) above in respect of all federal, state
and foreign income and franchise taxes for all periods as to which the tax
liability of the Company or any of its consolidated subsidiaries has not been
finally determined. The Company is not aware of any tax deficiency that has been
or might be asserted or threatened against the Company that could result in a
Material Adverse Change.
(x) Intellectual Property Rights. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent rights
or licenses, inventions, collaborative research agreements, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not result in a
Material Adverse Change that is not otherwise disclosed in the Prospectus; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a Material Adverse Change. There is no
claim being made against the Company regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. The Company and its
subsidiaries do not in the conduct of their business as now or proposed to be
conducted
7
<PAGE> 8
as described in the Prospectus infringe or conflict with any right or patent of
any third party, or any discovery, invention, product or process which is the
subject of a patent application filed by any third party, known to the Company
or any of its subsidiaries, which such infringement or conflict is reasonably
likely to result in a Material Adverse Change.
(y) Year 2000 Preparedness. There are no issues related to the
Company's, or any of its subsidiaries', preparedness for the Year 2000 that (i)
are of a character required to be described or referred to in the Registration
Statement or Prospectus by the Securities Act which have not been accurately
described in the Registration Statement or Prospectus or (ii) might reasonably
be expected to result in any Material Adverse Change or that might materially
affect their properties, assets or rights. All internal computer systems and
each Constituent Component (as defined below) of those systems and all
computer-related products and each Constituent Component (as defined below) of
those products of the Company and each of its subsidiaries fully comply with
Year 2000 Qualification Requirements. "Year 2000 Qualifications Requirements"
means that the internal computer systems and each Constituent Component (as
defined below) of those systems and all computer-related products and each
Constituent Component (as defined below) of those products of the Company and
each of its Subsidiaries (i) have been reviewed to confirm that they store,
process (including sorting and performing mathematical operations, calculations
and computations), input and output data containing date and information
correctly regardless of whether the date contains dates and times before, on or
after January 1, 2000, (ii) have been designated to ensure date and time entry
recognition and calculations, and date data interface values that reflect the
century, (iii) accurately manage and manipulate data involving dates and times,
including single century formulas and multi-century formulas, and will not cause
an abnormal ending scenario within the application or generate incorrect values
or invalid results involving such dates, (iv) accurately process any date
rollover, and (v) accept and respond to two-digit year date input in a manner
that resolves any ambiguities as to the century. "Constituent Component" means
all software (including operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals provided as part of
the configuration. The Company has inquired of material vendors as to their
preparedness for the Year 2000 and has disclosed in the Registration Statement
or Prospectus any issues that might reasonably be expected to result in any
Material Adverse Change.
(z) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(aa) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt of
payment for the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
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(bb) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes, general liability and Directors and Officers liability. The Company
has no reason to believe that it or any subsidiary will not be able (i) to renew
its existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company nor any
subsidiary has been denied any insurance coverage which it has sought or for
which it has applied.
(cc) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, advertising
clients, co-branded or private label partners, redemption partners, or licensees
that might be expected to result in a Material Adverse Change.
(dd) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(ee) Lock-Up Agreements. Each officer and director of the Company and
each beneficial owner of one or more percent of the outstanding issued share
capital of the Company has agreed to sign an agreement substantially in the form
attached hereto as Exhibit A (the "Lock-up Agreements"). The Company has
provided to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of BancBoston Robertson Stephens Inc.
(ff) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.
(gg) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
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(hh) Environmental Laws. (i) the Company is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
(ii) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means, with
respect to the Company or a subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No "reportable
event" (as defined under ERISA) has occurred or is reasonably expected to occur
with respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfounded benefit liabilities" (as defined under ERISA). Neither
the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
Any certificate signed by an officer of the Company and delivered
to the Representatives or to counsel for the Underwriters shall be deemed to be
a representation and warranty by the Company to each Underwriter as to the
matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but
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subject to the conditions herein set forth, the Underwriters agree, severally
and not jointly, to purchase from the Company the respective number of Firm
Shares set forth opposite their names on Schedule A. The purchase price per Firm
Share to be paid by the several Underwriters to the Company shall be $[___] per
share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of Wilson
Sonsini Goodrich & Rosati, P.C. (or at such other place as may be agreed upon
among the Representatives and the Company), (i) on the third (3rd) full business
day following the first day that Shares are traded, (ii) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the Representatives may, in their sole discretion, postpone the
Closing Date until no later that two (2) full business days following delivery
of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [___] Option Shares from the Company at the
purchase price per share to be paid by the Underwriters for the Firm Shares. The
option granted hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm Shares.
The option granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on Schedule A opposite the name of such Underwriter bears to the total number of
Firm Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
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(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized,
for their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as the Representative
of the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY.
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to
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which the Representatives shall have reasonably objected in writing or which is
not in compliance with the Securities Act. If the Company elects to rely on Rule
462(b) under the Securities Act, the Company shall file a Rule 462(b)
Registration Statement with the Commission in compliance with Rule 462(b) under
the Securities Act prior to the time confirmations are sent or given, as
specified by Rule 462(b)(2) under the Securities Act, and shall pay the
applicable fees in accordance with Rule 111 under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt of
any comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
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beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending [___] that satisfies the provisions of Section 11(a) of the Securities
Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or
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employee stock option plan, stock ownership plan or dividend reinvestment plan
of the Company in effect at the date of the Prospectus and described in the
Prospectus so long as none of those shares may be transferred on during the
period of 180 days from the date that the Registration Statement is declared
effective (the "Lock-Up Period") and the Company shall enter stop transfer
instructions with its transfer agent and registrar against the transfer of any
such Common Shares and (ii) the Company may issue Common Shares issuable upon
the conversion of securities or the exercise of warrants outstanding at the date
of the Prospectus and described in the Prospectus.
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to each of the Representatives (i) as
soon as practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of the
close of such fiscal year and statements of income, stockholders' equity and
cash flows for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as practicable
after the filing thereof, copies of each proxy statement, Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the National Association of Securities
Dealers, LLC or any securities exchange; and (iii) as soon as available, copies
of any report or communication of the Company mailed generally to holders of its
capital stock.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No
Objection from the National Association of Securities Dealers, LLC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel; and the National Association
of Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been
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furnished with such papers and information as they may reasonably have requested
to enable them to pass upon the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus.
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Wilson Sonsini Goodrich & Rosati, P.C., counsel for the Company substantially
in the form of Exhibit B attached hereto, dated the First Closing Date, or the
Second Closing Date, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as to
questions of law not involving the laws of the United States or the State of
California and State of Delaware upon opinions of local counsel, and as to
questions of fact upon representations or certificates of officers of the
Company and of government officials, in which case their opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
(e) Opinion of Patent Counsel for the Company. You shall have received
on the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of Pillsbury, Madison & Sutro LLP, patent counsel for the Company
substantially in the form of Exhibit C attached hereto.
(f) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Fenwick & West LLP, substantially in the form of Exhibit D hereto.
The Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(g) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
PricewaterhouseCoopers LLC addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and Regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the "Original
Letter"), but carried out to a date not more than four (4) business days prior
to the First Closing Date or the Second Closing Date, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the
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Original Letter are accurate as of the First Closing Date or the Second Closing
Date, as the case may be, and (ii) setting forth any revisions and additions to
the statements and conclusions set forth in the Original Letter which are
necessary to reflect any changes in the facts described in the Original Letter
since the date of such letter, or to reflect the availability of more recent
financial statements, data or information. The letter shall not disclose any
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus. The Original Letter from
PricewaterhouseCoopers LLC shall be addressed to or for the use of the
Underwriters in form and substance satisfactory to the Underwriters and shall
(i) represent, to the extent true, that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations, (ii) set forth their opinion with
respect to their examination of the consolidated balance sheets of the Company
as of December 31, 1997 and 1998 and related consolidated statements of
operations, stockholders' equity, and cash flows for the period from November 7,
1996 (inception) to December 31, 1996 and for the years ended December 31, 1997
and 1998, (iii) set forth their opinion with respect to their examination of the
combined balance sheet of Enhanced Response Technologies, Inc. as of December
31, 1997 and related combined statements of operations, shareholders'
deficiency, and cash flows for the period ended December 31, 1996 and the year
ended December 31, 1997, (iv) state that nothing has come to their attention
that caused them to believe that the unaudited pro forma consolidated financial
information included in the Registration Statement does not comply as to form in
all material respects with the applicable accounting requirements of Regulation
S-X or that the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements, (v) state that
PricewaterhouseCoopers LLC has performed the procedures set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of PricewaterhouseCoopers LLC as described
in SAS 71 on the pro forma financial statements for each of the quarters in the
____-quarter period ended ________________, 1999 (the "Quarterly Financial
Statements"), (vi) state that in the course of such review, nothing came to
their attention that leads them to believe that any material modifications need
to be made to any of the Quarterly Financial Statements in order for them to be
in compliance with generally accepted accounting principles consistently applied
across the periods presented, and address other matters agreed upon by
PricewaterhouseCoopers LLC and you. In addition, you shall have received from
PricewaterhouseCoopers LLC a letter addressed to the Company and made available
to you for the use of the Underwriters stating that their review of the
Company's system of internal accounting controls, to the extent they deemed
necessary in establishing the scope of their examination of the Company's
consolidated financial statements as of December 31, 1997 and 1998 and of
Enhanced Reponse Technolgies, Inc.'s financial statements as of December 31,
1997, did not disclose any weaknesses in internal controls that they considered
to be material weaknesses.
(h) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief
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Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the First Closing Date
or the Second Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto contained all material information required to be
included therein by the Securities Act and in all material respects
conformed to the requirements of the Securities Act; the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
did not and do not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and, since the effective
date of the Registration Statement, there has occurred no event required
to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been (a) any
material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and
its subsidiaries considered as one enterprise, (b) any transaction that
is material to the Company and its subsidiaries considered as one
enterprise, except transactions entered into in the ordinary course of
business, (c) any obligation, direct or contingent, that is material to
the Company and its subsidiaries considered as one enterprise, incurred
by the Company or its subsidiaries, except obligations incurred in the
ordinary course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one
enterprise, (e) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company or any of its subsidiaries,
or (f) any loss or damage (whether or not insured) to the property of
the Company or any of its subsidiaries which has been sustained or will
have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one
enterprise.
(i) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
Company and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company.
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(j) Stock Exchange Listing. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(k) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(b) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the
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<PAGE> 20
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with including the Common Shares
on the Nasdaq National Market, (ix) all costs and expenses incident to the
preparation and undertaking of "road show" preparations to be made to
prospective investors, and (x) all other fees, costs and expenses referred to in
Item 13 of Part II of the Registration Statement. Except as provided in this
Section 5, Section 6, and Section 7 hereof, the Underwriters shall pay their own
expenses, including the fees and disbursements of their counsel.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 7, Section 8 or
Section 9, or if the sale to the Underwriters of the Shares on the First Closing
Date is not consummated because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; or (iii)
in whole or in part upon any inaccuracy in the representations and warranties of
the Company contained herein; or (iv) in whole or in part upon any failure of
the Company to perform its obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is
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<PAGE> 21
included as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon any matter covered by clause (i), (ii),
(iii) or (iv) above, provided that the Company shall not be liable under this
clause (v) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its bad faith or willful
misconduct; and to reimburse each Underwriter and each such controlling person
for any and all expenses (including the fees and disbursements of counsel chosen
by BancBoston Robertson Stephens Inc.) as such expenses are reasonably incurred
by such Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Representatives expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information
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furnished to the Company by the Representatives expressly for use therein; and
to reimburse the Company, or any such director, officer or controlling person
for any legal and other expense reasonably incurred by the Company, or any such
director, officer or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. The indemnity agreement set forth in this Section
7(b) shall be in addition to any liabilities that each Underwriter may otherwise
have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and the second and [_]
paragraphs under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (BancBoston Robertson Stephens Inc. in the case of Section
7(b) and Section 8), representing the indemnified parties who are parties to
such action), (ii) the indemnifying party shall not have
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<PAGE> 23
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact
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<PAGE> 24
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7(f) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (f), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 7(f)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(g) Survival. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(h) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
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SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Common Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase does not exceed 10% of the aggregate number of
the Shares to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the number of Firm Common Shares
set forth opposite their respective names on Schedule A bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the provisions of Section 6 and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representative or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed
to include any person substituted for a defaulting Underwriter under this
Section 8. Any action taken under this Section 8 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable or
inadvisable to market the Common Shares in the manner and on the terms described
in the Prospectus or to enforce contracts for the sale of
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<PAGE> 26
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 9 shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 5 and
6 hereof, (b) any Underwriter to the Company, or (c) of any party hereto to any
other party except that the provisions of Section 7 shall at all times be
effective and shall survive such termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representative:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
MyPoints.com, Inc.
565 Commercial Street
San Francisco, California 94111-3031
Facsimile: (415) __________
Attention: Steven M. Markowitz, Chief Executive Officer
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to
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Section 8 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and personal representatives, and no other person will have any
right or obligation hereunder. The term "successors" shall not include any
purchaser of the Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not located in the
United States irrevocably appoints CT Corporation System, which currently
maintains a San Francisco office at 49 Stevenson Street, San Francisco,
California 94105, United States of America, as its agent to receive service of
process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City and
County of San Francisco.
(c) Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in
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respect of any such Related Proceeding or Related Judgment, including, without
limitation, any immunity pursuant to the United States Foreign Sovereign
Immunities Act of 1976, as amended.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
[The remainder of this page has been intentionally left blank.]
28
<PAGE> 29
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
MYPOINTS.COM, INC.
By:__________________________
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY, INC.
WIT CAPITAL CORPORATION
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
By BANCBOSTON ROBERTSON STEPHENS INC.
By:_________________________________
Authorized Signatory
29
<PAGE> 30
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Common Shares
Underwriters To be Purchased
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC............... [___]
BEAR STEARNS & CO. INC.......................... [___]
SALOMON SMITH BARNEY, INC....................... [___]
WIT CAPTIAL CORPORATION......................... [___]
Total................................... [___]
</TABLE>
S-B
<PAGE> 31
EXHIBIT A
LOCK-UP AGREEMENT
BancBoston Robertson Stephens Inc.
Bear Stearns & Co. Inc.
Salomon Smith Barney, Inc.
Wit Capital Corporation
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
Ladies & Gentlemen:
The undersigned understands that you, as Representatives of the several
underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement (the "Underwriting Agreement") with MyPoints.com, Inc. (the
"Company"), providing for the initial public offering (the "Public Offering") by
the Underwriters, including yourselves, of shares of the Common Stock, par value
$0.001, of the Company (the "Common Stock") pursuant to the Company's
Registration Statement on Form S-1 to be filed with the Securities and Exchange
Commission on or about March 31, 1999 (the "Registration Statement").
In consideration of the Underwriters' agreement to purchase and make the
Public Offering of the Common Stock, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned hereby
agrees, for a period of 180 days after the effective date of the Registration
Statement (the "Lock-Up Period"), not to offer to sell, contract to sell or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities"),
now owned or hereafter acquired directly by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree to be bound by this Lock-Up Agreement, (ii) as a distribution to
limited partners or shareholders of the undersigned, provided that the
distributees thereof agree in writing to be bound by the terms of this Lock-Up
Agreement or (iii) with the prior written consent of BancBoston Robertson
Stephens. The foregoing restriction is expressly agreed to preclude the holder
of the Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-Up Period even if such Securities would be disposed
of by someone other than the undersigned. Such prohibited hedging or other
transactions would include without limitation any short sale (whether or not
against the box) or any
A-1
<PAGE> 32
purchase, sale or grant of any right (including without limitation any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities.
Furthermore, the undersigned hereby agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by the undersigned except in compliance with
this Lock-Up Agreement. In the event that the Registration Statement shall not
have been declared effective on or before July 15, 1999 this Lock-Up Agreement
shall be of no further force or effect.
Very truly yours,
----------------------------------
(signature)
Name:
----------------------------------
Address:
----------------------------------
---------------------------
A-2
<PAGE> 33
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company and each Significant Subsidiary (as that term is defined
in Regulation S-X of the Act) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company and each Significant Subsidiary has the corporate power
and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus;
(iii) The Company and each Significant Subsidiary is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified or be in good standing would
not have a Material Adverse Effect. To such counsel's knowledge, the
Company does not own or control, directly or indirectly, any
corporation, association or other entity other than [list subsidiaries];
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus under the caption "Capitalization" as
of the dates stated therein, the issued and outstanding shares of
capital stock of the Company have been duly and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, will not
have been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other
similar right;
(v) All issued and outstanding shares of capital stock of each
Significant Subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first
refusal or other similar right and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been
duly authorized and, upon issuance and delivery against payment therefor
in accordance with the terms hereof, will be duly and validly issued and
fully paid and nonassessable, and will not have been issued in violation
of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right.
