<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 2000
REGISTRATION NO. 333-95009
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 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.
100 CALIFORNIA STREET, 11TH FLOOR
SAN FRANCISCO, CA 94111
(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.
100 CALIFORNIA STREET, 11TH FLOOR
SAN FRANCISCO, CA 94111
(415) 676-3700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
MARIO M. ROSATI, ESQ. LAIRD H. SIMONS III, ESQ.
CHRISTOPHER D. MITCHELL, ESQ. KATHERINE TALLMAN SCHUDA, ESQ.
ALEXANDER D. PHILLIPS, ESQ. PAMELA A. SERGEEFF, ESQ.
PAUL G. CASTOR, ESQ. FENWICK & WEST LLP
WILSON SONSINI GOODRICH & ROSATI, P.C. TWO PALO ALTO SQUARE
650 PAGE MILL ROAD PALO ALTO, CA 94306
PALO ALTO, CA 94304 (650) 494-0600
(650) 493-9300
</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. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(3)
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Common stock, $0.001 par
value......................... 4,600,000 shares(2) $59.82 $275,172,000 $72,646.00
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933.
(2) Includes 600,000 shares subject to the underwriters' over-allotment option.
(3) Previously paid.
------------------------
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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<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: (1) one
prospectus to be used in connection with an offering in the United States and
Canada and (2) one prospectus to be used in connection with a concurrent
offering outside of the United States and Canada. The U.S. prospectus and the
international prospectus are identical in all respects except for the front
cover page and the first two pages of the "Underwriting" section. The front
cover page and the first two pages of the "Underwriting" section of the
international prospectus are included immediately before the Exhibit Index of
this registration statement.
<PAGE> 3
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 IT IS NOT SOLICITING
AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 23, 2000
[MYPOINTS LOGO]
4,000,000 SHARES
COMMON STOCK
-------------------------
MyPoints.com, Inc. is offering 2,300,000 shares of common stock. The
selling stockholders identified in this prospectus are offering an additional
1,700,000 shares. MyPoints.com will not receive any of the proceeds from the
sale of the shares being sold by the selling stockholders.
Our common stock is quoted on the Nasdaq National Market under the symbol
"MYPT." The last reported sale price of the common stock on February 3, 2000 was
$44.88 per share.
-------------------------
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............................... $ $
Proceeds to the Selling Stockholders........................ $ $
</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.
The underwriters may also purchase up to an additional 600,000 shares at
the public offering price, less the underwriting discounts and commissions,
within 30 days of this prospectus to cover over-allotments.
-------------------------
Joint book-running managers
ROBERTSON STEPHENS MERRILL LYNCH & CO.
-------------------------
SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
The date of this prospectus is , 2000.
<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.
-------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 4
Risk Factors................................................ 7
Forward-Looking Statements.................................. 17
Use of Proceeds............................................. 18
Price Range of Common Stock................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 32
Management.................................................. 46
Transactions with Directors, Executive Officers and
Principal Stockholders.................................... 56
Principal and Selling Stockholders.......................... 59
Description of Capital Stock................................ 62
Shares Eligible For Future Sale............................. 65
Underwriting................................................ 67
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find Additional Information................... 69
Index to Financial Statements............................... F-1
</TABLE>
-------------------------
MyPoints, BonusMail and Rew@rds are registered service marks, and
MyPoints.com, the MyPoints logo, the MyPoints BonusMail logo, MyPoints
Shopping!, 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 internet direct marketing services
and customer loyalty infrastructure. Our database-driven direct marketing
service, MyPoints, offers direct marketers an approach to internet advertising
that is designed to enhance customer acquisition and retention efforts by
integrating targeted email and web-based offers with incentives to respond to
those offers. Our rewards-based shopping channel, MyPoints Shopping!, provides
web users with the ability to earn points for every dollar spent at select
retail sites. Points earned in the MyPoints program may be redeemed for a wide
variety of products and services, such as gift certificates, travel awards and
prepaid phone cards. Our approach to e-commerce provides internet consumers with
the opportunity to earn rewards by responding to direct offers and by shopping,
and provides businesses with an integrated set of online customer acquisition
and retention tools. In addition, we build and manage co-branded and private
label online customer loyalty programs for our loyalty partners.
When consumers enroll in the MyPoints program, they give us permission to
send them targeted online offers, and they receive rewards points for completing
surveys that provide us with demographic and behavioral information. MyPoints
members earn additional points by responding to direct marketing offers, making
online and offline purchases, and providing us with additional demographic and
behavioral data through surveys 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' interactions with promotional
offers, select retail sites, the completion of surveys and the redemption of
points.
We have built a member database containing more than six million consumer
data profiles. We principally earn revenues by delivering online direct
marketing offers to our membership base. We charge advertisers a fee based on
offers delivered, qualified responses generated and qualified purchases made. In
the fourth quarter of 1999, we provided direct marketing services to 284
advertisers, including leading brands such as BMG Entertainment, Garden.com,
MotherNature.com and Sprint. Our more than 50 rewards providers include Barnes &
Noble, Macy's, Sprint and Tower Records. According to PC Data, a leading web
rating service, the MyPoints.com web site, www.mypoints.com, was the internet's
fifth most popular shopping site in December 1999.
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 campaigns and
targeted offers.
Advertisers are committing relatively more dollars to online direct
marketing than to other forms of internet advertising, such as brand marketing
using banner advertisements. Forrester Research, a leading internet research
firm, projects internet advertising expenditures in the U.S. to increase from
$2.8 billion in 1999 to $22.2 billion in 2004. Forrester estimates that direct
marketing will account for 53% of total online advertising expenditures in the
U.S. in 2004, up from 15% in 1999.
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In addition to the growing use of the internet as a direct marketing
medium, as the number of internet users and web sites increases, the relative
importance to businesses of customer retention is also increasing. The most
recent survey by the web research firm NFO Interactive found that approximately
53% of online customers would increase the amount they spend in online
transactions if loyalty points were offered. As a result of these factors,
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 costs
of implementing and operating the programs 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 this aspect of their customer
retention programs to providers capable of delivering comprehensive loyalty
management services.
Because of continuing corporate interest in using the internet to acquire
customers, and because of the need for online businesses to find effective ways
to retain customers once they have attracted them, we believe there is a
significant opportunity for a company that can overcome the barriers to direct
marketing and loyalty on the internet, and bring cost-effective, integrated
direct marketing and loyalty solutions to the online market.