(vii) The Company has the corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
B-1
<PAGE> 34
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed
and delivered by the Company and, assuming due authorization, execution
and delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally or by general equitable principles;
(ix) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or threatened under the
Securities Act;
(x) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm
Shares or the Option Shares have been validly registered under the
Securities Act and the Rules and Regulations of the Exchange Act and the
applicable rules and regulations of the Commission thereunder;
(xi) The Registration Statement and the Prospectus, and each amendment
or supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which
such counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects
with the requirements of the Act and the applicable Rules and
Regulations;
(xii) The information in the Prospectus under the caption "Description
of Capital Stock," to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by such counsel and is a fair
summary of such matters and conclusions; and the forms of certificates
evidencing the Common Stock and filed as exhibits to the Registration
Statement comply with Delaware law;
(xiii) The description in the Registration Statement and the Prospectus
of the charter and bylaws of the Company and of statutes are accurate
and fairly present the information required to be presented by the
Securities Act;
(xiv) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement
which are not described or referred to therein or filed as required;
B-2
<PAGE> 35
(xv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result
in a material breach or violation of any of the terms and provisions of,
or constitute a default under, any bond, debenture, note or other
evidence of indebtedness, or any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party or by
which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries, or
over any of their properties or operations;
(xvi) No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of
their properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated,
except (i) such as have been obtained under the Securities Act, (ii)
such as may be required under state or other securities or Blue Sky laws
in connection with the purchase and the distribution of the Shares by
the Underwriters, (iii) such as may be required by the National
Association of Securities Dealers, LLC and (iv) such as may be required
under the federal or provincial laws of Canada;
(xvii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its
subsidiaries of a character required to be disclosed in the Registration
Statement or the Prospectus by the Securities Act, other than those
described therein;
(xviii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries is presently (a) in material violation of its respective
charter or bylaws, or (b) in material breach of any applicable statute,
rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries,
or over any of their properties or operations;
(xix) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Company Shares or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company
having rights known to such counsel to registration of such shares of
Company Shares or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent
to file the Registration
B-3
<PAGE> 36
Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights; and
(xx) The Company is not and, after giving effect to the offering and the
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended.
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
B-4
<PAGE> 37
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF
PATENT COUNSEL FOR THE COMPANY
Such counsel are familiar with the technology used by the Company
in its business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) The Company is listed in the records of the United States Patent and
Trademark Office as the holder of record of the patents listed on a
schedule to such opinion (the "Patents") and each of the applications
listed on a schedule to such opinion (the "Applications"). To the
knowledge of such counsel, there are no claims of third parties to any
ownership interest or lien with respect to any of the Patents or
Applications. Such counsel is not aware of any material defect in form
in the preparation or filing of the Applications on behalf of the
Company. To the knowledge of such counsel, the Applications are being
pursued by the Company. To the knowledge of such counsel, the Company
owns as its sole property the Patents and pending Applications;
(ii) The Company is listed in the records of the appropriate foreign
offices as the sole holder of record of the foreign patents listed on a
schedule to such opinion (the "Foreign Patents") and each of the
applications listed on a schedule to such opinion (the "Foreign
Applications"). Such counsel knows of no claims of third parties to any
ownership interest or lien with respect to the Foreign Patents or
Foreign Applications. Such counsel is not aware of any material defect
of form in the preparation or filing of the Foreign Applications on
behalf of the Company. To the knowledge of such counsel, the Foreign
Applications are being pursued by the Company. To the knowledge of such
counsel, the Company owns as its sole property the Foreign Patents and
pending Foreign Applications;
(iii) Such counsel knows of no reason why the Patents or Foreign Patents
are not valid as issued. Such counsel has no knowledge of any reason why
any patent to be issued as a result of any Application or Foreign
Application would not be valid or would not afford the Company useful
patent protection with respect thereto;
(iv) As to the statements under the captions "Risk Factors - We face
risks associated with third party claims and protection of our
intellectual property rights" and "Business - Intellectual Property and
Proprietary Rights," nothing has come to the attention of such counsel
which caused them to believe that the above-mentioned sections of the
Registration Statement, at the time the Registration Statement became
effective and at all times subsequent thereto up
C-1
<PAGE> 38
to and on the Closing Date and on any later date on which Option Stock
are to be purchased the Registration Statement and any amendment or
supplement thereto made available and reviewed by such counsel contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or at the Closing Date or any later date on
which the Option Stock are to be purchased, as the case may be, the
above-mentioned sections of the Registration Statement, Prospectus and
any amendment or supplement thereto made available and reviewed by such
counsel contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading; and
(v) Such counsel knows of no material action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark
rights, copyrights, collaborative research, licenses or royalty
arrangements or agreements or trade secrets, know-how or proprietary
techniques, including processes and substances, owned by or affecting
the business or operations of the Company which are pending or
threatened against the Company or any of its officers or directors.
C-2
<PAGE> 39
EXHIBIT D
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Shares to be issued by the Company have been duly authorized
and, upon issuance and delivery and payment therefor in accordance with
the terms of the Underwriting Agreement, will be validly issued, fully
paid and non-assessable;
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement
has become effective under the Act and, to such counsel's knowledge, no
stop order proceedings with respect thereto have been instituted or
threatened or are pending under the Act;
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm
Shares or the Option Shares have been validly registered under the
Securities Act and the Exchange Act and the applicable rules and
regulations of the Commission thereunder; and
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from Wilson Sonsini Goodrich & Rosati, P.C.,
and Pillsbury, Madison & Sutro LLP, each dated the date hereof, and furnished to
you in accordance with the provisions of the Underwriting Agreement. Such
opinions appear on their face to be appropriately responsive to the requirements
of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, counsel to the Company and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state
<PAGE> 40
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
<PAGE> 1
EXHIBIT 3.1(b)
RESTATED CERTIFICATE OF INCORPORATION OF MYPOINTS.COM, INC.
MyPoints.com, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
A. The name of the corporation is MyPoints.com, Inc. The corporation was
originally incorporated under the name Intellipost Corporation and the original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on November 7, 1996.
B. 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 Certificate of
Incorporation of this corporation.
C. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby amended and restated in its entirety to read as follows:
ARTICLE I
The name of this corporation is MyPoints.com, Inc.
ARTICLE II
The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such office is The Corporation Trust
Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock to be
designated Common Stock and Preferred Stock. The total number of shares of
Common Stock which this corporation has authority to issue is 100,000,000 with
par value of $0.001 per share. The total number of shares of Preferred Stock
which this corporation has authority to issue is 10,000,000 with a par value of
$0.001 per share.
The shares of Preferred Stock shall be undesignated Preferred Stock and
may be issued from time to time in one or more series pursuant to a resolution
or resolutions providing for such issue
<PAGE> 2
duly adopted by the board of directors (authority to do so being hereby
expressly vested in the board). The board of directors is further authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and to fix the
number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The board of directors, within the limits and
restrictions stated in any resolution or resolutions of the board of directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of shares in any such series then
outstanding) the number of shares of any series subsequent to the issue of
shares of that series.
The authority of the board of directors with respect to each such class
or series shall include, without limitation of the foregoing, the right to
determine and fix:
i. the distinctive designation of such class or series and the number of
shares to constitute such class or series;
ii. the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
iii. the right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
iv. the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
v. the terms and conditions, if any, upon which shares of such class or
series shall be convertible into, or exchangeable for, shares of capital stock
of any other class or series, including the price or prices or the rate or rates
of conversion or exchange and the terms of adjustment, if any;
vi. the obligation, if any, of the Corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
vii. voting rights, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
viii. limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
ix. such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the board of directors of the Corporation,
acting in accordance with this Certificate of
-2-
<PAGE> 3
Incorporation, may deem advisable and are not inconsistent with law and the
provisions of this Certificate of Incorporation.
ARTICLE V
The corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
ARTICLE VII
The number of directors which constitute the whole Board of Directors of
the corporation shall be as specified in the Bylaws of the corporation.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
Holders of stock of any class or series of the corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders.
ARTICLE X
No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of the stockholders called in accordance with
the Bylaws and no action shall be taken by the stockholders by written consent.
The affirmative vote of sixty-six and two thirds percent (66-2/3%) of the then
outstanding voting securities of the corporation, voting together as a single
class, shall be required for the amendment, repeal or modification of the
provisions of Article IX or X of this Amended and Restated Certificate of
Incorporation or Sections 2.3, 2.5 and 3.2(b) of the corporation's Bylaws.
ARTICLE XI
-3-
<PAGE> 4
To the fullest extent permitted by the Delaware General Corporation Law,
a director of the corporation shall not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director. Neither any amendment nor repeal of this Article X nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article X, shall eliminate or reduce the effect of this Article X in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Article X, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
ARTICLE XII
1. The corporation shall indemnify each of the corporation's directors
and officers in each and every situation where, under Section 145 of the General
Corporation Law of the State of Delaware, as amended from time to time ("Section
145"), the corporation is permitted or empowered to make such indemnification.
The corporation may, in the sole discretion of the Board of Directors of the
corporation, indemnify any other person who may be indemnified pursuant to
Section 145 to the extent the Board of Directors deems advisable, as permitted
by Section 145. The corporation shall promptly make or cause to be made any
determination required to be made pursuant to Section 145.
2. No person shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (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 General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware is subsequently amended to
further eliminate or limit the liability of a director, then a director of the
corporation, in addition to the circumstances in which a director is not
personally liable as set forth in the preceding sentence, shall not be liable to
the fullest extent permitted by the amended General Corporation Law of the State
of Delaware. For purposes of this Article XI, "fiduciary duty as a director"
shall include any fiduciary duty arising out of serving at the corporation's
request as a director of another corporation, partnership, joint venture or
other enterprise, and "personal liability to the corporation or its
stockholders" shall include any liability to such other corporation,
partnership, joint venture, trust or other enterprise, and any liability to the
corporation in its capacity as a security holder, joint venturer, partner,
beneficiary, creditor or investor of or in any such other corporation,
partnership, joint venture, trust or other enterprise.
ARTICLE XIII
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the corporation.
-4-
<PAGE> 5
ARTICLE XIV
The corporation reserves the right to amend, alter, change or repeal any
provisions contained in this Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the corporation has caused this Certificate to be
signed by Steven M. Markowitz, its Chairman and Chief Executive Officer, and
attested by Mario M. Rosati, its Secretary, this ____ th day of ________, 1999.
MYPOINTS.COM, INC.
By:
------------------------------------
Steven M. Markowitz,
Chairman and Chief Executive Officer
ATTEST:
- ------------------------------------
Mario M. Rosati,
Secretary
-6-
<PAGE> 1
EXHIBIT 3.2(b)
BYLAWS
OF
MYPOINTS.COM, INC.
(A DELAWARE CORPORATION)
AS AMENDED AND RESTATED EFFECTIVE __________, 1999
<PAGE> 2
BYLAWS OF
MYPOINTS.COM, INC.
(a Delaware corporation)
TABLE OF CONTENTS
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ARTICLE I CORPORATE OFFICES..................................................1
1.1 Registered Office................................................1
1.2 Other Offices....................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS..........................................1
2.1 Place of Meetings................................................1
2.2 Annual Meeting...................................................1
2.3 Special Meeting..................................................1
2.4 Notice of Stockholders' Meetings.................................2
2.5 Advance Notice of Stockholder Nominees and Stockholder Business..2
2.6 Manner of Giving Notice; Affidavit of Notice.....................3
2.7 Quorum...........................................................4
2.8 Adjourned Meeting; Notice........................................4
2.9 Voting...........................................................4
2.10 Stockholder Action by Written Consent Without a Meeting 5
2.11 Record Date for Stockholder Notice; Voting.......................5
2.12 Proxies..........................................................6
2.13 Organization.....................................................6
2.14 List of Stockholders Entitled to Vote............................6
2.15 Waiver of Notice.................................................7
ARTICLE III DIRECTORS........................................................7
3.1 Powers...........................................................7
3.2 Number of Directors..............................................7
3.3 Election and Term of Office of Directors.........................7
3.4 Resignation and Vacancies........................................8
3.5 Removal of Directors.............................................9
3.6 Place of Meetings; Meetings by Telephone.........................9
3.7 First Meetings...................................................9
3.8 Regular Meetings.................................................9
3.9 Special Meetings; Notice........................................10
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3.10 Quorum..........................................................10
3.11 Waiver of Notice................................................10
3.12 Adjournment.....................................................10
3.13 Notice of Adjournment...........................................11
3.14 Board Action by Written Consent Without a Meeting...............11
3.15 Fees and Compensation of Directors..............................11
3.16 Approval of Loans to Officers...................................11
3.17 Sole Director Provided by Certificate of Incorporation .........11
ARTICLE IV COMMITTEES........................................................12
4.1 Committees of Directors.........................................12
4.2 Meetings and Action of Committees...............................12
4.3 Committee Minutes...............................................13
ARTICLE V OFFICERS...........................................................13
5.1 Officers........................................................13
5.2 Election of Officers............................................13
5.3 Subordinate Officers............................................13
5.4 Removal and Resignation of Officers.............................13
5.5 Vacancies in Offices............................................14
5.6 Chairman of the Board...........................................14
5.7 President.......................................................14
5.8 Vice Presidents.................................................14
5.9 Secretary.......................................................15
5.10 Chief Financial Officer.........................................15
5.11 Assistant Secretary.............................................15
5.12 Administrative Officers.........................................16
5.13 Authority and Duties of Officers................................16
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS................................................16
6.1 Indemnification of Directors and Officers.......................16
6.2 Indemnification of Others.......................................17
6.3 Insurance.......................................................17
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ARTICLE VII RECORDS AND REPORTS.............................................18
7.1 Maintenance and Inspection of Records...........................18
7.2 Inspection by Directors.........................................18
7.3 Annual Statement to Stockholders................................18
7.4 Representation of Shares of Other Corporations..................18
7.5 Certification and Inspection of Bylaws..........................19
ARTICLE VIII GENERAL MATTERS................................................19
8.1 Record Date for Purposes Other than Notice and Voting ..........19
8.2 Checks; Drafts; Evidences of Indebtedness.......................19
8.3 Corporate Contracts and Instruments: How Executed..............19
8.4 Stock Certificates; Transfer; Partly Paid Shares................20
8.5 Special Designation on Certificates.............................21
8.6 Lost Certificates...............................................21
8.7 Transfer Agents and Registrars..................................21
8.8 Construction; Definitions.......................................21
ARTICLE IX AMENDMENTS.......................................................22
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<PAGE> 5
BYLAWS
OF
MYPOINTS.COM, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
certificate of incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or
subordinate offices at any place or places where the corporation is qualified to
do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or
outside the State of Delaware designated by the board of directors. In the
absence of any such designation, stockholders' meetings shall be held at the
principal executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Wednesday in November in each year at 9:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected,
and any other proper business may be transacted.
2.3 SPECIAL MEETING
<PAGE> 6
A special meeting of the stockholders may be called at any time by
the board of directors, or by the chairman of the board, or by the president. No
other person or persons are permitted to call a special meeting.
If a special meeting is called by any person or persons other than
the board of directors, then the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the chairman of the board, the
president, or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.6 of these bylaws,
that a meeting will be held at the time requested by the person or persons
calling the meeting, so long as that time is not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after receipt of the request, then the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.3 shall be construed as limiting, fixing or
affecting the time when a meeting of stockholders called by action of the board
of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise
given in accordance with Section 2.6 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS
Subject to the rights of holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any stockholder meeting
may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice in
proper written form of their intent to make such nomination or nominations or to
propose such business. To be timely, such stockholder's notice must
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be delivered to or mailed and received at the principal executive offices of the
corporation not less than one hundred twenty (120) calendar days in advance of
the date specified in the corporation's proxy statement released to stockholders
in connection with the previous year's annual meeting of stockholders; provided,
however, that in the event that no annual meeting was held in the previous year
or the date of the annual meeting has been changed by more than thirty (30) days
from the date contemplated at the time of the previous year's proxy statement,
notice by the stockholder to be timely must be so received a reasonable time
before the solicitation is made. To be in proper form, a stockholder's notice to
the secretary shall set forth:
(i) the name and address of the stockholder who intends to
make the nominations or propose the business and, as the case may be, of
the person or persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of
record of stock of the corporation entitled to vote at such meeting and,
if applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would be required
to be included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
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An affidavit of the mailing or other means of giving any notice of
any stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stock holders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of
a majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation or these bylaws, each stockholder shall be entitled to one vote
for each share of capital stock held by such stockholder and stockholders shall
not be entitled to cumulate their votes in the election of directors or with
respect to any matter submitted to a vote of the stockholders.
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Notwithstanding the foregoing, if the stockholders of the
corporation are entitled, pursuant to Sections 2115 and 301.5 of the California
Corporations Code, to cumulate their votes in the election of directors, each
such stockholder shall be entitled to cumulate votes (i.e., cast for any
candidate a number of votes greater than the number of votes that such
stockholder normally is entitled to cast) only if the candidates' names have
been properly placed in nomination (in accordance with these bylaws) prior to
commencement of the voting, and the stockholder requesting cumulative voting has
given notice prior to commencement of the voting of the stockholder's intention
to cumulate votes. If cumulative voting is properly requested, each holder of
stock, or of any class or classes or of a series or series thereof, who elects
to cumulate votes shall be entitled to as many votes as equals the number of
votes that (absent this provision as to cumulative voting) he or she would be
entitled to cast for the election of directors with respect to his or her shares
of stock multiplied by the number of directors to be elected by him, and he or
she may cast all of such votes for a single director or may distribute them
among the number to be voted for, or for any two or more of them, as he or she
may see fit.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, any
action required or permitted to be taken at any annual or special meeting of
stockholders 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. Such consents shall be delivered to the corporation by delivery to it
registered office in the state of 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. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of
any meeting or to vote thereat, the board of directors may fix, in advance, a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting unless the board of directors fixes a new
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record date for the adjourned meeting, but the board of directors shall fix a
new record date if the meeting is adjourned for more than thirty (30) days from
the date set for the original meeting.
The record date for any other purpose shall be as provided in
Section 8.1 of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
2.13 ORGANIZATION
The president, or in the absence of the president, the chairman of
the board, or, in the absence of the president and the chairman of the board,
one of the corporation's vice presidents, shall call the meeting of the
stockholders to order, and shall act as chairman of the meeting. In the absence
of the president, the chairman of the board, and all of the vice presidents, the
stockholders shall appoint a chairman for such meeting. The chairman of any
meeting of stockholders shall determine the order of business and the procedures
at the meeting, including such matters as the regulation of the manner of voting
and the conduct of business. The secretary of the corporation shall act as
secretary of all meetings of the stockholders, but in the absence of the
secretary at any meeting of the stockholders, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
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2.15 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and to any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER OF DIRECTORS
(a) The board of directors shall consist of eight (8) members. The
number of directors may be changed by an amendment to this bylaw, duly adopted
by the board of directors or by the stockholders, or by a duly adopted amendment
to the certificate of incorporation.
(b) Upon the closing of the first sale of the corporation's common
stock pursuant to a firmly underwritten registered public offering (the "IPO"),
the directors shall be divided into three classes, with the term of office of
the first class, which class shall initially consist of two directors, to expire
at the first annual meeting of stockholders held after the IPO; the term of
office of the second class, which class shall initially consist of two
directors, to expire at the second annual meeting of stockholders held after the
IPO; the term of office of the third class, which class shall initially consist
of three directors, to expire at the third annual meeting of stockholders held
after the IPO; and thereafter for each such term to expire at each third
succeeding annual meeting of stockholders held after such election.
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3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall
be elected at each annual meeting of stockholders to hold office as provided in
Section 3.2 of these bylaws. Each director, including a director elected or
appointed to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of
the remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office for
a term expiring at the next annual meeting of the stockholders at which the term
of office of the class to which such director has been elected expires.
Unless otherwise provided in the certificate of incorporation or
these bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause,
the corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding
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at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, if and so long as stockholders of the corporation are entitled to
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of Delaware that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting of the board, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another; and all such
participating directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without
notice at such time as shall from time to time be determined by the board of
directors. If any regular meeting day shall fall on a
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legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or
purposes may be called at any time by the chairman of the board, the president,
any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.12 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs
a waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.12 ADJOURNMENT
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A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the board to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the
board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than twenty-four
(24) hours, then notice of the time and place of the adjourned meeting shall be
given before the adjourned meeting takes place, in the manner specified in
Section 3.9 of these bylaws, to the directors who were not present at the time
of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of
directors may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation,
if any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of,
or otherwise assist any officer or other employee of the corporation or any of
its subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole
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director, who shall have all the rights and duties and shall be entitled to
exercise all of the powers and shall assume all the responsibilities otherwise
herein described as given to the board of directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of
the authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corpo ration or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the corporation), (ii) adopt an
agreement of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease
or exchange of all or substantially all of the corporation's property and
assets, (iv) recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution or (v) amend the bylaws of the corporation; and,
unless the board resolution establishing the committee, the bylaws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held
and taken in accordance with, the following provisions of Article III of these
bylaws: Section 3.6 (place of meetings; meetings by tele phone), Section 3.8
(regular meetings), Section 3.9 (special meetings; notice), Section 3.10
(quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section
3.13 (notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right
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to attend all meetings of the committee. The board of directors may adopt rules
for the government of any committee not inconsistent with the provisions of
these bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The Corporate Officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents (however denominated), one or more assistant secretaries, a treasurer
and one or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 5.3 of these bylaws. Any
number of offices may be held by the same person.
In addition to the Corporate Officers of the Company described
above, there may also be such Administrative Officers of the corporation as may
be designated and appointed from time to time by the president of the
corporation in accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as
may be appointed in accordance with the provisions of Section 5.3 or Section 5.5
of these bylaws, shall be chosen by the board of directors, subject to the
rights, if any, of an officer under any contract of employment, and shall hold
their respective offices for such terms as the board of directors may from time
to time determine.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint
Administrative Officers of the corporation in accordance with the provisions of
Section 5.12 of these bylaws.
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5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any
contract of employment, any Corporate Officer may be removed, either with or
without cause, by the board of directors at any regular or special meeting of
the board or, except in case of a Corporate Officer chosen by the board of
directors, by any Corporate Officer upon whom such power of removal may be
conferred by the board of directors.
Any Corporate Officer may resign at any time by giving written
notice to the corporation. Any resignation shall take effect at the date of the
receipt of that notice or at any later time specified in that notice; and,
unless otherwise specified in that notice, the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the corporation under any contract to which
the Corporate Officer is a party.
Any Administrative Officer designated and appointed by the president
may be removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If there is
no president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He or
she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
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5.8 VICE PRESIDENTS
In the absence or disability of the president, and if there is no
chairman of the board, the vice presidents, if any, in order of their rank as
fixed by the board of directors or, if not ranked, a vice president designated
by the board of directors, shall perform all the duties of the president and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the board of directors, these bylaws, the president or the
chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of the board
of directors, committees of directors and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if special,
how authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the board of directors required to be given
by law or by these bylaws. He or she shall keep the seal of the corporation, if
one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the board of directors or by these
bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director for a purpose reasonably related to his
position as a director.
The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the board of directors. He or she shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all of his or her transactions
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as chief financial officer and of the financial condition of the corporation,
and shall have such other powers and perform such other duties as may be
prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided
in Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all
officers of the corporation shall respectively have such authority and powers
and perform such duties in the management of the business of the corporation as
may be designated from time to time by the board of directors.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists or
may hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was a
director or officer of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation shall mean any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
The corporation shall be required to indemnify a director or officer
in connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director of officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's Certificate of Incorporation,
these bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this
Article shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
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6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in
the manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) shall mean any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or
at such place or places as designated by the board of directors, keep a record
of its stockholders listing their names and addresses and the number and class
of shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf
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of the stockholder. The demand under oath shall be directed to the corporation
at its registered office in Delaware or at its principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine (and to make copies of)
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice
president, the chief financial officer, the secretary or any assistant secretary
of this corporation, or any other person authorized by the board of directors or
the president or a vice president, is authorized to vote, represent and exercise
on behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise
altered to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the stockholders
of the corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
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are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
applicable resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these
bylaws, may authorize and empower any officer or officers, or agent or agents,
to enter into any contract or execute any instrument in the name of and on
behalf of the corporation; such power and authority may be general or confined
to specific instances. Unless so authorized or ratified by the board of
directors or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the
board of directors may designate and shall state the name of the record holder
of the shares represented thereby; its number; date of issuance; the number of
shares for which it is issued; a summary statement or reference to the powers,
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designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, or upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of
stock or more than one series of any class, then the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate that the
corporation shall issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements there may be
set forth on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for
shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the corporation and cancelled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is lost, stolen or destroyed, authorize the issuance of
replacement certificates on such terms and conditions as the board may require;
the board may require indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
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8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company -- either domestic or foreign, who shall be
appointed at such times and places as the requirements of the corporation may
necessitate and the board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules
of construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, as used in these bylaws, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both an
entity and a natural person.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote or by the board of directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
MYPOINTS.COM, INC.
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of MyPoints.com, Inc. and that the foregoing Bylaws,
comprising twenty-two (22) pages, were adopted as the Bylaws of the corporation
effective as of _________, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this ____ day of ____________ 1999.
-----------------------------------------
Mario M. Rosati,
Secretary
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EXHIBIT 10.1
MYPOINTS.COM, INC.
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (the "Agreement") is
effective as of March 30, 1999 by and among MyPoints.com, Inc. (the "Company"),
the investors listed on Exhibit A attached hereto (the "Investors") and, for the
purposes of Sections 1 and 2 only, certain holders of the Company's Common Stock
listed on Exhibit B attached hereto (the "Common Holders"). This Agreement
amends and restates the Amended and Restated Investor Rights Agreement dated as
of November 30, 1998 ("Prior Agreement").
The Prior Agreement is hereby terminated in its entirety and restated
herein. Such termination and restatement is effective upon the execution of this
Agreement by the holders of at least a majority of the shares of Registrable
Securities (as the term is defined under the Prior Agreement) outstanding as of
the date of this Agreement.
The Company has authorized the issuance and sale of up to an aggregate
of 4,000,000 shares of its Series A Preferred Stock, 1,000,000 shares of its
Series B Preferred Stock, 3,000,000 shares of its Series C Preferred Stock,
5,500,000 shares of its Series D Preferred Stock and 2,000,000 shares of its
Series E Preferred Stock (together, the "Shares" or "Preferred Stock"). The
total amount of Common Stock or other securities issuable upon conversion of the
Preferred Shares is referred to as the "Conversion Stock."
1. Restrictions on Transfer.
1.1 Transfer. Each Holder (as hereinafter defined) agrees not to make
any disposition of all or any portion of the Registrable Securities unless and
until:
(a) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) (1) The transferee has agreed in writing to be bound by the terms
of this Agreement, (2) Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (3) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Act. It is
agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
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(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by a Holder which is (A) a partnership to its partners or former
partners in accordance with partnership interests, (B) a corporation to its
shareholders in accordance with their interest in the corporation, (C) a limited
liability company to its members or former members in accordance with their
interest in the limited liability company, or (D) to the Holder's family member
or trust for the benefit of an individual Holder, provided the transferee will
be subject to the terms of this Agreement to the same extent as if he were an
original Holder hereunder.
1.2 Legend.
(a) Each certificate representing Shares or Registrable Securities
shall (unless otherwise permitted by the provisions of the Agreement) be stamped
or otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER
THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
1.3 Legend Removal.
(a) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(b) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2. Registration Rights.
2.1 Definitions. For purposes of this Section 2:
(a) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in
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compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement or document;
(b) The term "Registrable Securities" means (i) all outstanding shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, (ii) the Common Stock
issued or issuable upon conversion of (A) the Series A Preferred Stock issued
pursuant to the Series A Preferred Stock Purchase Agreement dated November 26,
1996, (B) the Series B Preferred Stock issued pursuant to the Series B Preferred
Stock Purchase Agreement dated March 20, 1997, (C) the Series C Preferred Stock
issued pursuant to the Series C Preferred Stock Purchase Agreement dated
November 12, 1997, (D) the Series D Preferred Stock issued pursuant to the
Series D Preferred Stock Purchase Agreement dated November 13, 1998 and (E) the
Series E Preferred Stock issued or issuable pursuant to the Series E Preferred
Stock Purchase Agreement of even date herewith (the "Series E Stock Purchase
Agreement"), (iii) the Common Stock issued or issuable upon conversion of the
Series D Preferred Stock as well as the Common Stock issued to Direct Marketing
Technology, Inc. ("DMT") pursuant to the Interest Purchase Agreement dated
November 30, 1998, (iv) for the purpose of Section 2 only, the Common Stock
issued to the Common Holders in connection with the Agreement and Plan of Merger
among the Company and Enhanced Response Technologies, Inc. dated November 30,
1998 and (v) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such Preferred Stock or Common Stock, excluding in all cases,
however, (i) any Registrable Securities sold by a person in a transaction in
which such person's rights under this Section 2 are not assigned, or (ii) any
Registrable Securities sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction; provided, however, that
when referring to securities to be included in or covered by a registration
statement, "Registrable Securities" means Common Stock issued pursuant to the
foregoing;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 2.13 hereof;
(e) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission (the "SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC; and
(f) The term "Act" shall mean the Securities Act of 1933, as amended.
(g) The term "Qualified IPO" shall mean the first firmly underwritten
public offering of Common Stock of the Company that is pursuant to a
registration statement filed with, and declared effective by, the SEC (or any
other federal agency at the time administering the
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<PAGE> 4
Act) under the Act, covering the offer and sale of Common Stock to the public at
a public offering price (prior to the underwriter commissions and expenses)
equal to or exceeding five dollars ($5.00) per share of Common Stock
(appropriately adjusted for stock splits, stock dividends, recapitalization,
reorganizations or other similar transactions) and at an aggregate offering
price (before deduction for underwriter commissions and expenses) of not less
than $20,000,000.
2.2 Demand Registration.
(a) If the Company shall receive at any time after the earlier of (i)
October 31, 2000 or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction), a written request from the Holders of at
least twenty percent (20%) of the Registrable Securities then outstanding that
the Company file a registration statement under the Act covering the
registration of Registrable Securities having an aggregate offering price in
excess of five million dollars ($5,000,000), then the Company shall, within ten
(10) days of the receipt thereof, give written notice of such request to all
Holders and shall, subject to the limitations of Section 2.2(b), effect as soon
as practicable, and in any event within 90 days of the receipt of such request,
the registration under the Act of all Registrable Securities which the Holders
request to be registered within twenty (20) days of the mailing of such written
notice by the Company; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 2.2(a):
(i) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date 120
days immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan), provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective;
(ii) After the Company has effected two such registrations
pursuant to this Section 2.2(a), and such registrations have been declared or
ordered effective; or
(iii) If the Company shall furnish to such Holders a certificate
signed by the Chairman of the Board of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for a registration statement to be filed at such
time, then the Company's obligation to use its best efforts to register, qualify
or comply under this Section 2.2(a) shall be deferred for a period not to exceed
90 days from the date of receipt of written request from the Holders; provided,
however, that the Company may not utilize this right more than once in any
eighteen month period.
(b) If the Holders initiating the registration request hereunder (the
"Initiating Holders") intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to this Section 2.2 and the Company shall
include such information in the written notice referred to in
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<PAGE> 5
Section 2.2(a). In such event, or if, due to the number of shares for which
Holders have requested registration pursuant to the notice given by the Company
under Section 2.2(a), an underwritten offering is advisable the right of any
Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in Section 2.4(e)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 2.2, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Company shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares of Registrable Securities
that may be included in the underwriting shall be allocated among all Holders
thereof, including the Initiating Holders, in proportion (as nearly as
practicable) to the amount of Registrable Securities of the Company owned by
each Holder. In any event, the Holders shall have the first right to include all
of their shares in the offering before any other shares.