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 100 California
Street, 11th Floor, San Francisco, California 94111. 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........ 2,300,000 shares
Common stock offered by selling
stockholders................................ 1,700,000 shares
Common stock to be outstanding after the
offering.................................... 28,224,533 shares
Use of proceeds............................. For general corporate purposes,
including working capital,
membership expansion,
advertising, expansion of our
sales and marketing operations,
branding, technology
enhancements, new products and
services including international
ventures, funding of points
liability, expansion of network
infrastructure, as well as
possible strategic investments
or acquisitions. See "Use of
Proceeds."
Nasdaq National Market symbol............... MYPT
Common stock to be outstanding after the offering is based on 25,924,533
shares of common stock outstanding as of December 31, 1999. It does not include:
- 5,388,218 shares issuable upon exercise of stock options outstanding as
of December 31, 1999;
- 437,810 shares available for future grant or issuance under our stock
option and stock purchase plans as of December 31, 1999; and
- 277,477 shares issuable upon exercise of warrants outstanding as of
December 31, 1999.
Except as otherwise indicated, all of the information in this prospectus
assumes no exercise of the underwriters' over-allotment option.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
See Note 3 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of weighted average shares used in computing
per share data.
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<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
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<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 151 $ 1,286 $ 24,140
Gross profit............................................. 73 165 16,733
Total operating expenses................................. 3,018 8,494 54,683
Operating loss........................................... (2,945) (8,329) (37,950)
Net loss................................................. (2,889) (8,266) (37,456)
Net loss attributable to common stockholders............. $(2,889) $(8,266) $(47,256)
Net loss per share:
Basic and diluted...................................... $ (2.56) $ (4.37) $ (3.53)
Weighted average shares -- basic and diluted........... 1,127 1,890 13,397
</TABLE>
In the pro forma column, we have adjusted the actual balance sheet data to
give effect to receipt of the net proceeds from the sale in this offering of the
2,300,000 shares of common stock offered by us at an assumed public offering
price of $44.88 per share, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------
ACTUAL PRO FORMA
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 21,792 $118,586
Working capital............................................. 10,948 107,742
Total assets................................................ 55,669 152,463
Long-term obligations, less current maturities.............. 1,029 1,029
Accumulated deficit......................................... (58,478) (58,478)
Total stockholders' equity.................................. 28,853 125,647
</TABLE>
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RISK FACTORS
You should consider the risks described below before making an investment
decision. 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.
RISKS ASSOCIATED WITH OUR BUSINESS
WE HAVE ONLY A LIMITED OPERATING HISTORY THAT INVESTORS MAY USE TO ASSESS OUR
FUTURE PROSPECTS
We have only a limited operating history upon which you can evaluate our
business. We commenced operations in November 1996 and did not begin to generate
revenues until July 1997. We have not and may never generate sufficient revenues
to achieve profitability. Although we have experienced revenue growth in recent
periods, these growth rates may not be sustainable or indicative of our future
growth. We have limited experience addressing challenges 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. In addition, we have never operated during a
general economic downturn in the United States, which typically adversely
affects advertising and marketing expenditures and retail sales. Accordingly,
our limited operating history does not provide investors with a meaningful basis
for evaluating an investment in our common stock.
WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES TO CONTINUE AT LEAST THROUGH 2001
Our accumulated deficit as of December 31, 1999 was $58.5 million. We have
never operated profitably and, given our planned level of operating expenses, we
expect to continue to incur losses at least through 2001. 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 even if we
achieve our revenue targets, 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 losses could continue beyond our present
expectations.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS, WHICH COULD AFFECT
OUR STOCK PRICE
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. As
a result, our operating results may be below the expectations of public market
analysts and investors. In this event, the price of our common stock may fall.
The factors most likely to produce varied results include:
- the advertising budget cycles of individual advertisers;
- the number of reward points redeemed by our members and the costs
associated with these redemptions;
- changes in the mix of our business;
- 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; and
- unexpected costs and delays relating to the expansion of our operations.
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<PAGE> 9
Due to these 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.
OUR OPERATING RESULTS ARE SUBJECT TO SEASONAL FLUCTUATIONS THAT COULD IMPACT OUR
GROWTH AND AFFECT OUR STOCK PRICE
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 general economic conditions and consumer buying
patterns. The extent of these seasonal fluctuations in any period may be
difficult to predict and, if the fluctuations are greater than our expectations,
our growth rate would decline. In this event, the price of our common stock may
fall.
WE MAY HAVE DIFFICULTIES INTEGRATING RECENT AND FUTURE ACQUISITIONS AND ANY
FAILURE TO SUCCESSFULLY INTEGRATE ACQUIRED COMPANIES WOULD REDUCE OUR ABILITY TO
REALIZE THE ANTICIPATED VALUE OF THE ACQUISITION
We may pursue acquisitions in the future. Based on our experiences with our
first acquisition, we expect to face numerous risks and uncertainties generally
associated with acquisitions, including:
- potentially 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.
In November and December 1998, through our acquisition of Enhanced Response
Technologies, Inc. and a company 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 and April
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 incurred substantial costs.
During the relaunch of the integrated MyPoints program, we encountered several
unanticipated problems which resulted in significant periods of system downtime
during April 1999. During these periods of downtime, our web site was not
accessible by members. We believe that we have resolved the problems that caused
this downtime; however, there can be no assurance that we will not encounter
additional system-related problems.
In January 2000, we acquired Alliance Development Group, Inc., a company
that operates offline customer rewards programs. In connection with this
acquisition, we intend to integrate our technology with ADG's offline programs
to help make them more efficient. If we are unable to do this in a timely
manner, we may be unable to realize the anticipated benefits of this
acquisition. This transaction will be accounted for under the purchase method of
accounting. We expect to allocate
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$14.8 million of the purchase price to intangible assets and goodwill, which we
intend to amortize over one to eight years.
Our ability to meet the challenges associated with integrating acquired
companies 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 THE FAILURE TO MANAGE OUR GROWTH COULD STRAIN OUR
MANAGEMENT SYSTEMS AND RESOURCES
As we continue to increase the scope of our operations, we may not have an
effective planning and management process in place to implement our business
plan successfully. We have grown from 24 employees on January 1, 1998 to 213
employees on December 31, 1999. 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 SUCCESS DEPENDS ON OUR ABILITY TO MAINTAIN AND EXPAND AN ACTIVE MEMBERSHIP
BASE
Our success largely depends on our ability to maintain and expand an active
membership base. Our revenues are primarily driven by fees paid by advertisers
and direct marketers based on specific actions taken by our members. If we are
unable to induce existing and new members to actively participate in our
programs, our business, results of operations and financial condition will be
harmed. We generate a significant portion of our revenues based on the activity
of a small percentage of our members, and we cannot assure you that the
percentage of active members will increase. In addition, some of our members
have requested to limit the number of emails they receive from us. Although our
membership has grown in prior periods, we cannot be sure that our membership
growth will continue at current rates or increase in the future.