2.3 Piggyback Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
written notice by the Company, the Company shall, subject to the provisions of
Section 2.8, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
2.4 Obligations of the Company. Whenever required under this Section 2
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred eighty (180) days, or
other period as required in Section 2.12.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
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<PAGE> 6
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement provided that such underwriting agreement
shall not provide for indemnification or contribution obligations on the part of
the Holders greater than the obligations set forth in Section 2.10(b).
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Section 2, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 2, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) if such offering is being
underwritten, a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.
2.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 2 with
respect to the Registrable Securities of any selling Holder that such holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
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<PAGE> 7
2.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with the
registration, filing or qualification pursuant to Section 2.2, including all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 2.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to a demand
registration pursuant to Section 2.2; provided further, however, that if at the
time of such withdrawal, the Holders have learned of a material adverse change
in the condition, business, or prospects of the Company from that known to the
Holders at the time of their request, then the Holders shall not be required to
pay any of such expenses and shall retain their rights pursuant to Section 2.2.
2.7 Expenses of Piggyback Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 2.3 for each Holder (which right may be assigned as provided
in Section 2.13), including all registration, filing, and qualification fees,
printers and accounting fees relating or apportionable thereto and the fees and
disbursements of one counsel for the selling Holders selected by them, but
excluding underwriting discounts and commissions relating to Registrable
Securities.
2.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 2.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company; provided that such
underwriting agreement shall not provide for indemnification or contribution
obligations on the part of the Holders greater than the obligations set forth in
Section 2.10(b). If the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering exceeds
the amount of securities sold other than by the Company that the underwriters
reasonably believe is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters believe
will not jeopardize the success of the offering (the securities so included to
be apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders, provided that the Holders shall have the first right to
include all of their shares in the offering before any shares held by other
selling stockholders) and in no event shall the Holder's shares be reduced below
25% of the shares sold in any offering with the exception of the Qualified IPO.
For purposes of apportionment, any selling stockholder which is a Holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners and stockholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of
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<PAGE> 8
any of the foregoing persons shall be deemed to be a single "selling
stockholder", and any pro rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
2.9 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any registration described
in Section 2.3 as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 2.
2.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, any state securities law or any rule or regulation promulgated under the
Act, the 1934 Act or any state securities law; and the Company will pay to each
such Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 2.10(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information regarding any Holder,
underwriter or controlling person furnished expressly for use in connection with
such registration by such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder,
severally and not jointly, will indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration statement,
each person, if any, who controls the Company within the meaning of the Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims,
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<PAGE> 9
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information regarding any Holder furnished by such Holder expressly for use in
connection with such registration; and each such Holder will pay, as incurred,
any legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this Section 2.10(b), in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 2.10(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; provided, that, in no
event shall any indemnity under this Section 2.10(b) exceed the net proceeds
from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. If the indemnified party
fails to deliver written notice to the indemnifying party within a reasonable
time after the indemnified party's receipt of notice of the commencement of any
such action, the indemnity party's liability under this Section 2.10 shall be
reduced to the extent such failure to notify was prejudicial to the indemnifying
party's ability to defend such action, but the omission to so deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.10.
(d) If the indemnification provided for in Section 2.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no
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event shall any contribution by a Holder hereunder exceed the net proceeds from
the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section
2.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and otherwise.
2.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times commencing ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
2.12 Form S-3 Registration.
(a) In case the Company shall receive from any Holder or Holders
who hold in excess of ten percent (10%) of the Company's Registrable Securities,
a written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
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(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(ii) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 2.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the Chairman of the
Board of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 2.12; provided, however,
that the Company shall not utilize this right more than once in any twenty-one
(21) month period; (4) if the Company has already effected one registration on
Form S-3 for the Holders pursuant to this Section 2.12 within six (6) months
prior to the Company's receipt of the request of the Holder or Holders under
this Section 2.12; or (5) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(b) If the Holders initiating the registration request hereunder
(the "Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as part of their request made pursuant to this Section 2.12 and the
Company shall include such information in the written notice referred to in
Section 2.12(a)(i). In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in Section
2.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 2.12, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders thereof,
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including the Initiating Holders, in proportion (as nearly as practicable) to
the amount of Registrable Securities of the Company owned by each Holder.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders and use its best efforts to keep such
registration statement effective until the registered shares are sold or for six
months, whichever comes first. All expenses incurred in connection with a
registration requested pursuant to Section 2.12, including all registration,
filing, qualification, printer's and accounting fees and the reasonable fees and
disbursements of one counsel for the selling Holders selected by them, but
excluding any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne by the Company. Registrations effected pursuant to
this Section 2.12 shall not be counted as demands for registration or
registrations effected pursuant to Section 2.2 or 2.3, respectively.
2.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee who acquires at least 100,000
shares of Registrable Securities, provided the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. Notwithstanding the above, such rights may be assigned
by a Holder to a limited partner, general partner, former partner or other
affiliate of an Investor (the "Transferee") regardless of the number of shares
acquired by such Transferee. If the Holder is a corporation or Limited Liability
Company such rights may be assigned to stockholders or members, regardless of
the number of shares acquired by such Transferee.
2.14 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder to include
such securities in any registration filed under Section 2.2 or Section 2.3
hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included.
2.15 "Market Stand-Off" Agreement. Each holder of Registrable
Securities hereby agrees that, during a period not to exceed 180 days, following
the effective date of a registration statement of the Company filed under the
Act, it shall not, to the extent requested by the Company and such underwriter,
sell or otherwise transfer or dispose of (other than to stockholders, Limited
Liability Company members, donees, partners or former partners in accordance
with their partnership interests who agree to be similarly bound) any Common
Stock of the Company held by it at any time during such period except Common
Stock included in such registration; provided, however, that:
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<PAGE> 13
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors and founders of the Company enter
into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, registered securities of the Company
purchased by a Holder in or following the Company's initial public offering are
specifically excluded from the requirements of this Section 2.15.
2.16 Termination of Registration Rights. No stockholder shall be
entitled to exercise any right provided for in this Section 2 after five (5)
years following the Qualified IPO.
3. Right of First Offer.
3.1 Grant of Right. Subject to the terms and conditions specified in
this Section 3, the Company hereby grants to each Investor a right of first
offer with respect to future sales by the Company of its Future Shares (as
hereinafter defined).
3.2 Future Shares. "Future Shares" shall mean shares of any capital
stock of the Company, whether now authorized or not, and any rights, options or
warrants to purchase such capital stock, and securities of any type that are, or
may become, convertible into such capital stock; provided however, that "Future
Shares" do not include (i) the shares of Preferred Stock held by the Investors
or the Common Stock issued or issuable upon the conversion of such Preferred
Stock, (ii) securities offered pursuant to the Qualified IPO, (iii) securities
issued pursuant to the acquisition of another corporation by the Company by
merger of, purchase of substantially all of the assets of or other
reorganization, and (iv) securities issued or issuable to officers, directors,
employees, consultants, strategic partners, licensors or lessors of the Company
pursuant to any employee or consultant stock offering, plan or arrangement,
provided that any such transaction, plan or arrangement contemplated by (iii),
or (iv) has been approved by the Board of Directors of the Company including the
approval of at least two board members elected by holders of the Preferred
Stock.
3.3 Notice. In the event the Company proposes to offer any of its
Future Shares, the Company shall first make an offering of such Future Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail (the
"Notice") to each Investor stating (i) its bona fide intention to offer such
Future Shares, (ii) the number of such Future Shares to be offered, (iii) the
price, if any, for which it proposes to offer such Future Shares,
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and (iv) a statement that thirty (30) calendar days from receipt of such Notice
the Investor must respond to such Notice as set forth in subsection (b) below.
(b) Within 30 calendar days after receipt of the Notice, the
Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Future Shares which equals
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Shares then held, by such Investor bears to the
total number of shares of Common Stock issued and outstanding, including shares
issuable upon conversion of convertible securities issued and outstanding. The
Company shall promptly, in writing, inform each Investor which purchases all the
Future Shares available to it (the "Fully-Exercising Investor") of any other
Investor's failure to do likewise. During the ten-day period commencing after
receipt of such information, each Fully-Exercising Investor shall be entitled to
obtain that portion of the Future Shares offered to the Investors which was not
subscribed for, which is equal to the proportion that the number of shares of
Common Stock issued and outstanding or issuable upon conversion of the Shares
then held, held by such Fully-Exercising Investor bears to the total number of
shares of Common Stock issued and outstanding, including shares issuable upon
conversion of convertible securities issued and outstanding then held, held by
all Fully-Exercising Investors who wish to purchase some of the unsubscribed
shares.
3.4 Sale after Notice. If all such Future Shares referred to in the
Notice are not elected to be obtained as provided in Section 3.3 hereof, the
Company may, during the 90-day period following the expiration of the latest
period provided in Section 3.3 hereof, offer the remaining unsubscribed Future
Shares to any person or persons at a price not less than, and upon terms no more
favorable to the offeree than that specified in, the Notice. If the Company does
not enter into an agreement for the sale of the Future Shares within such
period, or if such agreement is not consummated within 90 days of the execution
thereof, the right provided hereunder shall be deemed to be revived and such
Future Shares shall not be offered unless first reoffered to the Investors in
accordance herewith.
3.5 Assignment. The right of first offer granted under this Section 3
is assignable by the Investors to any transferee of a minimum of 100,000 shares
of Common Stock (including any shares of Common Stock into which shares of
Preferred Stock are convertible).
3.6 Termination of Rights. No stockholder shall be entitled to
exercise any right provided for in this Section 3 following the Qualified IPO or
when the Company first becomes subject to the periodic reporting requirements of
Section 12(g) or 15(d) of the Securities Exchange Act of 1934, whichever event
shall first occur.
4. Covenants of the Company. The Company hereby covenants and agrees as
follows:
4.1 Financial Information. The Company will provide each Investor the
following reports for so long as the Investor is a holder of a minimum of
250,000 Registrable Securities or an equivalent amount of Conversion Stock or of
an equivalent combination of Shares and Conversion Stock (as adjusted for stock
splits, stock dividends, reorganizations, recapitalizations and other similar
transactions) or at least 5% of the Company's securities (on a fully diluted
basis) (a "Major
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<PAGE> 15
Investor"), including for purposes of this Section 4 any such Shares which have
been transferred to a constituent partner of an Investor:
(a) As soon as practicable after the end of each fiscal year, and
in any event within 90 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income, stockholders' equity and cash flows of the
Company and its subsidiaries, if any, for such year, prepared in accordance with
generally accepted accounting principles on a basis consistent with prior years
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and audited by an independent public
accountants of national standing selected by the Company and reasonably
acceptable to the Investors.
(b) As soon as practicable after the end of each quarter, and in
any event within 20 days thereafter, a consolidated balance sheet of the Company
and its subsidiaries, if any, as of the end of each such quarter, consolidated
statements of income, consolidated statements of changes in financial condition,
and a consolidated statement of cash flow of the Company and its subsidiaries
for such period and for the current fiscal year to date, and setting forth in
each case in comparative form the figures for corresponding periods in the
previous fiscal year, and setting forth in comparative form the budgeted figures
for such period and for the current fiscal year then reported, prepared in
accordance with generally accepted accounting principles (other than for
accompanying notes), subject to changes resulting from year-end audit
adjustments, all in reasonable detail and certified by the principal financial
or accounting officer of the Company as having been prepared in compliance with
this paragraph.
(c) At least thirty (30) days prior to the beginning of each
fiscal year an annual budget and operating plans for such fiscal year (and as
soon as available, any subsequent revisions thereto); and
(d) As soon as practicable after the end of each month, and in
any event within twenty (20) days thereafter, a consolidated balance sheet of
the Company as of the end of each such month, and a consolidated statement of
income and a consolidated statement of cash flows of the Company for such month
and for the current fiscal year to date, including a comparison to plan figures
for such period, prepared in accordance with generally accepted accounting
principles consistently applied, with the exception that no notes need be
attached to such statements and year-end audit adjustments need not have been
made, all in reasonable detail and certified by the Company's chief financial
officer.
(e) Promptly upon receipt thereof (and in any event within five
business days thereafter), the Company shall deliver to each Major Investor
holding copies of all management letters and reports submitted to the Company by
independent certified public accountants in connection with any annual, interim
or special audit of the Company made by such accountants.
4.2 Inspection Rights. Each Major Investor shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs,
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<PAGE> 16
finances and accounts of the Company or any of its subsidiaries with its
officers and to review the books and records and such other information as is
reasonably requested all at such reasonable times and as often as may be
reasonably requested; provided, however, that the Company shall not be obligated
under this Section 4.2 with respect to a competitor of the Company (as
reasonably determined by the Board of Directors in good faith) or with respect
to information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
4.3 Observer Rights. For as long as entities affiliated with
Technology Crossover Ventures, Long Island Venture Fund and its affiliates, Dai
Nippon Printing Co., Ltd. and its affiliates, and Applewood Associates, L.P. and
its affiliates, respectively, holds a minimum of 100,000 Shares, Conversion
Stock, or a combination thereof, respectively, a representative of Technology
Crossover Ventures, Long Island Venture Fund, Dai Nippon Printing Co., Ltd. and
Applewood Associates, L.P., respectively, shall be invited to participate in all
meetings of the Board of Directors as an observer. The Company shall send to
each Major Investor a copy of all notices, minutes, consents and other materials
distributed by the Company to the directors.
4.4 Assignment of Rights. Subject to the limitations set forth in
Section 4.1, the rights granted pursuant to Sections 4.1, 4.2 and 4.3 may be
assigned or otherwise conveyed by the Investors or by any subsequent transferee
to an investor who acquires a minimum of 100,000 Shares, Conversion Stock, or a
combination thereof, other than a competitor of the Company, as reasonably
determined by the Board of Directors of the Company excluding any director with
an interest in such transferee, provided that written notice of such assignment
or conveyance is given to the Company.
4.5 Stock Vesting. Unless otherwise approved by the Board of
Directors, which includes the approval of at least two directors nominated by
the Holders, all stock options and other stock equivalents issued to employees,
directors, consultants and other service providers shall be subject to vesting
as follows: (i) one-fourth (1/4) of such stock shall vest at the end of the
first year following the earlier of the date of issuance or such person's
services commencement date with the Company, and (ii) the remaining
three-fourths (3/4) of such stock shall vest monthly over the remaining three
(3) years. With respect to any shares of stock purchased by any such person, the
Company will have a repurchase option that shall provide that upon such person's
termination of employment or service with the Company, with or without cause,
the Company or its assignee (to the extent permissible under applicable
securities laws and other laws) shall have the option to purchase at cost any
unvested shares of stock held by such person. In the event the Company does not
exercise the repurchase option, the Company hereby agrees to assign such right
to the Investors.
4.6 Reservation of Common Stock. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the conversion of the
Preferred Stock all Common Stock issuable from time to time upon such
conversion.
4.7 Issuance of Additional Shares of Common Stock. With the exception
of the 2,500,000 shares of Common Stock the Company has allocated for founders
and key employees, the Company will not issue additional shares of Common Stock,
other than for the exercise of options exercisable for 935,833 shares of Common
Stock issued under the Company's 1996 Stock Plan and
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<PAGE> 17
options exercisable for 2,966,962 shares of Common Stock issued under the
Company's 1999 Stock Plan or the conversion of the Preferred Stock, without the
prior approval of a majority of the Board of Directors, including those
directors elected by the Investors.
4.8 Real Property Corporation. The Company covenants that it will
operate in a manner such that it will not become a "United States real property
holding corporation" as that term is defined in Section 897(c)(2) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder
("USRPHC"). The Company agrees to make determinations as to its status as a
USRPHC, and will file statements concerning those determinations with the
Internal Revenue Service, in the manner and at the times required under Reg.
Section 1.897-2(h), or any supplementary or successor provision thereto. Within
30 days of a request from an Investor or any of its partners, the Company will
inform the requesting party, in the manner set forth in Reg. Section 1. 897-
2(h)(1)(iv) or any supplementary or successor provision thereto, whether that
party's interest in the Company constitutes a United States real property
interest (within the meaning of Internal Revenue Code Section 897(c)(1) and the
regulations thereunder) and whether the Company has provided to the Internal
Revenue Service all required notices as to its USRPHC status.
4.9 Board of Directors. On the date of the Closing (as defined in the
Series E Stock Purchase Agreement), the Board shall consist of seven members and
one vacancy, as follows: Howard Morgan, representing Preferred stockholders,
Larry Phillips representing the Series D Preferred stockholders, Steven M.
Markowitz and Robert Hoyler, representing the Common stockholders, Thomas
Newkirk representing DMT, Mario Rosati and Lester Wunderman (both non-employee
designees nominated by management and elected by the Common and Preferred,
voting together as a single class), and one vacancy, to be filled by a nominee
of Technology Crossover Ventures (pursuant to the terms of the Series E
Preferred Stock Voting Agreement of even date herewith). Subject to being filled
by a nominee of Technology Crossover Ventures, this vacancy shall remain in
place only until the time of the closing of the Company's initial underwritten
public offering pursuant to an effective registration statement filed by the
Company under the Securities Act; after such time, the Company shall have no
obligation to maintain such vacancy or to fill it with a nominee of Technology
Crossover Ventures other than pursuant to the Management Rights Agreement of
even date herewith. The Board of Directors shall also appoint a Compensation
Committee consisting of three members, the Company's CEO and two of the
directors elected by the Investors. The Compensation Committee will be
responsible for all option grants and employee compensation matters. The Board
of Directors will convene at least eight (8) times per year.
4.10 Directors' Expenses. The Company shall reimburse each
non-employee member of the Company's Board of Directors for travel expenses,
incidental expenses and other expenses reasonably incurred in connection with
the performance of their duties as a Director. Otherwise Company shall pay no
compensation to its directors solely for their role as a directors.
4.11 Indemnification of Officers and Directors. For at least as long
as any representative or representatives of the Investors serve on the Board of
Directors of the Company, the Company shall indemnify its officers and directors
to the fullest extent permitted by law.
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4.12 Key Man Insurance. The Company shall obtain life insurance
policies on the key management employees of the Company as such policies are
deemed necessary and reasonable. In all such policies the Company shall be the
sole beneficiary.
4.13 Director's Insurance. The Company shall obtain liability policies
for the protection of the Company's directors as such policies are deemed
necessary and reasonable.
4.14 Qualified Small Business. For at least as long as any Shares are
held by an Investor or by a transferee of any Investor in whose hands the Shares
are eligible to qualify as Qualified Small Business Stock as defined in Section
1202(c) of the Code (the "Investor's Holding Period"), the Company shall use its
best efforts to cause the Shares to qualify as Qualified Small Business Stock.
During the Investor's Holding Period, the Company shall make reasonable efforts
to notify Major Investors fifteen (15) days prior to an event, the occurrence of
which the Company reasonably anticipates and which, to the Company's knowledge,
is expected to cause the Shares held by such Major Investor to cease to be
eligible for classification as Qualified Small Business Stock. Within ten (10)
days of receipt of a Major Investor's written request therefor, the Company
shall deliver to such Major Investor a certificate (the "QSBS Certificate") in a
form reasonably satisfactory to such Major Investor. The QSBS Certificate shall
set forth whether, to the reasonable knowledge of the Company, such Major
Investor's interest in the Company constitutes Qualified Small Business Stock.
4.15 Audit Reports. Promptly upon receipt thereof (and in any event
within five business days thereafter), the Company shall deliver to each
Investor holding 100,000 shares copies of all management letters and reports
submitted to the Company by independent certified public accountants in
connection with any annual, interim or special audit of the Company made by such
accountants.
4.16 Transactions with Affiliates. The Company shall not directly or
indirectly, enter into or be a party to any transaction or arrangement
(including, without limitation, the contribution, transfer, purchase, sale or
exchange of property, leasing, loaning of money or the rendering of any service,
or the payment of management or other service fees) with any of its affiliates
or employees unless such transaction or arrangement is otherwise not prohibited
by this Agreement and is entered into in the ordinary course of and pursuant to
the reasonable requirements of the Company's business and the Board of Directors
of the Company (excluding any director "interested" in such transaction) shall
have determined that the terms of such transaction or arrangement are fair and
reasonable and no less favorable to the Company than those which might be
obtained at the time for a comparable transaction or arrangement on an
arm's-length basis from a non-affiliate.
4.17 Actions Requiring Consent. Without the prior written consent of
the holders of a majority of the Registrable Securities, the Company shall not
directly or indirectly:
(a) authorize or issue shares of any class or series of equity
securities or securities convertible into or exercisable for any equity
securities other than pursuant to this
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Agreement or pursuant to the conversion of the Preferred Stock or upon exercise
of the options granted pursuant to the 1996 Stock Plan or the 1999 Stock Plan;
(b) pay or declare any dividend or distribution on any shares of
the Company's capital stock (except on the Preferred Stock in accordance with
its terms) or declare any stock splits or reverse stock splits on any shares of
capital stock of the Company;
(c) directly or indirectly redeem, repurchase, retire or
otherwise acquire any shares of equity securities of the Company except the
Preferred Stock in accordance with its terms or pursuant to the repurchase
provisions contained in restricted stock purchase agreements with the Company's
founders;
(d) amend or repeal any provision of, or add any provision to,
the Company's Restated Certificate of Incorporation or Bylaws;
(e) issue any shares of Series E Preferred Stock on materially
different terms than those included in the Series E Stock Purchase Agreement;
(f) voluntarily liquidate, dissolve or wind-up the Company or
conduct any form of recapitalization or reorganization of the Company;
(g) merge or consolidate with or into any other person, or permit
any other person to consolidate or merge with or into the Company, or
participate in a share exchange with or sell, license, lease, transfer,
contribute, or otherwise dispose of any of its assets (tangible or intangible)
to any other person other than sales or licenses granted in the ordinary course
of business;
(h) enter into any agreement, understanding or contract or incur
any indebtedness or obligation involving payments or consideration of more than
$100,000, except for short-term borrowing for working capital;
(i) adopt or make any fundamental or substantial change in the
primary nature of the Company's business or engage in any business other than
that presently engaged in and contemplated to be engaged in as set forth in the
Business Plan;
(j) incur any debt or make gifts or advances to or make any
investments in any affiliates or stockholders of the Company or any relatives or
affiliates of such persons, except advances for travel or other similar expenses
in the ordinary course of business;
(k) guaranty, directly or indirectly, any debt except for trade
account of the Company accruing in the ordinary course of business.
Notwithstanding the foregoing provisions of this Section 4.17, the prior
approval of the holders of the Shares shall not be required for the Company to
engage in any of the aforementioned activities as such time as the Investors or
their transferees in the aggregate hold less than 500,000 shares of Registrable
Securities.
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4.18 Termination of Covenants. The covenants set forth in Sections
4.1, 4.2, 4.3 and 4.17 shall terminate and be of no further force or effect upon
the closing of the Company's initial underwritten public offering pursuant to an
effective registration statement filed by the Company under the Securities Act
(for minimum aggregate proceeds of $20,000,000 at a $5.00 per share price)
(other than a registration of securities in a Rule 145 transaction or with
respect to an employee benefit plan).
4.19 Aggregation of Shares. Notwithstanding anything to the contrary
contained herein, a Holder may, for the purpose of exercising any right herein,
the exercise of which is conditioned upon such Holder holding a minimum number
of shares of Registrable Securities, aggregate all such shares of Registrable
Securities owned by such Holder and its affiliates, partners and members to meet
or otherwise satisfy such minimum holding requirement.
5. Miscellaneous Provisions.
5.1 Waivers and Amendments. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of at least a majority
of the shares of Registrable Securities. Notwithstanding the foregoing, the
Company and the Investors agree that this Agreement shall be automatically
amended without further action by the then parties to this Agreement to add
additional parties to this Agreement who purchase Series E Preferred Stock under
the Series E Stock Purchase Agreement and agree to be bound by the same terms of
this Agreement as the Investors. Any amendment or waiver effected in accordance
with this Section 5.1 shall be binding upon each person or entity which are
granted certain rights under this Agreement and the Company.
5.2 Notices. All notices and other communications required or
permitted hereunder shall be in writing and, except as otherwise noted herein,
shall be deemed effectively given upon personal delivery, delivery by nationally
recognized courier or five business days after deposit with the United States
Post Office (by first class mail, postage prepaid), addressed: (a) if to the
Company, at 565 Commercial Street, 2nd Floor, San Francisco, California 94111
(or at such other address as the Company shall have furnished to the Investors
in writing) attention of President and (b) if to an Investor, at the latest
address of such person shown on the Company's records.
5.3 Governing Law. This Agreement shall be governed by and interpreted
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
5.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument, but only one of which
need be produced.
5.5 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
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<PAGE> 21
5.6 Successors and Assigns. Except as otherwise expressly provided in
this Agreement, this Agreement shall benefit and bind the successors, assigns,
heirs, executors and administrators of the parties to this Agreement.
5.7 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter of this Agreement.
5.8 Separability; Severability. Unless expressly provided in this
Agreement, the rights of each Investor under this Agreement are several rights,
not rights jointly held with any other Investors. Any invalidity, illegality or
limitation on the enforceability of this Agreement with respect to any Investor
shall not affect the validity, legality or enforceability of this Agreement with
respect to the other Investors. If any provision of this Agreement is judicially
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be affected or impaired.
5.9 Stock Splits. All references to numbers of shares in this
Agreement shall be appropriately adjusted to reflect any stock dividend, split,
combination, recapitalization, reorganization or other similar transaction of
shares by the Company occurring after the date of this Agreement.
5.10 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any Holder upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power or remedy nor shall it be construed to be a waiver of any such
breach, default or noncompliance or any acquiescence therein or of any similar
breach, default or noncompliance thereafter occurring. It is further agreed that
any waiver, permit, consent or approval of any kind or character on any Holder's
part of any breach, default or noncompliance under the Agreement or any waiver
on such Holder's part of any provisions or conditions of this Agreement must be
in writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, by law, or otherwise
afforded to Holders shall be cumulative and not alternative.
6. Waiver of Right of First Offer. The Investors under the Prior Agreement
hereby waive their right of first offer under Section 3 of the Prior Agreement
to purchase the Series E Preferred Stock or Common Stock which may be issued or
issuable pursuant to the Series E Stock Purchase Agreement. This waiver is
effective upon the execution of this Agreement by a majority of the shares of
Registrable Securities held by the Investors under the Prior Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first set forth above.
COMPANY:
MYPOINTS.COM, INC.
By: /s/ Steven M. Markowitz
Steven M. Markowitz, Chairman and CEO
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 23
PREFERRED STOCKHOLDERS
APPLEWOOD ASSOCIATES, L.P.
By: /s/ Irwin Lieber
Irwin Lieber
Title: General Partner
AUBER INVESTMENTS LIMITED
By: /s/ Herbert Selzer
Herbert Selzer
Title: Attorney-in-fact
/s/ Joseph Y. Bae
JOSEPH Y. BAE
/s/ Peter Burnam
PETER BURNIM
By: /s/ Perry Lerner
Perry Lerner, Attorney-in-fact
/s/ Nils P. Brous
NILS P. BROUS
CHACALLIT ASSOCIATES
By: /s/ Richard Beattie
Title: General Partner
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 24
/s/ David H. Chung
DAVID H. CHUNG
COMOROS LDC
By: /s/ signatures illegible
For: MeesPiersen Management (Cayman
Limited)
Title: Director
/s/ India Cutler
INDIA CUTLER
DAI NIPPON PRINTING CO., LTD.
By:
----------------------------------
Title:
----------------------------------
DIRECT MARKETING TECHNOLOGY, INC.
By: /s/ Thomas Newkirk
Title: Chairman
ESSANESS/INTELLIPOST PARTNERS
By: Essaness Theatres Corporation,
its managing partner
By: /s/ Alan Silverman
Alan Silverman, its President
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 25
/s/ James H. Greene, Jr.
JAMES H. GREENE, JR.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 26
/s/ Henry R. Kravis
HENRY R. KRAVIS
LABRADOR VENTURES III, L.P.
By: /s/ Stuart Davidson
Stuart Davidson
Title: Manging Director
/s/ Marc S. Lipschultz
MARC S. LIPSCHULTZ
LONG ISLAND VENTURE FUND
By: Tech Transfer Island Corp., General
Partner
By: /s/ Paul Lowell
Title: Executive Director
/s/ Michael W. Michelson
MICHAEL W. MICHELSON
/s/ Howard Morgan
HOWARD MORGAN
/s/ Alexander Navab
ALEXANDER NAVAB
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 27
/s/ Marc Ostrofsky
MARC OSTROFSKY
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 28
PRIMEDIA VENTURES
By: /s/ Larry Phillips
Larry Phillips
Title: Managing Director
RAETHER FAMILY TRUST
By: /s/ Wendy S. Raether
Wendy S. Raether
Title: Trustee
/s/ Paul E. Raether
PAUL E. RAETHER
RENREL Limited Partnership
By: /s/ Perry Lerner
Perry Lerner
Title:
----------------------------------
RHL VENTURES, LLC
By: /s/ signature illegible
Title:
----------------------------------
RIVERCROFT LIMITED
By: C.G. Malet de Carteret
By: /s/ signature illegible
Title: Authorized Signatory
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 29
/s/ George R. Roberts
GEORGE R. ROBERTS
S7
By: /s/ Jim Simons
Jim Simons
Title:
----------------------------------
TARGETED MARKETING SYSTEMS, INC.
By:
----------------------------------
Title:
----------------------------------
/s/ Michael T. Tokarz
MICHAEL T. TOKARZ
VAN MERKENSTEIJN LLC
By: /s/ signature illegible
Title: Managing Member
/s/ Lester Wunderman
LESTER WUNDERMAN
/s/ David Zelman
DAVID ZELMAN, PhD
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 30
BAYVIEW INVESTORS LTD.