WE FACE INTENSE COMPETITION, AND THE FAILURE TO COMPETE EFFECTIVELY COULD
ADVERSELY AFFECT OUR MARKET SHARE AND RESULTS OF OPERATIONS
We face intense competition from both traditional and online advertising
and direct marketing businesses. We expect competition to increase due to the
lack of significant barriers to entry for online business generally. As we
expand the scope of our product and service offerings, we may compete with a
greater number of media companies across a wide range of advertising and direct
marketing services. Our ability to generate significant revenue from advertisers
and loyalty partners will depend on our ability to differentiate ourselves
through the technology and services we provide and to 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. Currently, several companies offer
competitive online products or services, including Cybergold and Netcentives. We
also expect to face competition from established online portals and community
web sites that engage in direct marketing and loyalty point programs, 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
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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. We may not be able to compete effectively, and competitive pressures may
result in price reductions, reduced gross margins and loss of our market share.
See "Business -- Competition."
THE FAILURE TO ESTABLISH THE MYPOINTS BRAND WOULD IMPAIR OUR COMPETITIVE
POSITION
We are highly dependent on establishing and maintaining our brand. Any
event or circumstance that negatively impacts our brand could have a direct and
material adverse effect on our business, results of operations and financial
condition. As competitive pressures in the online direct marketing industry
increase, we believe that brand strength will become increasingly important. 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 this experience. 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. 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 competitive position would suffer.
THE FAILURE TO ACCURATELY ESTIMATE LEVELS OF POINT REDEMPTION WOULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS AND COULD LEAD TO THE RESTATEMENT OF HISTORICAL
FINANCIAL RESULTS
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." If our assumptions do not prove accurate, our financial statements
may require restating, which could cause our stock price to decline and damage
our reputation. The breakage rates we have used in preparing our financial
statements and forecasts are based primarily on our limited experience with our
own program since its launch in May 1997. We have also reviewed breakage rates
reported by other operators of loyalty and rewards programs, such as airlines.
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 currencies. For
example, we extended the expiration date for the points associated with the
email portion of our program when we relaunched 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. In addition,
the timing of members' decisions to redeem points is at the discretion of
members and cannot be controlled by us. Points have a life of three to four
years and can be redeemed by members until their expiration date. To the extent
that members redeem points at a rate that is more rapid than that anticipated by
us, we would experience a need for increased working capital to fund these
redemptions. Accordingly, the timing of points redemptions by members could
materially and adversely affect our results of operations.
10
<PAGE> 12
A SMALL NUMBER OF OUR ADVERTISING CUSTOMERS ACCOUNTS FOR A SIGNIFICANT PORTION
OF OUR REVENUES; THEREFORE THE LOSS OF PRINCIPAL CUSTOMERS COULD ADVERSELY
AFFECT OUR REVENUES
No single advertising customer accounted for more than 10% of our revenue
in 1998 or 1999. Our four largest advertising customers were responsible for
approximately 30% of our revenues during 1998, and our ten largest advertising
customers were responsible for approximately 25% of our revenues during 1999. 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 revenues.
OUR PROSPECTS FOR OBTAINING ADDITIONAL FINANCING, IF REQUIRED, ARE UNCERTAIN AND
FAILURE TO OBTAIN NEEDED FINANCING COULD AFFECT OUR ABILITY TO PURSUE FUTURE
GROWTH
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. We cannot assure you that
additional financing will be available on terms favorable to us, or at all. 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 current stockholders. If adequate funds 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.
WE DEPEND ON THE SERVICES OF OUR EXECUTIVE OFFICERS AND KEY EMPLOYEES TO MANAGE
OUR GROWTH, AND THERE IS NO ASSURANCE WE CAN RETAIN THEIR SERVICES
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, Steven E. Parker, our Senior Vice President, Marketing, and
Frank J. Pirri, our Senior Vice President, Offline Commerce, joined us in
December 1998 as the result of acquisition transactions that took place in the
fourth quarter of 1998. Charles H. Berman, our Executive Vice President, Sales,
also joined us in 1998. Thomas P. Caldwell, our Senior Vice President, Finance
and Chief Financial Officer, joined us in April 1999. In addition, Eugene A.
Pierce, our Senior Vice President, Technology, joined us in the fourth quarter
of 1999. Our recently integrated management team has limited experience working
together.
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 AFFECT OUR REPUTATION
AMONG CONSUMERS
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
11
<PAGE> 13
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.
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 could be affected. This
breach could lead to financial losses through the unauthorized redemption of
points.
WE ARE VULNERABLE TO SYSTEM FAILURES WHICH COULD CAUSE INTERRUPTIONS OR
DISRUPTIONS IN OUR SERVICE
The hardware infrastructure on which the MyPoints system operates is
located at the Exodus Communications data center in Jersey City, New Jersey. In
April 1999, we 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 damage. We do not
currently have fully redundant systems or a formal disaster recovery plan.
Periodically we experience unscheduled system downtime, which results in
our web site being inaccessible to members. In particular, during the relaunch
of the integrated MyPoints program in April 1999, we experienced significant
periods of system downtime during which our web site was inaccessible. Although
we did not suffer material losses during these downtimes, if these problems
persist in the future, members and advertisers could lose confidence in our
services.
SYSTEM CAPACITY CONSTRAINTS MAY RESULT IN A LOSS OF REVENUES
A substantial increase in the use of our products and services could strain
the capacity of our systems, which could lead to slower response time or system
failures. System failures or slowdowns adversely affect the speed and
responsiveness of our rewards transaction processing. These would diminish the
experience for our members and reduce the number of transactions, and thus,
could reduce our revenue. Although we have designed and tested our system to
handle several times the highest daily transaction volume we have experienced to
date, the ability of our systems to manage this volume of transactions in a
production environment is unknown. As a result, we face risks related to our
ability to scale up to our expected transaction levels while maintaining
satisfactory performance. If our transaction volume increases significantly, we
will need to purchase additional servers and networking equipment to maintain
adequate data transmission speeds. The availability of these products and
related services may be limited or their cost may be significant.