By: /s/ signature illegible
Title:
--------------------------------------------
CLAREX LIMITED
By: /s/ signature illegible
Title: Director and Secretary
By: /s/ signature illegible
Title: Director and Assistant Secretary
TCV III (GP)
a Delaware General Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III STRATEGIC PARTNERS, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 31
By: /s/ Robert C. Bensky
Name: Robert C. Bensky
Title: Chief Financial Officer
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 32
/s/ Gene Bernstein
GENE BERNSTEIN
/s/ Jay Bernstein
JAY BERNSTEIN
--------------------------
BURLEIGH COPPICE
DELTA HOLDINGS CORPORATION
By: Herbert Selzer
Title: Attorney-in-fact
--------------------------
LEO A. GUTHART
/s/ James W. Harpel
JAMES W. HARPEL
/s/ Irwin Lieber
IRWIN LIEBER
--------------------------
L. CHARLES MEYTHALER
/s/ Mark Silber
MARK SILBER
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 33
COMMON HOLDERS
ASCENT PARTNERS
By:
-------------------------
Title:
-----------------------
-----------------------------
CRAIG STEVENS
-----------------------------
CRAIG MULLER
-----------------------------
CHARLES RITZKE
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT A
LIST OF INVESTORS
SERIES A PREFERRED STOCKHOLDERS
INVESTOR NAME NUMBER OF SHARES
- ---------------------------------------------------------------------- ----------------
<S> <C>
Long Island Venture Fund 1,000,000
Harold Brierley 1,000,000
S7 866,667
Howard L. Morgan 133,333
TOTAL: 3,000,000
SERIES B PREFERRED STOCKHOLDER S
INVESTOR NAME NUMBER OF SHARES
- ---------------------------------------------------------------------- ----------------
Dai Nippon Printing Co., Ltd. 500,000
</TABLE>
(Remainder of page intentionally left blank)
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 35
<TABLE>
<CAPTION>
SERIES C PREFERRED STOCKHOLDERS
INVESTOR NAME NUMBER OF SHARES
- ---------------------------------------------------------------------- ----------------
<S> <C>
Auber Investments Limited 666,667
RHL Ventures 133,333
Rivercroft Limited 43,333
Long Island Venture Fund, L.P. 333,333
Applewood Associates, L.P. 666,666
S7 300,000
Targeted Marketing Systems, Inc. 200,000
Howard L. Morgan 33,333
Henry R. Kravis 166,667
George R. Roberts 166,667
Paul Raether 25,000
Raether Family Trust c/o Paul Raether 8,333
Michael T. Tokarz 16,667
Nils P. Brous 20,000
Alexander Navab 20,000
Marc S. Lipschultz 20,000
David H. Chung 13,333
Chacallit Associates 66,667
Joseph Y. Bae 3,333
RenRel Limited Partnership 6,667
Lester Wunderman 16,667
----------------
TOTAL: 2,926,666
</TABLE>
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 36
<TABLE>
<CAPTION>
SERIES D PREFERRED STOCKHOLDERS
INVESTOR NAME NUMBER OF SHARES
- ---------------------------------------------------------------------- ----------------
FIRST CLOSING: NOVEMBER 13, 1998
<S> <C> <C>
S7 266,990
Applewood Associates, L.P. 291,262
Rivercroft Limited 41,262
Auber Investments Limited 291,262
RENREL Limited Partnership 7,282
Lester Wunderman 24,272
Essaness/Intellipost Partners 121,359
Marc Ostrofsky 100,000
Howard Morgan 24,272
India Cutler 12,137
Comoros LDC 48,544
EXPERIAN CLOSING: NOVEMBER 30, 1998
Direct Marketing Technology, Inc. Series D 1,213,592
Common 2,164,535
ADDITIONAL CLOSING: NOVEMBER 30, 1998
Labrador Ventures III, L.P. 485,437
Primedia Ventures 776,699
David Zelman, PhD 14,563
Van Merkensteijn LLC 48,544
RENREL Limited Partnership 12,136
Peter Burnim 7,282
Nils P. Brous 14,563
</TABLE>
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 37
<TABLE>
<CAPTION>
<S> <C>
James H. Greene, Jr. 24,271
Henry R. Kravis 48,543
Marc Lipschultz 14,563
Michael Michelson 24,271
George R. Roberts 48,543
----------------
TOTAL: 6,101,913
</TABLE>
<TABLE>
<CAPTION>
SERIES E PREFERRED STOCKHOLDERS
INVESTOR NAME NUMBER OF SHARES
- ---------------------------------------------------------------------- ----------------
<S> <C>
Applewood Associates, L.P. 84,001
Auber Investments Limited 132,622
Joseph Bae 2,000
Bayview Investors Ltd. 50,000
Peter Burnim 887
Chacallit Associates 5,846
David H. Chung 5,000
Clarex Limited 400,000
Comoros LDC 5,913
India Cutler 1,478
Direct Marketing Technology, Inc. 296,229
Essaness/Intellipost Partners 14,782
James H. Greene, Jr. 5,000
Henry R. Kravis 21,000
Labrador Ventures III, L.P. 42,568
</TABLE>
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 38
<TABLE>
<CAPTION>
<S> <C>
Gene Bernstein 2,315
Jay Bernstein 2,315
Burleigh Coppice 4,631
Delta Holdings Corporation 4,631
Leo A. Guthart 6,945
James W. Harpel 2,315
Irwin Lieber 4,631
L. Charles Meythaler 3,472
Mark Silber 2,315
Marc Lipschultz 3,000
Michael W. Michelson 5,000
Howard L. Morgan 16,743
Alexander Navab 10,000
Marc Ostrofsky 4,651
Primedia Ventures 68,109
RenRel Limited Partnership 3,177
Rivercroft Limited 10,304
S-7 Associates, L.L.C. 160,447
TCV III (GP) 4,357
TCV III, L.P. 20,695
TCV III (Q), L.P. 550,040
TCV III Strategic Partners, L.P. 24,908
Michael T. Tokarz 5,000
Van Merkensteijn LLC 5,913
Lester Wunderman 4,986
David Zelman, PhD 1,774
TOTAL: 2,000,000
</TABLE>
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT B
COMMON STOCKHOLDERS
Stockholder's Name Number of Shares Currently Owned
- -------------------------------------------------------- --------------------------------
<S> <C>
Ascent Partners 32,911
Craig Muller 802,271
Craig Stevens 6,582
Charles Ritzke 23,818
TOTAL: 865,582
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
</TABLE>
<PAGE> 1
EXHIBIT 10.4
MYPOINTS.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean MyPoints.com, a Delaware corporation,
and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
<PAGE> 2
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of such determination, as reported
in The Wall Street Journal or such other source as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board; or
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement on Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Period" shall mean a period of approximately six
(6) months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after January 1 and terminating on
the last Trading Day in the period ending the following June 30, or commencing
on the first Trading Day on or after July 1 and terminating on the last
Trading Day in the period ending the following December 31; provided, however,
that the first Offering Period under the Plan shall commence with the first
Trading Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the last
Trading Day on or before December 31, 1999. The duration of Offering Periods
may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
-2-
<PAGE> 3
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after January 1 and July 1 each year, or on such other date as the
Board shall determine, and continuing thereafter until terminated in accordance
with Section 20 hereof; provided, however, that the first Offering Period under
the Plan shall commence with the first Trading Day on or after the date on which
the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before December
31, 1999. The Board shall have the power to change the duration of Offering
Periods (including the commencement dates thereof) with respect to future
offerings without stockholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not
-3-
<PAGE> 4
exceeding fifteen percent (15%) of the Compensation which he or she receives
on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than
[_____] shares (subject to any adjustment pursuant to Section 19), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof,
-4-
<PAGE> 5
unless the participant has withdrawn pursuant to Section 10 hereof. The Option
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the shares purchased upon exercise of his or
her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an
-5-
<PAGE> 6
Employee for the participant's customary number of hours per week of employment
during the period in which the participant is subject to such payment in lieu of
notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be two hundred thousand (200,000) shares. If, on a given Exercise Date,
the number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant,
-6-
<PAGE> 7
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board.
-7-
<PAGE> 8
The New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Board shall notify each participant in writing,
at least ten (10) business days prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to the New Exercise
Date and that the participant's option shall be exercised automatically on the
New Exercise Date, unless prior to such date the participant has withdrawn from
the Offering Period as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or the
Plan is in the best interests of the Company and its stockholders. Except as
provided in Section 19 and Section 20 hereof, no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
-8-
<PAGE> 9
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder approval
or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-9-
<PAGE> 10
EXHIBIT A
MYPOINTS.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the MyPoints.com, Inc. 1999 Employee Stock Purchase Plan (the "Employee
Stock Purchase Pln") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
_______________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at
the time of such disposition in an amount equal to the excess of the
fair market value of the shares at the time such shares were purchased
by me over the price which I paid for the shares. I hereby agree to
notify the Company in writing within 30 days after the date of any
disposition of shares and I will make adequate provision for Federal,
state or other tax
<PAGE> 11
withholding obligations, if any, which arise upon the disposition of the
Common Stock. The Company may, but will not be obligated to, withhold
from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make
available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year holding period, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which
I paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if
any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
_________________________ ____________________________________________
Relationship
____________________________________________
(Address)
Employee's Social
Security Number: ____________________________________________
Employee's Address: ____________________________________________
____________________________________________
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<PAGE> 12
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: __________________ __________________________________________
Signature of Employee
_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE> 13
EXHIBIT B
MYPOINTS.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the MyPoints.com,
Inc. 1999 Employee Stock Purchase Plan which began on ___________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
____________________________________
____________________________________
____________________________________
Signature:
____________________________________
Date: ______________________________
<PAGE> 1
EXHIBIT 10.8
<TABLE>
<CAPTION>
WOODFIELD FINANCIAL CENTRE
BASIC LEASE INFORMATION
<S> <C>
Lease Date: As of March 18, 1999
Tenant: MyPoints.Com, Inc.
Tenant's Address: 1375 Woodfield Road
Schaumburg, Illinois 60173
Attention: Robert C. Hoyler
President and COO
Landlord's Address: c/o TA Associates Realty
28 State Street, 10th Floor
Boston, Massachusetts 02109
Contact: Attn: Asset Manager
Telephone: (617) 476-2700
Premises: Approximately 3,696 rental square feet
known as Suite 520 (the "Premises") in the
office building known as WOODFIELD
FINANCIAL CENTRE (the "Building") and
whose street address is 1375 East
Woodfield Road, Schaumburg, Illinois (the
"Land"). The Premises are outlined on the
plan attached to the Lease as Exhibit A.
Term: Commencing on April 1, 1999 (the
"Commencement Date"), and ending the later
to occur of May 31, 1999, or upon
substantial negotiation of a lease for
approximately 14,336 rentable square feet
of area on the third (3rd) floor of the
Building in which Tenant intends to
expand; provided, however, Landlord may,
with or without cause, terminate this
Lease at any time upon 30 days notice.
Base Rent: $4,466.00 per month.
Permitted Use: General office purposes.
Initial Liability Insurance Amount: $3,000,000.
</TABLE>
The foregoing Basic Lease Information is incorporated into and made a part of
the Lease identified above. If any conflict exists between any Basic Lease
Information and the Lease, then the Lease shall control.
<TABLE>
<CAPTION>
LANDLORD TENANT
<S> <C>
TA/WESTERN, L.L.C. MY POINTS.COM, INC.
a Delaware limited liability company
By: TA Realty Corp., By: /s/ Robert C. Hoyler
a Massachusetts corporation, Name: _______________________
its manager. Title: ______________________
By: /s/ Scott Oran
Name: Scott Oran
Title: Regional Director
</TABLE>
<PAGE> 2
LEASE
THIS LEASE AGREEMENT (this "LEASE") is entered into as of March 18,
1999, between TA/WESTERN, L.L.C., a Delaware limited liability company
("LANDLORD"), and MYPOINTS.COM, INC. ("TENANT").
1. DEFINITIONS AND BASIC PROVISIONS. The definitions and basic
provisions set forth in the Basic Lease Information (the "BASIC LEASE
INFORMATION") executed by Landlord and Tenant contemporaneously herewith are
incorporated herein by reference for all purposes. The following terms shall
have the following meanings: "LAWS" means all federal, state and local laws,
rules and regulations, all court orders, all governmental directives and
governmental orders, and all restrictive covenants affecting the Property, and
"LAW" means any of the foregoing: "AFFILIATE" means any person or entity which,
directly or indirectly, controls, is controlled by, or is under common control
with the party in question: "TENANT PARTY" shall include Tenant, any assignees
claiming by, through, or under Tenant, any subtenants claiming by, through, or
under Tenant, and any agents, contractors, employees, and invitees of the
foregoing parties; and "INCLUDING" means including, without limitation.
2. LEASE GRANT; RELOCATION; USE. Subject to the terms of this Lease,
Landlord leases to Tenant, and Tenant leases from Landlord, the Premises in the
"AS-IS" condition. Tenant hereby accepts the Premises in their "AS-IS"
condition, and Landlord shall have no obligation to perform any work therein
(including, without limitation, demolition of any improvements existing therein
or construction of any tenant finish-work or other improvements therein), and
shall not be obligated to reimburse Tenant or provide an allowance for any costs
related to the demolition or construction of improvements therein. Landlord may,
at Landlord's expense, relocate Tenant within the Building in space which is
comparable in size to the Premises and is reasonably suited for Tenant's use.
Upon such relocation, the relocation space shall be deemed to be the Premises
and the terms of this Lease shall remain in full force and shall apply to the
relocation space. Tenant shall occupy and use the Premises only for the
Permitted Use and shall comply with all Laws relating to the use, condition, and
occupancy of the Premises.
3. RENT. Tenant shall timely pay to Landlord the Basic Rental,
Additional Rental, and all additional sums to be paid to Landlord under this
Lease, without deduction or set off, at Landlord's Address (or such other
address as Landlord may from time to time designate in writing to Tenant).
"BASIC RENTAL" (herein so called) shall be as set forth in the Basic Lease
Information. Basic Rental and Additional Rental shall be payable monthly in
advance. If Tenant fails to vacate the Premises at the end of the Term, then
Tenant shall be a tenant at will and, in addition to all other damages and
remedies to which Landlord may be entitled for such holding over, Tenant shall
pay a daily Basic Rental equal to 200% of the daily Basic Rental and Additional
Rental payable during the last month of the Term. The first installment of Basic
Rental and Additional Rental for the Term shall be payable contemporaneously
with the execution of this Lease; and subsequent installments will be due on the
first day of each month thereafter. Basic Rental for any fractional month at the
beginning of the Term shall be prorated based on l/365 of the current annual
Basic Rental for each day of the partial month this Lease is in effect.
"ADDITIONAL RENTAL" means all utilities used by the Premises together with
Tenant's proportionate share of real estate taxes, common area utility charges,
snow removal costs and all other operating expenses of the Building.
4. LANDLORD'S OBLIGATIONS.
(a) SERVICES. Provided no Event of Default exists, Landlord shall use
all reasonable efforts to furnish to Tenant (1) water (hot and cold) at those
points of supply provided for general use of tenants of the Building; (2)
heated, ventilated, and refrigerated air conditioning ("HVAC ") as appropriate,
at such times as Landlord normally furnishes these services to all tenants of
the Building, and at such temperatures and in such amounts as are reasonably
considered by Landlord to be standard; (3) janitorial service to the Premises on
weekdays other than holidays for Building-standard installations (Landlord
reserves the right to bill Tenant separately for extra janitorial service
required for non-standard installations) and such window washing as may from
time to time in Landlord's judgment be reasonably required; (4) elevators for
ingress and egress to the floor on which the Premises are located, in common
with other tenants, provided that Landlord may reasonably limit the number of
elevators to be in operation at times other than during customary business hours
and on holidays; (5) replacement of Building-standard light bulbs and
fluorescent tubes, provided that Landlord's standard charge for such bulbs and
tubes shall be paid by Tenant; and (6) electrical current during normal business
hours other than for computers, electronic data processing equipment, special
lighting, equipment that requires more than 110 volts, or other equipment whose
electrical energy consumption exceeds normal office usage. Landlord shall
maintain the common areas of the Building in reasonably good order and
condition, except for damage occasioned by a Tenant Party. If Tenant desires any
of the services specified in this Section 4(a) at any time other than times
herein designated, such services shall be supplied to Tenant upon the written
request of Tenant delivered to Landlord before 3:00 p.m. on the business day
preceding such extra usage, and Tenant shall pay to Landlord the cost of such
services within ten days after Landlord has delivered to Tenant an invoice
therefor.
(b) EXCESS UTILITY USE. Landlord shall use reasonable efforts to
furnish electrical current for computers, electronic data processing equipment,
special lighting, equipment that requires more than 110 volts, or other
equipment whose
-1-
<PAGE> 3
electrical energy consumption exceeds normal office usage through the
then-existing feeders and risers serving the Building and the Premises, and
Tenant shall pay to Landlord the cost of such service within ten days after
Landlord has delivered to Tenant an invoice therefor. Any excess utility usage
shall be separately metered, installed, maintained, and read by Landlord, at
Tenant's expense. Tenant shall not install any electrical equipment requiring
special wiring or requiring voltage in excess of 110 volts or otherwise
exceeding Building capacity unless approved in advance by Landlord. The use of
electricity in the Premises shall not exceed the capacity of existing feeders
and risers to or wiring in the Premises. Any risers or wiring required to meet
Tenant's excess electrical requirements shall, upon Tenant's written request, be
installed by Landlord, at Tenant's cost if, in Landlord's sole and absolute
judgment, they are necessary and shall not cause permanent damage or injury to
the Building or the Premises, cause or create a dangerous or hazardous
condition, entail excessive or unreasonable alterations, repairs, or expenses,
or interfere with or disturb other tenants of the Building. If Tenant uses
machines or equipment (other than general office machines, excluding computers
and electronic data processing equipment) in the Premises which affect the
temperature otherwise maintained by the air conditioning system or otherwise
overload any utility, Landlord may install supplemental air conditioning units
or other supplemental equipment in the Premises, and the costs thereof,
including the cost of installation, operation, use, and maintenance, shall be
paid by Tenant to Landlord within ten days after Landlord has delivered to
Tenant an invoice therefor.
5. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE.
(a) IMPROVEMENTS; ALTERATIONS. No alterations or physical additions
in or to the Premises may be made without Landlord's prior written consent.
Tenant shall not paint or install lighting or decorations, signs, window or door
lettering, or advertising media of any type on or about the Premises. All
alterations, additions, or improvements made in or upon the Premises, either by
Landlord or Tenant, shall be Landlord's property when Tenant's right to possess
the Premises ends and shall remain on the Premises without compensation to
Tenant.
(b) REPAIRS; MAINTENANCE. Tenant shall maintain the Premises in a
clean, safe, operable, attractive condition, and shall not permit or allow to
remain any waste or damage to any portion of the Premises, Subject to Section
6(b), Tenant shall repair or replace, subject to Landlord's direction and
supervision, any damage to the Building caused by a Tenant Party. If Tenant
fails to make such repairs or replacements within 15 days after the occurrence
of such damage, then Landlord may make them at Tenant's cost. If any such damage
affects any area outside the Premises or the HVAC, plumbing, mechanical, or
electrical systems of the Building or is visible in the lobby areas of the
Building or from outside the Premises, then Landlord may repair such damage at
Tenant's cost without delivering to Tenant any prior notice thereof. The cost of
any repair or replacement work performed by Landlord under this Section 5 shall
be paid by Tenant to Landlord within ten days after Landlord has delivered to
Tenant an invoice therefor.