12
<PAGE> 14
WE FACE RISKS ASSOCIATED WITH THIRD PARTY CLAIMS AND PROTECTION OF OUR
INTELLECTUAL PROPERTY RIGHTS, AND ANY LITIGATION RELATING TO INTELLECTUAL
PROPERTY RIGHTS COULD HARM OUR BUSINESS
Our business activities may infringe upon the proprietary rights of others,
and other parties may assert infringement claims against us. We have received
three claims of alleged infringement, one of which has been resolved through a
license agreement. We are currently in the process of negotiating the settlement
of a second claim, which was made by Cybergold, Inc. in May 1999. If this claim
cannot be resolved through a license or similar arrangement, we could become a
party to litigation with Cybergold. Also, in July 1999, we received an
infringement claim from another party, along with an offer to grant a license to
us at a cost that would not be material. To our knowledge, no litigation has
been filed against us based on this claim. We are evaluating the claim and have
not yet begun substantive discussions regarding it. Litigation may also 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 party's patent, or license alternative
technology from another party. Implementation of any of these alternatives could
be costly and time consuming, and might not be possible. In addition, any
intellectual property litigation, even if successfully defended, would result in
substantial costs and diversion of resources and management attention.
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 regarding 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 any competitive advantage incident to our proprietary rights.
See "Business -- Intellectual Property and Proprietary Rights."
AS WE EXPAND OUR BUSINESS INTERNATIONALLY, WE MAY NEED TO ADAPT OUR PRODUCTS AND
SERVICES AND WE MAY BE SUBJECT TO FOREIGN GOVERNMENT REGULATION AND TAXATION,
CURRENCY ISSUES, DIFFICULTIES IN MANAGING FOREIGN OPERATIONS AND FOREIGN
POLITICAL ECONOMIC INSTABILITY
An element of our growth strategy is to further introduce our services in
international markets. Our participation in international markets will be
subject to our potential inability to adapt, expand or enhance our products and
services to suit foreign markets. In addition, international operations are
generally associated with risks such as foreign government regulations, export
license requirements, tariffs and taxes, fluctuations in currency exchange
rates, introduction of the European Union common currency, difficulties in
managing foreign operations and political and economic instability. To the
extent our potential international members or our international partners are
impacted by currency devaluations, general economic crises or other
macroeconomic events, the ability of our members to utilize our services could
be diminished. In order to help us address some of the risks associated with
introducing our services internationally, we believe it will be necessary to
establish strategic relationships with international partners. We cannot assure
you that electronic commerce will develop successfully in international markets
or that potential members in these foreign markets will utilize incentives-based
marketing programs. Furthermore, we cannot assure you that we will be able to
overcome any legal restrictions related to offering rewards and incentives that
may exist in
13
<PAGE> 15
foreign jurisdictions. Any failure to develop our business internationally may
harm our competitive position and consequently our business.
RISKS ASSOCIATED WITH THE INTERNET INDUSTRY
IF THE ACCEPTANCE OF ONLINE ADVERTISING AND DIRECT MARKETING DOES NOT CONTINUE,
OUR REVENUES WOULD DECLINE
We expect to derive a substantial portion of our revenues from online
advertising and direct marketing, including both email and web-based programs.
If these services do not continue to achieve market acceptance, we cannot assure
you that we will generate business at 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 and advertising agencies that have historically relied on
traditional advertising may be reluctant or slow to adopt online advertising.
Many potential advertisers have limited or no experience using 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. If the market for online advertising fails to develop or
develops more slowly than we expect, our revenues would decline.
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.
IF ONLINE REWARDS PROGRAMS ARE NOT WIDELY ACCEPTED BY BUSINESSES AND INTERNET
USERS OUR BUSINESS MODEL WILL NOT SUCCEED
Our success depends in large part on the continued growth and acceptance of
online rewards programs. If online rewards programs are not widely accepted by
advertisers and embraced by internet users, our business model will not succeed.
Although loyalty and rewards programs have been used extensively in conventional
marketing and sales channels, they have only recently begun to be used online.
We cannot assure you that online programs will continue to be accepted by
advertisers and that we can continue to offer advertisers attractive promotions
and satisfied members. The success of our business model also will depend on our
ability to attract and retain members. We cannot assure you that our marketing
efforts and 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, will generate sufficient satisfied members.
TO REMAIN COMPETITIVE, WE MUST KEEP PACE WITH 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. We must 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.
14
<PAGE> 16
CONTINUED DEVELOPMENT AND USE OF THE INTERNET INFRASTRUCTURE IS CRITICAL TO OUR
ABILITY TO OFFER OUR SERVICES
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. 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.
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.
OUR BUSINESS DEPENDS ON OUR ABILITY TO COLLECT MEMBER INFORMATION; FUTURE
REGULATION OF THE INTERNET COULD RESTRICT OUR ACCESS TO THIS INFORMATION
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. In particular, our business
model could be severely damaged if regulations were enacted that restricted our
ability to collect or use information about our members.
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. The federal government,
state governments or other governmental authorities could also adopt or modify
laws or regulations relating to the internet.
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 might levy sales or use taxes on
electronic commerce transactions. An increase in the taxation of electronic
commerce transactions might also make the internet less attractive for consumers
and businesses. In addition, the Federal Trade Commission is considering the
adoption of regulations regarding the collection and use of personal information
obtained from individuals, especially children, when accessing web sites. These
regulations could restrict our ability to provide demographic data to our
advertising and marketing clients. At the international level, the European
Union has adopted a directive that will impose restrictions on the collection
and use of personal data. This directive could affect U.S. companies that
collect information over the internet from individuals in European Union member
countries and may impose restrictions that are more stringent than current
internet privacy standards in the United States. These developments could have
an adverse effect on our business, results of operations and financial
condition.
15
<PAGE> 17
RISKS ASSOCIATED WITH THIS OFFERING
SUBSTANTIAL CONTROL WILL REMAIN WITH OUR MANAGEMENT AND MAJOR STOCKHOLDERS AND
THIS COULD DELAY OR PREVENT A CHANGE OF CONTROL
We anticipate that our executive officers, our directors and entities
affiliated with them and our 5% stockholders together will beneficially own
approximately 30.5% of our outstanding common stock following the completion of
this offering. These stockholders, if they vote together, 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 might also have the effect of delaying or
preventing a change in control. See "Principal and Selling 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. These provisions, if used by our management, could
negatively affect our stock price. 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 28,224,533 shares of common
stock outstanding. Of these shares, 9,750,000 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.
Approximately 13,965,469 shares of common stock are subject to lock-up
agreements between the holders of those shares and the representatives of the
underwriters, under 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 May 14, 2000, subject to limited exceptions. FleetBoston Robertson
Stephens Inc. may release stockholders from the lockup agreement at any time and
without notice. Following the expiration of this lock-up period, 13,498,035
shares subject to the lock-up agreements will become available for immediate
resale in the public market subject, in some instances, to the volume and other
limitations of Rule 144. In addition, 1,666,885 shares will be eligible for sale
in the public market beginning on February 16, 2000, when the lock-up agreements
signed in connection with our initial public offering expire, and 1,145,841
shares will be eligible for sale in the public market beginning on April 9,
2000, subject to the volume and other limitations of Rule 144. Resales of a
substantial number of shares of our common stock into the public market could
cause its price to decline. This is particularly the case because a substantial
portion of our outstanding shares of common stock are held by persons who
purchased their shares at prices below recent market prices of our stock. See
"Shares Eligible for Future Sale."
OUR STOCK PRICE HAS BEEN VOLATILE, AND YOU MAY NOT BE ABLE TO SELL YOUR SHARES
AT A PROFIT
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 public offering price. In addition, our results of
operations during future fiscal periods might 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.
16
<PAGE> 18
YOU WILL EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF
YOUR INVESTMENT
The 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 $40.70 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 public offering price of $44.88 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses. The exercise of outstanding options and warrants may result
in further dilution. See "Dilution."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS OF THIS
OFFERING, AND WE CANNOT ASSURE YOU THAT WE WILL EFFECTIVELY EXPEND THE PROCEEDS
We intend to use the net proceeds from the sale of the common stock offered
by us for general corporate purposes including working capital, membership
expansion, advertising, expansion of our sales and marketing operations,
branding, technology enhancement, new products and services including
international ventures, funding of points liability and expansion of network
infrastructure. We have not determined how the proceeds will be allocated among
the anticipated uses. Accordingly, our management will have significant
flexibility and broad discretion in applying the net proceeds of this offering.
Our management may not apply these funds effectively. See "Use of Proceeds."
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use the words "anticipates," "believes," "plans," "expects,"
"future" and "intends" and similar expressions to identify forward-looking
statements. This prospectus also contains forward-looking statements attributed
to certain third parties relating to their estimates regarding the growth of
direct marketing and online loyalty programs. Our actual results could differ
materially from those anticipated in these forward-looking statements for many
reasons, including the risks faced by us described in "Risk Factors" and
elsewhere in this prospectus.
17
<PAGE> 19
USE OF PROCEEDS
Our proceeds from the sale of the 2,300,000 shares of common stock we are
offering are estimated to be $96.8 million ($103.2 million if the underwriters'
over-allotment option is exercised in full and we sell 150,000 shares under this
option) at an assumed public offering price of $44.88 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses.
We plan to use the proceeds for general corporate purposes, including
working capital, membership expansion, advertising, expansion of our sales and
marketing operations, branding, technology enhancement, new products and
services including international ventures, funding of points liability and
expansion of network infrastructure. We may also use some of the proceeds to
invest in or acquire other companies, technologies or products that complement
our business, although we are not currently planning any of these transactions.
Pending these uses, we will invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing securities.
The principal purposes of this offering are to obtain additional capital,
to create a larger public float for our common stock, and to allow for the
orderly liquidation of investments made by some stockholders.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol "MYPT" since August 19, 1999. Prior to that time, there was no public
market for the common stock. The following table sets forth, for the periods
indicated, the high and low prices per share of the common stock as reported on
the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1999
Third Quarter (since August 19, 1999)....................... $26.50 $ 8.00
Fourth Quarter.............................................. $97.69 $11.50
2000
First Quarter (through February 3, 2000).................... $76.88 $38.75
</TABLE>
On February 3, 2000 the reported last sale price of the common stock on the
Nasdaq National Market was $44.88. As of December 31, 1999 there were
approximately 227 stockholders of record.
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.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth:
- the actual capitalization of MyPoints.com at December 31, 1999; and
- the as adjusted capitalization, which gives effect to the sale in this
offering of 2,300,000 shares of common stock offered by us at an assumed
public offering price of $44.88 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Long-term obligations, less current maturities.............. $ 1,029 $ 1,029
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares
authorized, shares issued and outstanding:
Actual: 0 shares
As adjusted: 0 shares.................................. -- --
Common stock, $0.001 par value; 100,000,000 shares
authorized, shares issued and outstanding:
Actual: 25,924,533 shares
As adjusted: 28,224,533 shares......................... 26 28
Additional paid-in capital................................ 96,711 193,503
Deferred compensation..................................... (9,406) (9,406)
Accumulated deficit....................................... (58,478) (58,478)
-------- --------
Total stockholders' equity............................. 28,853 125,647
-------- --------
Total capitalization................................. $ 29,882 $126,676
======== ========
</TABLE>
This table excludes the following shares:
- 5,388,218 shares issuable upon exercise of stock options outstanding as
of December 31, 1999;
- 437,810 shares available for future grant or issuance under our stock
option and stock purchase plans as of December 31, 1999; and
- 277,477 shares issuable upon exercise of warrants outstanding as of
December 31, 1999.
See Note 8 of Notes to Consolidated Financial Statements.
19
<PAGE> 21
DILUTION
Our net tangible book value as of December 31, 1999 was approximately $21.1
million, or approximately $0.81 per share of common stock. 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 net tangible book value per share of our common stock
immediately after the offering. After giving effect to our sale of 2,300,000
shares of common stock in this offering at an assumed public offering price of
$44.88 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, 1999 would have been approximately $117.9
million, or $4.18 per share. This represents an immediate increase in net
tangible book value of $3.37 per share to existing stockholders and an immediate
dilution in net tangible book value of $40.70 per share to purchasers of common
stock in this offering.
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $44.88
Net tangible book value per share before offering......... $0.81
Increase per share attributable to new investors.......... 3.37
-----
Pro forma net tangible book value per share after
offering.................................................. 4.18
------
Net tangible book value dilution per share to new
investors................................................. $40.70
======
</TABLE>
The above table assumes that no options or warrants were exercised after
December 31, 1999. As of December 31, 1999, there were outstanding options to
purchase a total of 5,388,218 shares of common stock at a weighted average
exercise price of approximately $11.02 per share; 277,477 shares of common stock
issuable upon exercise of outstanding warrants at a weighted average exercise
price of $4.18 per share; and 437,810 shares of common stock reserved for
issuance under our stock plans. If all of these options and warrants had been
exercised on December 31, 1999, our pro forma net tangible book value on that
date would have been $178.4 million, or $5.26 per share, the increase in net
tangible book value per share attributable to new investors would have been
$2.68 per share and the dilution in net tangible book value to new investors
would have been $39.62 per share.
20
<PAGE> 22
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 years ended December 31, 1997, 1998 and 1999 and the balance sheet
data as of December 31, 1998 and 1999 are derived from our consolidated
financial statements that have been audited by PricewaterhouseCoopers LLP,
independent accountants, and are included elsewhere in this prospectus. The
statement of operations data for the period from November 7, 1996 (inception) to
December 31, 1996 and the balance sheet data as of December 31, 1996 and 1997
are derived from audited consolidated financial statements that are not included
in this prospectus.