(c) PERFORMANCE OF WORK. All work described in this Section 5 shall
be performed only by persons approved in writing by Landlord, in accordance with
all Laws and in a good and workmanlike manner so as not to damage the Building.
All such work which may affect the HVAC, electrical, plumbing, other mechanical
systems, or the Building's structural elements must be approved by the
Building's engineer of record, at Tenant's expense. Tenant shall not permit any
mechanic's liens to be filed against the Premises or the Building for any work
performed materials furnished, or obligation incurred by or at the request of
Tenant.
6. INSURANCE; WAIVERS; SUBROGATION; INDEMNITY.
(a) INSURANCE. Tenant shall at its expense procure and maintain
throughout the Term the following insurance policies; (1) commercial general
liability insurance in amounts of not less than a combined single limit of
$3,000,000 (the "INITIAL LIABILITY INSURANCE AMOUNT") insuring Tenant, Landlord,
Landlord's agents and their respective affiliates against all liability for
injury to or death of a person or persons or damage to property arising from the
use and occupancy of the Premises, (2) contractual liability insurance coverage
sufficient to cover Tenant's indemnity obligations hereunder, (3) insurance
covering the full value of all property and improvements in the Premises, (4)
workman's compensation insurance, containing a waiver of subrogation endorsement
reasonably acceptable to Landlord, and (5) business interruption insurance.
Tenant's insurance shall provide primary coverage to Landlord when any policy
issued to Landlord provides duplicate or similar coverage, and in such
circumstance Landlord's policy will be excess over Tenant's policy. Tenant shall
furnish certificates of such insurance and such other evidence satisfactory to
Landlord of the maintenance of all insurance coverages required hereunder, and
Tenant shall obtain a written obligation on the part of each insurance company
to notify Landlord at least 30 days before cancellation or a material change of
any such insurance. All such insurance policies shall be in form, and issued by
companies, reasonably satisfactory to Landlord.
(b) WAIVER OF NEGLIGENCE CLAIMS; NO SUBROGATION. Landlord and Tenant
each waives any claim it might have against the other for any damage to or
theft, destruction, loss or loss of use of any property, to the extent the same
is insured against under any insurance policy maintained by it that covers the
Building, the Premises, Landlord's or Tenant's fixtures, personal property,
leasehold improvements, or business, or is required to be insured by it against
under the terms hereof, regardless of whether the negligence or fault of the
other party caused such loss; however, Landlord's waiver shall not include any
deductible amounts on
-2-
<PAGE> 4
insurance policies carried by Landlord. Each party shall cause its insurance
carrier to endorse all applicable policies waiving the carrier's rights of
recovery under subrogation or otherwise against the other party.
7. CONDEMNATION; FIRE OR OTHER CASUALTY. If any part of the Building is
taken by right of eminent domain or conveyed in lieu thereof or if the Building
is damaged by fire or other casualty, either party may terminate this Lease by
delivering to the other written notice thereof.
8. TAXES. Tenant shall be liable for all taxes levied or assessed
against personal property, furniture, or fixtures placed by Tenant in the
Premises.
9. EVENTS OF DEFAULT; REMEDIES. Each of the following occurrences shall
constitute an "EVENT OF DEFAULT":
(a) Tenant's failure to pay Rent when due;
(b) Tenant's failure to perform, comply with, or observe any other
agreement or obligation of Tenant under this Lease and the continuance thereof
for 10 days after Landlord delivers to Tenant written notice thereof.
Upon any Event of Default, Landlord may, in addition to all other rights and
remedies afforded Landlord hereunder or by law or equity, terminate this Lease
by giving Tenant written notice thereof. Additionally, without notice, Landlord
may enter upon the Premises to perform any of Tenant's unperformed obligations
hereunder and alter locks or other security devices at the Premises to deprive
Tenant of access thereto, and Landlord shall not be required to provide a new
key or right of access to Tenant. Tenant shall pay to Landlord all costs
incurred by Landlord (including court costs and reasonable attorneys' fees and
expenses) in (1) obtaining possession of the Premises, (2) removing and storing
Tenant's or any other occupant's property, (3) performing Tenant's obligations
which Tenant failed to perform, and (4) enforcing, or advising Landlord of, its
rights, remedies, and recourses arising out of the Event of Default.
10. SURRENDER OF PREMISES. At the expiration or termination of Tenant's
right to possess the Premises, Tenant shall deliver to Landlord the Premises
with all improvements located thereon in good repair and condition, reasonable
wear and tear (and condemnation and fire or other casualty damage) excepted, and
shall deliver to Landlord all keys to the Premises. Tenant may remove all
unattached trade fixtures, furniture, and personal property placed in the
Premises by Tenant. Additionally, Tenant shall, at Landlord's option, remove
such alterations, additions, improvements, trade fixtures, equipment, wiring,
and furniture installed or placed in the Premises by Tenant as Landlord may
request. Tenant shall repair all damage caused by such removal. All items not so
removed shall be deemed to have been abandoned by Tenant and may be
appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord
without notice to Tenant and without any obligation to account for such items.
The provisions of this Section 10 shall survive the end of the Term.
11. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord may:
(a) make inspections, repairs, alterations, additions, changes, or
improvements, whether structural or otherwise, in and about the Building, or any
part thereof, for such purposes, enter upon the Premises and, during the
continuance of any such work, temporarily close doors, entryways, public space,
and corridors in the Building; interrupt or temporarily suspend Building
services and facilities; and change the arrangement and location of entrances or
passageways, doors, and doorways, corridors, elevators, stairs, restrooms, or
other public parts of the Building;
(b) take such reasonable measures as Landlord deems advisable for the
security of the Building and its occupants;
(c) enter the Premises at all reasonable hours to show the Premises
to prospective purchasers, lenders, or tenants.
12. MISCELLANEOUS.
(a) LANDLORD'S TRANSFER; LANDLORD'S LIABILITY. Landlord may transfer,
in whole or in part, the Building and any of its rights under this Lease. If
Landlord assigns its rights under this Lease, then Landlord shall thereby be
released from any further obligations hereunder. The liability of Landlord to
Tenant for any default by Landlord under this Lease shall be limited to Tenant's
actual direct, but not consequential, damages therefor and shall be recoverable
from the interest of the Landlord in the Building and the Land, and Landlord
shall not be personally liable for any deficiency.
-3-
<PAGE> 5
(b) NOTICES. All notices and other communications given pursuant to
this Lease shall be in writing and shall be (1) mailed by first class, United
States Mail, postage prepaid, certified, with return receipt requested, and
addressed to the parties hereto at the address specified in the Basic Lease
Information, (2) hand delivered to the intended address, or (3) sent by prepaid
telegram, cable, facsimile transmission, or telex followed by a confirmatory
letter. Notice sent by certified mail, postage prepaid, shall be effective three
business days after being deposited in the United States Mail; all other notices
shall be effective upon delivery to the address of the addressee. The parties
hereto may change their addresses by giving notice thereof to the other in
conformity with this provision.
(c) SEPARABILITY. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws, then the
remainder of this Lease shall not be affected thereby and in lieu of such clause
or provision, there shall be added as a part of this Lease a clause or provision
as similar in terms to such illegal, invalid, or unenforceable clause or
provision as may be possible and be legal, valid, and enforceable.
(d) AMENDMENTS; AND BINDING EFFECT. This Lease may not be amended
except by instrument in writing signed by Landlord and Tenant. No provision of
this Lease shall be deemed to have been waived by Landlord unless such waiver is
in writing signed by Landlord, and no custom or practice which may evolve
between the parties in the administration of the terms hereof shall waive or
diminish the right of Landlord to insist upon the performance by Tenant in
strict accordance with the terms hereof. The terms and conditions contained in
this Lease shall inure to the benefit of the be binding upon the parties hereto,
and upon their respective successors in interest and legal representatives,
except as otherwise herein expressly provided. This Lease is for the sole
benefit of Landlord and Tenant, and, other than Landlord's Mortgagee, no third
party shall be deemed a third party beneficiary hereof.
(e) ENTIRE AGREEMENT. This Lease constitutes the entire agreement
between Landlord and Tenant regarding the subject matter hereof and supersedes
all oral statements and prior writings relating thereto, except for those set
forth in this Lease, no representations, warranties, or agreements have been
made by Landlord or Tenant to the other with respect to this Lease or the
obligations of Landlord or Tenant in connection therewith. The normal rule of
construction that any ambiguities be resolved against the drafting party shall
not apply to the interpretation of this Lease or any Exhibits or amendments
hereto.
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE.
DATED as of the date first written above.
<TABLE>
<CAPTION>
LANDLORD TENANT
<S> <C>
TA/WESTERN, L.L.C. MYPOINTS.COM, INC.
a Delaware limited liability company
By: TA Realty Corp.,
a Massachusetts corporation, By: /s/ Robert C. Hoyler
its manager Name: _______________________
Title: ______________________
By: /s/ Scott Oran
Name: Scott Oran
Title: Regional Director
</TABLE>
-4-
<PAGE> 6
EXHIBIT A
[FLOOR PLAN DIAGRAM]
<PAGE> 7
EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply to the Premises, the
Building, the parking garage associated therewith, the Land and the
appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown of deposited therein. Damage resulting to any such fixtures or
appliances from misuse by a tenant or its agents, employees or invitees, shall
be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows or doors or other part of the Building without the prior written
consent of the Landlord. No nails, hooks or screws shall be driven or inserted
in any part of the Building except by Building maintenance personnel. No
curtains or other window treatments shall be placed between the glass and the
Building standard window treatments.
4. Landlord shall provide and maintain an alphabetical directory for all
tenants in the main lobby of the Building.
5. Landlord shall provide all door locks in each tenant's leased
premises, at the cost of such tenant, and no tenant shall place any additional
door locks in its leased premises without Landlord's prior written consent.
Landlord shall furnish to each tenant a reasonable number of keys to such
tenant's leased premises, at such tenant's cost, and no tenant shall make a
duplicate thereof.
6. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by tenants of any bulky material, merchandise or
materials which require use of elevators or stairways, or movement through the
Building entrances or lobby shall be conducted under Landlord's supervision at
such times and in such a manner as Landlord may reasonably require. Each tenant
assumes all risks of and shall be liable for all damage to articles moved and
injury to persons or public engaged or not engaged in such movement, including
equipment, property and personnel of Landlord if damaged or injured as a result
of acts in connection with carrying out this service for such tenant.
7. Landlord may prescribe weight limitations and determine the locations
for safes and other heavy equipment or items, which shall in all cases be placed
in the Building so as to distribute weight in a manner acceptable to Landlord
which may include the use of such supporting devices as Landlord may require.
All damages to the Building caused by the installation or removal of any
property of a tenant, or done by a tenant's property while in the Building,
shall be repaired at the expense of such tenant.
8. Corridor doors, when not in use, shall be kept closed. Nothing shall
be swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals shall be brought into or kept in, on or about any tenant's
leased premises. No portion of any tenant's leased premises shall at any time be
used or occupied as sleeping or lodging quarters.
9. Tenant shall cooperate with Landlord's employees in keeping its
leased premises neat and clean. Tenants shall not employ any person for the
purpose of such cleaning other than the Building's cleaning and maintenance
personnel.
10. To ensure orderly operation of the Building, no ice, mineral or
other water, towels, newspapers, etc. shall be delivered to any leased area
except by persons approved by Landlord.
11. Tenant shall not make or permit any improper, objectionable or
unpleasant noises or odors in the Building or otherwise interfere in any way
with other tenants or persons having business with them.
12. No machinery of any kind (other than normal office equipment) shall
be operated by any tenant on its leased area without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.
B-1
<PAGE> 8
13. Landlord will not be responsible for lost or stolen personal
property, money or jewelry from tenant's leased premises or public or common
areas regardless of whether such loss occurs when the area is locked against
entry or not.
14. No vending or dispensing machines of any kind may be maintained in
any leased premises without the prior written permission of Landlord.
15. All mail chutes located in the Building shall be available for use
by Landlord and all tenants of the Building according to the rules of the United
States Postal Service.
B-2
<PAGE> 1
Exhibit 10.17
PATENT LICENSE AGREEMENT
NETCENTIVES INC. AND MYPOINTS.COM, INC.
Effective this 31st day of March, 1999, (the "Effective Date") Netcentives Inc,
a corporation organized under the laws of California (hereafter "Netcentives"),
having a principal place of business at 690 Fifth Street, San Francisco, Ca.
94107, and MyPoints.com, Inc., a corporation organized under the laws of
Delaware (hereafter "MyPoints.com"), having a principal place of business at 565
Commercial Street, San Francisco, Ca. 94111, agree as follows:
ARTICLE I--PURPOSE OF THE AGREEMENT
1.1 Netcentives has an issued patent relating to Online Incentive and Loyalty
Systems.
1.2 The parties have jointly concluded that their respective needs and
interests will be served by the grant of a patent license from Netcentives to
MyPoints.com, in consideration for which MyPoints.com will make payment of
royalties to Netcentives, all under the conditions stated in the Articles of
this Agreement.
1.3 MyPoints.com has filed an action for declaratory relief as to whether it
has infringed or currently infringes the Netcentives patent referenced above.
MyPoints.com agrees to dismiss the complaint in that action, as well as any
other legal proceedings filed against Netcentives, within two days of the
Effective Date of this License Agreement. Nothing in this Agreement shall be
deemed to be an admission by either party as to infringement by that party of
any patent, or as to the validity of any patent, or as to the validity of any
claims set forth in the action for declaratory relief.
ARTICLE II--DEFINITIONS
2.1 IN-HOUSE PROGRAMs means: Any online incentives or rewards program or
system, or portion thereof, which:
2.1.1 Contains a product catalog, an awards catalog, and an account
information database; and
2.1.2 Is branded solely with MyPoints.com's owned or licensed trademarks,
(including, but not limited to, the MyPoints Program); and
2.1.3 Is not run, operated, maintained, licensed, set up, implemented or
serviced by MyPoints.com or a MyPoints.com Agent for a Third Party or on
behalf of a Third Party.
2.1.4 The parties acknowledge that email-based programs which do not
contain all three elements set forth in Section 2.1.1 (such as the
email-based program run by MyPoints.com under the brand "Bonus Mail" in the
form that such program exists as of the Effective Date) do not fall within
the definition of In-house Programs.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
CONFIDENTIAL March 31, 1999 Page 1 of 10
<PAGE> 2
2.2 LICENSED TERRITORy means: The United States and its Territories, as well as
any jurisdiction in which Netcentives has filed and received rights to practice,
or rights to exclude others from practicing, the inventions claimed in the
Patent. The extent of the Licensed Territory may expand from time to time, as
patent rights are granted in new jurisdictions.
2.3 MEDIAN POINT VALUE (OR MPV) means: During any fiscal quarter, the median
dollar value of single unit of Points in the entire Redemption Catalog of an
In-house Program or a Third Party Program. It is calculated using the
approximate retail value of items, services, or benefits in the Redemption
Catalog, divided by the number of Points required to redeem such items. (For
example, the [*] costs [*] MyPoints, and the dollar value is [*], which means
that for this item, the value of a MyPoint is [*]). The MPV will be calculated
by calculating this value for each item in the catalog, and taking the median of
the values. MPV will be determined based on catalog dollar values in effect 30
calendar days before the close of each fiscal Quarter, provided, however, that
MyPoints.com shall not alter the Redemption Catalog in such a manner that such
MPV is materially different from the MPV in the immediately preceding or
subsequent week.
2.4 MYPOINTS.COM AGENT means: a company or individual who is retained by
MyPoints.com to perform specific functions on behalf of MyPoints.com and under
MyPoints.com's direction or control, but does not include Third Parties for whom
MyPoints.com runs, operates, maintains, licenses, sets up, or implements a Third
Party Program. The MyPoints.com Agent does not receive any license rights under
Article III of this Agreement independent of the license granted to
MyPoints.com, and is not a sublicensee of the Patent or a beneficiary of any
rights thereto, except in the capacity of performing the specific functions on
behalf of MyPoints.com.