<TABLE>
<CAPTION>
NOVEMBER 7, 1996 YEAR ENDED DECEMBER 31,
(INCEPTION) TO ---------------------------------------
DECEMBER 31, 1996 1997 1998 1999
----------------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ -- $ 151 $ 1,286 $ 24,140
Cost of revenues.......................... -- 78 1,121 7,407
------ ------- ------- --------
Gross profit............................ -- 73 165 16,733
Operating expenses:
Technology costs........................ 16 560 1,520 8,665
Sales and marketing expenses............ 36 1,669 4,513 30,247
General and administrative expenses..... 16 712 2,028 9,601
Amortization of intangible assets....... -- -- 275 3,116
Stock-based compensation................ -- 77 158 3,054
------ ------- ------- --------
Total operating expenses........ 68 3,018 8,494 54,683
------ ------- ------- --------
Operating loss............................ (68) (2,945) (8,329) (37,950)
Interest and other income (expense),
net..................................... 1 56 63 494
------ ------- ------- --------
Net loss................................ (67) $(2,889) $(8,266) $(37,456)
====== ======= ======= ========
Net loss attributable to common
stockholders............................ (67) $(2,889) $(8,266) $(47,256)
====== ======= ======= ========
Net loss per share:
Basic and diluted....................... $(0.08) $ (2.56) $ (4.37) $ (3.53)
====== ======= ======= ========
Weighted average shares -- basic and
diluted.............................. 891 1,127 1,890 13,397
====== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1997 1998 1999
------ ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $1,118 $ 2,948 $ 5,089 $ 21,792
Working capital (deficit)........................ 1,099 2,381 (307) 10,948
Total assets..................................... 1,205 3,474 18,306 55,669
Long-term obligations, less current maturities... -- 47 2,408 1,029
Accumulated deficit.............................. (67) (2,956) (11,222) (58,478)
Total stockholders' equity....................... 1,412 2,692 9,283 28,853
</TABLE>
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<PAGE> 23
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 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 Enhanced Response
Technologies, Inc. and a company affiliated with Experian, we acquired internet
and electronic commerce related assets and technologies through a series of
related transactions. Through these transactions, we acquired a technology
license for the operation of a web-based rewards program. In early March 1999,
we changed our corporate name to MyPoints.com, Inc. in order to unify our
corporate and brand identities. During March and April 1999, we integrated our
email and web-based direct marketing and rewards programs under the MyPoints
brand. In August 1999, we completed our initial public offering.
We generate substantially all of our revenues by delivering email and
web-based direct marketing offers 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 direct marketing services, we recognize revenues when an offer is
delivered, when a qualified response is received or when a product or service is
purchased, depending upon the pricing arrangement used. Pricing of our direct
marketing services is not based on the issuance of points to our members.
Under new and some existing advertising contracts and partnerships, we sell
points to private label partners and to advertisers for use in their promotional
campaigns. We initially defer revenue and estimated point costs associated with
the sale of points and recognize this revenue upon the expiration or redemption
of the underlying points. Under some new contracts, we may amortize some
associated fees and related costs over the life of these contracts.
Our revenues depend on 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 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.
We also offer technology licensing arrangements to customers seeking to
develop email or web-based direct marketing and loyalty programs. We entered
into our first license agreement in December 1998 with Sweden Post, the Swedish
postal service. Sweden Post is establishing a version
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<PAGE> 24
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 recognized revenue under this
agreement when the custom development work that we performed for Sweden Post was
completed and accepted by Sweden Post. In addition, we will recognize royalty
revenue as it is received from Sweden Post. We expect to enter into additional
licensing and royalty arrangements, particularly for international markets. We
also expect to derive revenues from several pending international initiatives.
We incurred a net loss of $8.3 million in 1998, and $37.5 million in 1999.
We intend to implement our strategies by spending substantial amounts on member
acquisition and retention, new product offerings, sales and marketing strategic
relationships, brand development 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.
RESULTS OF OPERATIONS FOR 1998 AND 1999
We completed the acquisitions of internet and electronic commerce related
assets from ERT and a company affiliated with Experian during November and
December 1998. Accordingly, actual results of operations for the years ended
December 31, 1998 and 1999 include results for the acquired businesses from the
dates of acquisition.
Revenues
For 1999, total revenues increased to $24.1 million from $1.3 million in
1998. The increase in revenues for 1999 as compared to 1998 was primarily
attributable to the following: (i) an increase in the number of direct marketing
offers to our members, (ii) an increase in our advertising customer base, and
(iii) an increase in average spending per advertiser. Additionally, we
recognized license revenues of $614,000 in 1999 attributable to our license
arrangement with Sweden Post.
Cost of Revenues
Cost of revenues represents the costs of points awarded to our members for
receiving and responding to advertisements and related purchasing activities
associated with our direct marketing offers as well as personnel costs
associated with creating, delivering and monitoring email campaigns. For 1999,
cost of revenues increased to $7.4 million from $1.1 million in 1998. As a
percentage of revenues, these costs decreased to 31% in 1999 from 87% in 1998.
The decrease in the cost of revenues as a percentage of revenues in 1999 as
compared to 1998 is primarily attributable to a higher number of
revenue-generating responses to direct marketing offers, as well as the
elimination of points cost associated with members' receipt of email direct
marketing offers. We eliminated this points cost because we discontinued our
practice of providing points to members for simply receiving our email direct
marketing offers. We discontinued this practice in April 1999. We now require
members to respond to email offers to earn points.
Technology Costs
Technology costs primarily consist of compensation for personnel associated
with the development of our technology and the maintenance of our proprietary
database. We expense
23
<PAGE> 25
technology costs as incurred. For 1999, technology costs increased to $8.7
million from $1.5 million in 1998. This increase was primarily due to increased
number of personnel and related expenses used to enhance and support our
proprietary database and products. We expect our technology costs to increase in
future periods as we continue to improve and enhance our direct marketing
technology and expand our membership database.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of payroll, sales
commissions and related expenses for personnel engaged in sales, marketing and
customer support, as well as advertising and promotional expenditures including
member acquisition costs. Member acquisition costs consist primarily of online
advertising, promotional costs and payments to partners, which may be in the
form of cash or points, to attract members to our email and web-based programs.
For 1999, sales and marketing expenses increased to $30.2 million from $4.5
million in 1998. This increase was primarily attributable to increased number of
personnel and related expenses required to implement our sales and marketing
strategy as well as increased promotional and advertising expenses. We expect
increases in sales and marketing expenses to continue in future periods as we
continue to hire additional marketing and sales employees, and continue to spend
more on member acquisition and promotions.
General and Administrative Expenses
General and administrative expenses consist primarily of payroll and
related costs for general corporate functions, including finance, accounting,
business development, human resources, investor relations, facilities and
administration, as well as legal fees, insurance, bad debt and fees for
professional services. General and administrative expenses increased to $9.6
million in 1999 from $2.0 million in 1998. This increase was primarily due to
the expansion of our corporate infrastructure, including the addition of finance
and administrative personnel. We expect general and administrative expenses to
increase in absolute dollars in future periods as we expand our administrative
staff to support the growth of our operations.
Amortization of Intangible Assets
As part of the acquisition of assets from ERT and a company affiliated with
Experian, in the fourth quarter of 1998, we recorded intangible assets related
to the acquired assets in the amount of $11.2 million. These intangible assets
include core technology, purchased trademark, assembled workforce and other
intangibles. These intangibles are being amortized over their estimated useful
lives of six months to five years. We recorded amortization of intangible assets
of $3.1 million in 1999 as compared to $275,000 in 1998. Amortization charges in
1998 were attributable to the acquisition of ERT and a company affiliated with
Experian, which was completed in the fourth quarter of 1998.
Stock-Based Compensation
As of December 31, 1999, we recorded aggregate deferred compensation
totaling $12.7 million in connection with the grant of stock options to
employees and consultants. This charge is being amortized over the vesting
periods of the options, which generally range from three to four years.
Stock-based compensation increased to $3.1 million during 1999 from $158,000
during 1998.
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<PAGE> 26
Interest Income
Interest income increased to $633,000 in 1999 from $87,000 in 1998. This
increase is primarily due to interest earned on higher average cash and
investment balances resulting from proceeds received from our initial public
offering which was completed in August 1999.
Income Taxes
We recorded a net loss of $37.5 million for 1999. Accordingly, no provision
for income taxes was recorded in the year and no tax benefit has been recognized
due to the uncertainty of realizing a future tax deduction for these losses.
RESULTS OF OPERATIONS FOR 1997 AND 1998
We completed the acquisitions of internet and electronic commerce related
assets from ERT and a company affiliated with Experian during November and
December 1998. Accordingly, approximately one month of operations of the
acquired businesses is 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
and rewards program was launched in May 1997 and began generating revenues in
July 1997. Our direct marketing 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 was 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 and Marketing Expenses
Our sales and marketing expenses increased to $4.5 million in 1998 from
$1.7 million 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. The marketing expense portion of
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.
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<PAGE> 27
Marketing payroll expense also increased in 1998 as we hired additional
marketing staff, including management staff.
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 opening 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 $1.4 million and $7.8 million for federal and 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 any future taxable income may be
restricted as a result of equity transactions that give rise to changes in
ownership under applicable federal and state income tax laws.
HISTORICAL QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited statement of operations
data. 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. The quarterly statement of operations data include
the same adjustments that are reflected in the financial statements included in
this prospectus. Our results of operations for
26
<PAGE> 28
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, MAR. 31, JUNE 30, SEPT. 30, DEC. 31
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 150 $ 156 $ 268 $ 712 $ 1,275 $ 2,663 $ 6,955 $ 13,247
Cost of revenues........ 137 108 255 621 878 999 2,153 3,377
------- ------- ------- ------- -------- -------- -------- --------
Gross profit........ 13 48 13 91 397 1,664 4,802 9,870
------- ------- ------- ------- -------- -------- -------- --------
Operating expenses:
Technology costs...... 204 328 402 586 968 1,423 2,658 3,616
Sales and marketing
expenses............ 387 860 1,495 1,771 2,564 7,321 7,486 12,876
General and
administrative
expenses............ 452 301 467 808 1,074 1,671 3,144 3,712
Amortization of
intangibles......... -- -- -- 275 832 802 733 749
Stock-based
compensation........ 63 19 43 33 449 710 800 1,095
------- ------- ------- ------- -------- -------- -------- --------
Total operating
expenses......... 1,106 1,508 2,407 3,473 5,887 11,927 14,821 22,048
------- ------- ------- ------- -------- -------- -------- --------
Operating loss.......... (1,093) (1,460) (2,394) (3,382) (5,490) (10,263) (10,019) (12,178)
Interest and other
income (expense),
net................. 23 22 -- 18 9 (41) 181 345
------- ------- ------- ------- -------- -------- -------- --------
Net loss................ $(1,070) $(1,438) $(2,394) $(3,364) $ (5,481) $(10,304) $ (9,838) (11,833)
======= ======= ======= ======= ======== ======== ======== ========
Net loss attributable to
common stockholders... $(1,070) $(1,438) $(2,394) $(3,364) $(15,281) $(10,304) $ (9,838) (11,833)
======= ======= ======= ======= ======== ======== ======== ========
</TABLE>
Revenues
Revenues increased sequentially in each of the last seven quarters. These
increases were a direct result of the increase in the number of direct marketing
offers delivered to our members base during 1998 and 1999. Direct marketing
offers generated nearly all of the revenues in each quarter of 1998 and 1999.
Gross Profit
Gross profit as a percentage of revenues increased from the first quarter
to the second quarter of 1998, decreased from the second to the third quarter,
increased from the third to the fourth quarter and increased sequentially from
the fourth quarter of 1998 through the fourth quarter of 1999. The increase in
gross profit in the last four quarters was due to a higher number of revenue
generating responses to the direct marketing offers. In addition, beginning in
the second quarter of 1999, we discontinued awarding points for receipt of email
direct marketing offers. The corresponding reduction in points cost increased
our gross profit in the second, third and fourth quarters of 1999.
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<PAGE> 29
Technology Costs
Technology costs increased each quarter from the first quarter of 1998
through the fourth quarter of 1999. The significant increase in the technology
costs over the last seven quarters is a result of increased hiring of technical
employees and consultants.
Sales and Marketing Expenses
Sales and marketing expenses increased in the second and third quarters of
1998, remained relatively constant during the fourth quarter of 1998 and
increased during each quarter of 1999. Online advertising and promotion
expenditures and the cost of points awarded to members for signing up and
completing enrollment forms increased significantly. These expenditures
contributed to the significant growth of membership. Sales expenses increased
due to an increase in sales commissions, sales personnel, travel, advertising
and promotional expenses during 1999.
General and Administrative Expenses
As a percentage of revenues, general and administrative expenses decreased
during each quarter of 1998 and 1999. The absolute dollar increase in the second
half of 1998 and all of 1999 was due to higher fees for professional services
and an increase in the number of administrative personnel.
ACQUISITION TRANSACTIONS
In November and December 1998, we entered into a series of transactions to
acquire internet and electronic commerce related assets from ERT and a company
affiliated with Experian. These 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
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
Employee workforce............................... 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 our initial public offering in August 1999, we purchased the
licensed technology for a payment of $2.6 million, which was equivalent to the
present value of the future minimum royalty payments at that time.