2.5 NETCENTIVES PATENT (OR PATENT) means: U.S. Patent No. 5,774,870 and
continuations, continuations-in-part, divisionals and foreign counterparts
thereof.
2.6 POINTS means: The units of value which end-users receive or accrue in an
In-house or Third Party Program.
2.7 REDEMPTION CATALOG means: The list of goods, services, or other benefits in
exchange for which end-users can redeem Points.
2.8 THIRD PARTY means: Any entity that is not MyPoints.com or Netcentives.
THIRD PARTY PROGRAMS means: Any online incentives or rewards program or system,
or portion thereof (but not including programs or systems that are solely e-mail
based), which:
2.9.1 contains a product catalog, a redemption catalog, and an account
information database; and
2.9.2 is run, operated, maintained, licensed, set up, or implemented by
MyPoints.com, with or without the assistance of a MyPoints.com Agent, for a
Third Party or on behalf of a Third Party (including, but not limited to,
MyPoints by GTE, and Prodigy Points).
2.1.4 The parties acknowledge that email-based programs which do not
contain all three
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
CONFIDENTIAL March 31, 1999 Page 2 of 10
<PAGE> 3
elements set forth in Section 2.9.1 (such as the email-based program run by
MyPoints.com under the brand "Bonus Mail" in the form that such program
exists as of the Effective Date) do not fall within the definition of Third
Party Programs.
ARTICLE III--LICENSE GRANT
3.1 IN-HOUSE PROGRAMS. Netcentives will grant to MyPoints.com a
non-transferable (except as provided in Article VI), non-sublicensable,
non-exclusive license under the Patent, in the Licensed Territory, to make, use,
reproduce, market, display, operate, and offer In-House Programs through
MyPoints.com Agents and MyPoints.com's employees.
3.2 THIRD PARTY PROGRAMS. Netcentives will grant to MyPoints.com a
non-transferable (except as provided in Article VI), non-sublicensable (subject
to Article 3.2.1), non-exclusive license under the Patent, in the Licensed
Territory, to make, use, reproduce, market, display, operate, and offer Third
Party Programs through MyPoints.com Agents and MyPoints.com's employees.
3.2.1 LICENSE NOTICE. MyPoints.com may run, operate, maintain, license, set up,
or implement Third Party Programs, provided however, that MyPoints.com must
include in its contract with each such Third Party for the operation of the
Third Party Program a provision stating that such Third Party Program is being
operated by MyPoints.com under a license for the Patent from Netcentives, and
that such Third Party will have no license under the License Agreement in the
event that MyPoints.com no longer provides such services to the Third Party.
MyPoints.com agrees that it will not run, sell, participate in, implement,
license, set up or maintain any such Third Party Program without requiring the
Third Party to sign such contractual term prior to implementation of such Third
Party Program. MyPoints.com will provide Netcentives with prompt notice of
termination of contracts with Third Parties for Third Party Programs, which
notice will in no event be provided more than 30 days after such termination.
ARTICLE IV--ROYALTIES, REPORTS, PAYMENT, AND AUDIT
4.1 ROYALTY OBLIGATION. In consideration of the licenses set forth in Article 3
above, MyPoints.com agrees to pay royalties to Netcentives as set forth in this
Article and in Exhibit A to this Agreement (or, if applicable, as set forth in
Article VI).
4.1.1 PRE AGREEMENT PERIOD ROYALTIES. For the period from the issuance of the
Patent to the Effective Date of this Agreement (the "Pre-Agreement Period")
MyPoints.com will pay royalties for Points distributed in the Licensed Territory
to end users pursuant to any In House or Third Party Programs to Netcentives
based on the schedule attached as Exhibit A to this Term Sheet. The
Pre-Agreement Period Points distributed will be included in the calculation of
the Points beginning at the first level of royalties on the schedule of Exhibit
A. This payment will be made within fifteen (15) days of signing of the License
Agreement.
CONFIDENTIAL March 31, 1999 Page 3 of 10
<PAGE> 4
4.1.2 RUNNING ROYALTY. MyPoints.com will pay Netcentives royalties consisting of
a percentage of the product of the MPV and all Points distributed in the
Licensed Territory to end users pursuant to any In House or Third Party
Programs. The royalty schedule is set forth on Schedule A to this Term Sheet.
4.2 REPORTS, PAYMENT AND AUDIT
4.2.1 TIMING OF REPORTS. MyPoints.com will make written reports to Netcentives
quarterly within thirty (30) calendar days after the first close of each fiscal
quarter. The first such report shall include the period of time between the
Effective Date of this Agreement and the close of the first fiscal quarter
occurring after the Effective Date.
4.2.2 CONTENT OF REPORTS. Each report shall state the number of Points
distributed during the preceding three calendar months, the MPV for that same
time period, and the product of the number of Points distributed and MPV, and
details on which the MPV calculations rely (list of goods in Redemption Catalog,
approximate retail value of such goods, number of Points required to redeem for
such goods) for the period of the preceding three calendar months. With each
report, MyPoints.com will provide the certification from one of its officers
that the calculations are correct and have been executed in compliance with this
License Agreement.
4.2.3 PAYMENTS. Concurrently with the making of each report required under this
Article, MyPoints.com will pay to Netcentives royalties at the rate specified in
this Article IV.
4.2.4 ROYALTY ACCOUNTING RECORDS. MyPoints.com will keep records showing the
Points distributed and MPV, such records to be in sufficient detail to enable
the royalties payable to Netcentives to be determined. MyPoints.com will also
permit its books and records to be examined from time to time as provided in
Article 4.2.5 to the extent necessary to verify the reports provided for in
Article 4.2.1 and 4.2.2, such examination to be made at the expense of
Netcentives by an independent auditor appointed by Netcentives who shall report
to Netcentives thereupon as provided in Article 4.2.5. In the event that the
royalties due are determined by the independent auditor to be more than 5%
greater than the royalties paid under Article 4.2.3 for any fiscal quarter,
MyPoints.com will have the option of remitting the difference and promptly
reimbursing Netcentives for the costs of the audit or submitting the matter to
arbitration pursuant to Article 9.3. If MyPoints.com elects to submit the matter
to arbitration and Netcentives elects to pursue the matter in arbitration, then
the losing party in the arbitration will pay for the auditors of both parties
and pay for the arbitration. Upon termination of this Agreement for any reason,
Netcentives shall have the right to have a final audit as provided in Article
4.2.5 conducted by an independent auditor appointed by Netcentives and paid by
Netcentives.
4.2.5 AUDIT PROCEDURES. Netcentives will have the right, at its own expense and
at any reasonable time or times, to cause a third party independent auditor not
engaged on a contingency basis and approved by MyPoints.com (not to be
unreasonably withheld) to inspect and audit the books and records of
MyPoints.com in order to verify the contents of the reports of Article 4.2.2
above. Any such audit (i) shall be conducted after reasonable prior notice,
during
CONFIDENTIAL March 31, 1999 Page 4 of 10
<PAGE> 5
normal business hours and at the location(s) where such books and records are
normally kept and (ii) may not be conducted more than once in any given twelve
(12) month period. Notwithstanding the foregoing, in the event that any such
audit results in a correcting payment (as provided in Section 4.2.4),
Netcentives shall have the right to conduct up to two (2) such audits in the
subsequent year. Such audit and the results thereof shall be confidential
(except for use, subject to reasonable protective orders to which the parties
shall stipulate, in connection with proceedings to compel a correcting payment
as set forth in Article 4.2.4), and MyPoints.com reserves the right to require
the auditor to execute an appropriate non-disclosure agreement before permitting
the inspection and audit to proceed. The auditor shall only report to
Netcentives the amount, if any, of royalties that MyPoints.com has overpaid or
underpaid under subparagraph (c) above and shall not disclose to Netcentives
either the detailed or underlying information supporting such conclusion or any
of such auditor's work papers. The auditor shall provide a copy of such report
to MyPoints.com concurrently with reporting to Netcentives.
ARTICLE V--REPRESENTATIONS AND WARRANTIES; LIMITATIONS
5.1 REPRESENTATIONS AND WARRANTIES. Each party represents and warrants that it
is a corporation in good standing under the laws of the state of its
incorporation; that it has the authority to enter into this Agreement; that it
has obtained all corporate approvals necessary to enter into this Agreement; and
that this Agreement is valid and binding and enforceable in accordance with its
terms. Netcentives further represents and warrants that it has all right, title,
and interest in the Patent.
5.2. LIMITATIONS. Nothing in this Agreement shall be construed as a warranty or
representation by either party as to the validity or scope of any patent; a
warranty or representation that anything made, used, sold, or otherwise disposed
of under any license granted in this Agreement is or will be free from
infringement of patents of third persons; a requirement that either party shall
file any patent application, secure any patent, or maintain any patent in force;
an obligation to bring or prosecute actions or suits against third parties for
infringement of any patent; an obligation to furnish any manufacturing or
technical information, or any information concerning pending patent
applications; conferring a right to use in advertising, publicity, or otherwise
any trademark or trade name of the party from which a license is received under
the Agreement; or granting by implication, estoppel, or otherwise any licenses
or rights under patents other than the Patent. Netcentives disclaims and
MyPoints.com accepts such disclaimer of any indemnity under this Agreement or by
operation of law.
ARTICLE VI--TRANSFERABILITY OF RIGHTS AND OBLIGATIONS
6.1 This Agreement may not be assigned or transferred by any party to a third
party without the prior written consent of the other party, unless the
assignment or transfer of this Agreement is part of an assignment or transfer of
all or substantially all of the assets of the party ("Change of Control"). In
the event of such a Change of Control of Netcentives (or any other transfer of
ownership of the Patent), all terms of this Agreement will remain in effect and
be binding on the assignee/transferee. In the event of such a Change of Control
of MyPoints.com, all terms of the
CONFIDENTIAL March 31, 1999 Page 5 of 10
<PAGE> 6
Agreement will remain in effect and be binding on the assignee/transferee,
including the royalty schedule set forth in Exhibit A for Points distributed;
provided, however, that if the Change of Control of MyPoints.com takes place
within three (3) years of the Effective Date, then the following royalty
schedule will apply from the later of (a) [*], or (b) the date on which the
Change of Control becomes effective:
year 1, [*] for all Points distributed;
year 2, [*] for all Points distributed;
year 3, [*] for all Points distributed; and
years 4 and later, [*] on all Points distributed thereafter.
ARTICLE VII--LICENSEE COOPERATION
7.1 PATENT MARKING. MyPoints.com agrees to observe the reasonable requirements
of Netcentives with respect to marking Third Party or In-house Programs under
license herein with the word "Patent", followed by the number 5,774,870, which
reasonable requirement will be satisfied by one such reference at one web page
(which page is reasonably accessible to a user seeking such notice) of each
Third Party Program or In-house Program in the Licensed Territory.
ARTICLE VIII--CONFIDENTIALITY.
8.1 TERMS CONFIDENTIAL. Except as set forth below in Article 8.2 of this
Agreement, the terms of this Agreement shall be confidential and shall not be
disclosed to any person or entity not a party to this Agreement, except the
disclosing party's attorneys, accountants, and investors who are bound by the
confidentiality provisions set forth herein, unless prior written consent is
obtained from the other party, or unless a court or administrative agency of the
United States or a state thereof orders such disclosure, provided, however, that
in the event that such disclosure is required, the parties will use good faith
efforts to maintain the confidentiality of any terms of this Agreement which are
not so required to be disclosed. Furthermore, the parties will not publicize or
disclose the pleadings and documents, and contents thereof, prepared in
connection with the litigation filed by MyPoints.com in this matter.
8.2 PUBLIC STATEMENT. The parties will not issue a press release announcing the
License Agreement or make other formal announcements primarily focused on or
highlighting the License Agreement, but may disclose the existence of this
Agreement, and may issue statements which are materially similar to the
statement set forth in Exhibit B to this Agreement, and may disclose the terms
set out in that statement.
8.3 EMPLOYEE INSTRUCTION. Netcentives will instruct its employees that they
should not represent that the existence of a license indicates that Netcentives'
technology is superior to that of MyPoints.com, or that MyPoints.com's
technology is inferior to that Netcentives. MyPoints.com will instruct its
employees that they should not represent that the existence of a license
indicates that MyPoints.com's technology is superior to that of Netcentives or
that Netcentives' technology is inferior to that of MyPoints.com.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
CONFIDENTIAL March 31, 1999 Page 6 of 10
<PAGE> 7
ARTICLE IX--GENERAL
9.1 NOTICES. Any notice, report, or payment provided for in this Agreement
shall be deemed sufficiently given when sent by certified or registered mail
addressed to the party for whom intended at the address given at the outset of
this Agreement or at such changed address as the party shall have specified by
written notice.
9.2 APPLICABLE LAW. This Agreement shall be construed, interpreted, and applied
in accordance with the laws of the State of California.
9.3 ARBITRATION. Any controversy or claim arising under or related to this
Agreement shall be settled by confidential arbitration in accordance with the
Patent Arbitration Rules of the American Arbitration Association before a single
arbitrator selected in accordance with those rules, and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
9.4 INTEGRATION. This instrument contains the entire and only Agreement between
the parties and supersedes all preexisting Agreements between them respecting
its subject matter. Any representation, promise, or condition in connection with
such subject matter that is not incorporated in this Agreement shall not be
binding on either party. No modification, renewal, extension, waiver, or
termination of this Agreement or any of its provisions shall be binding on the
party against whom enforcement of such modification, renewal, extension, waiver,
or termination is sought, unless made in writing and signed on behalf of such
party by one of its executive officers.
ARTICLE X--TERM AND TERMINATION
10.1 TERM. Unless otherwise terminated as provided in this Article, this
Agreement shall run to the end of the life of the Patent and shall thereupon
terminate.
10.2 TERMINATION FOR BREACH. Netcentives may terminate this Agreement at any
time in the event of a default by MyPoints.com in the due observance or
performance of any covenant, condition, or limitation of this License Agreement
required to be performed by MyPoints.com, but only if MyPoints.com shall not
have remedied its default within thirty (30) days after receipt from Netcentives
of written notice specifying such default in reasonable detail.
10.3 EFFECT OF INVALIDATION. In the event that the Patent is invalidated by a
final judgment of a court of proper jurisdiction royalties will cease for that
jurisdiction, but no refunds of royalties paid under the License Agreement prior
to the date of invalidation will be due. In the event that MyPoints.com
commences any litigation or other legal proceeding relating to this Patent
against Netcentives during the term of this Agreement, the license conferred in
Article III will be null and void as of the date of the filing of the Complaint
or other document commencing such proceeding.
10.4 SURVIVAL OF TERMS. The following terms shall survive any termination of
this
CONFIDENTIAL March 31, 1999 Page 7 of 10
<PAGE> 8
Agreement: Articles 1.3, 2, 4.1.2 (to the extent that royalty payments are due
for Points distributed prior to termination of this Agreement), 4.2, 5, 8.1,
9.2, 9.3, 10.3 and 10.4.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed and duly sealed in duplicate originals by its duly authorized
representative.
DATE: March 31, 1999 Netcentives Inc.
By: /s/ J.F. Longtinotti
-------------------------------------
Name: J.F. Longtinotti
Title: SVP/ CFO
DATE: March 31, 1999 MyPoints.com
By: /s/ Robert C. Hoyler
-------------------------------------
Name: Robert C. Hoyler
Title: President and COO
CONFIDENTIAL March 31, 1999 Page 8 of 10
<PAGE> 9
EXHIBIT A
ROYALTY SCHEDULE SCALE
o Payment of a [*] royalty on the first [*] dollars of Points distributed.
o Payment of a [*] royalty on the next [*] dollars of Points distributed.
o Payment of a [*] royalty on the next [*] dollars of Points distributed.
o Payment of a [*] royalty on the next [*] dollars of Points distributed.
o Payment of a [*] royalty thereafter on Points distributed.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
CONFIDENTIAL March 31, 1999 Page 9 of 10
<PAGE> 10
EXHIBIT B
PUBLIC STATEMENT
Netcentives and MyPoints.com have entered in a Patent License Agreement, in
which MyPoints.com has received a nonexclusive license to practice U.S. Patent
No. 5,774,870 and continuations, continuations-in-part, divisionals and foreign
counterparts thereof for the life of such patent.
CONFIDENTIAL March 31, 1999 Page 10 of 10