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<PAGE> 30
In January 2000, we acquired Alliance Development Group, Inc. a company
that operates offline customer rewards programs. We issued an aggregate of
270,000 shares of our common stock in this transaction. Based on the value of
our common stock on the date this acquisition closed, the aggregate purchase
price in the transaction was $16.7 million. We expect to account for this
transaction under the purchase method of accounting. As a result, we expect to
allocate $14.8 million of the purchase price to intangible assets and goodwill,
which we intend to amortize over one to eight years.
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 as well as our initial public offering in
August 1999. 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, $5.5
million in 1998 and $24.9 million in 1999. This increase in cash used in
operating activities was due to our expanded operations and primarily resulted
from an increase in technology costs, sales, marketing, and general and
administrative expenses. 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 $70,000 for depreciation and amortization and $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 $158,000 in stock-based compensation and $555,000 for
depreciation and amortization. In 1999, the net cash used by our $37.5 million
net loss and an increase of accounts and unbilled receivables of $13.0 million
was partially offset by a $6.9 million increase in points redemption liability,
non-cash charges of $4.9 million for depreciation and amortization and $3.1
million in stock-based compensation and a $9.7 million increase in accounts
payable and other liabilities.
Our working capital decreased from $2.4 million at December 31, 1997 to a
deficit of $307,000 at December 31, 1998 and increased to $10.9 million at
December 31, 1999. The decrease in 1998 directly resulted from a substantial
increase in points redemption liability. The points redemption liability is the
estimated cost associated with our obligation to redeem points distributed to
our member base. The increase in 1999 is a result of $51.5 million in proceeds
received from the sale of common and preferred stock as well as from an increase
in accounts receivable.
The total number of outstanding points issued to members as of December 31,
1997 and 1998 was 259.7 million and 1,407.4 million, respectively. In addition,
we assumed outstanding point balances of 120.3 million as of December 31, 1998
in connection with our acquisition of ERT and a company affiliated with
Experian. The outstanding points issued by us and acquired with the acquisition
transactions represented a points redemption liability of $519,000 at December
31, 1997 and $2.7 million at December 31, 1998. In April 1999, we consolidated
our program with the program run by the acquired companies. Our program points
were converted 5 to 1 (five old program points for one new program point) into
the new consolidated program points. Moreover, the points in the acquired
companies' program were converted 1 to 1 into the new program points.
Accordingly, the total number of outstanding points issued to members for which
we have a recognized liability as of December 31, 1999 was approximately 1.1
billion points with a redemption liability of $9.6 million. This liability was
calculated based on an assumption that 100% of points issued in 1997 and 80% of
points issued in 1998 and 1999 would be redeemed in the future. We use
historical redemption activity and individual member account activity to
determine our estimated redemption liability. The
29
<PAGE> 31
factors that are considered in our estimated redemption liability include points
held by terminated and inactive members, as well as those members we believe
will not respond to our direct marketing offers. This information is updated on
a quarterly basis. The total number of points issued by us and redeemed by
members was none in 1997, 22.5 million in 1998 and 227.0 million in 1999.
Points issued by us have a life of three to four years. Our current policy
is that unredeemed points will expire on December 31 of the third calendar year
following the calendar year in which such points are first deemed earned.
Although we do not anticipate making changes to our current policy we reserve
the right to alter point expiration terms at anytime. In the past, we have both
extended as well as reduced expiration terms of points. Members may redeem
points in their discretion at any time prior to the expiration of the points. We
fund point redemptions through our working capital resources. Because we cannot
control the timing of members' decisions to redeem points, should the rate of
redemption of points exceed our estimates, it could be necessary for us to
obtain additional working capital and our results of operations could be
materially and adversely affected.
Net cash used in investing activities was $353,000 in 1997, all of which
was used to acquire property and equipment, primarily computer equipment and
software. Net cash provided by investing activities was $1.4 million in 1998,
most of which was provided by an affiliate of Experian in connection with the
acquisition transactions. The net cash used in investing activities in 1999 was
$9.4 million, which was used primarily to acquire property, leasehold
improvements, computer equipment and software.
Net cash provided by financing activities was $4.2 million in 1997, $6.2
million in 1998 and $51.0 million in 1999. These amounts included net proceeds
of $41.2 million from our initial public offering in August 1999, net proceeds
of private equity financings of $4.1 million in 1997, $6.1 million in 1998 and
approximately $10.0 million in 1999, 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, 1998 and 1999, we entered into various non-cancelable capital
lease agreements including a capital equipment lease line for certain types of
capital expenditures. These capital lease agreements have terms ranging three to
five years with interest rates ranging from 7.2% to 18.0%. Our current payment
obligations under these notes, leases and capital lease lines are approximately
$45,000 per month.
At December 31, 1998 and 1999, we had cash and cash equivalents of $5.1
million and $21.8 million, respectively.
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 for at least the next 12
months. Thereafter, we may need to raise additional funds 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 June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for transactions entered into
30
<PAGE> 32
after March 31, 2000 and requires that all derivative instruments be recorded on
the balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and the type of hedge transaction. The ineffective portion of all hedges will be
recognized in earnings. We are currently assessing the impact of this statement.
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.
MARKET RISK
Our exposure to market risk for changes in interest rates is limited to the
exposure related to our debt instruments which are tied to market rates. We do
not plan to use derivative financial instruments in our investment portfolio. We
plan to ensure the safety and preservation of our invested principal funds by
limiting default risks, market risk and reinvestment risk. We plan to invest in
high-credit quality securities.
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<PAGE> 33
BUSINESS
MyPoints.com is a leading provider of internet direct marketing services
and customer loyalty infrastructure. Our database-driven direct marketing
service, MyPoints, offers direct marketers an approach to internet advertising
that integrates targeted email and web-based offers with incentives to respond
to those offers. Our rewards-based shopping channel, MyPoints Shopping!,
provides web users with the ability to earn points for every dollar spent at
select retail sites. Points earned in the MyPoints program may be redeemed for a
wide variety of products and services, such as gift certificates, travel awards
and prepaid phone cards. Our approach to direct marketing provides internet
consumers with the opportunity to earn rewards by responding to direct offers
and by shopping, and provides businesses with an integrated set of online
customer acquisition and retention tools. In addition, we build and manage
co-branded and private label online customer loyalty programs for our loyalty
partners.
According to PC Data, a leading web rating service, the MyPoints.com web
site, www.mypoints.com, was the internet's fifth most popular shopping site in
December 1999.
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 at the end of 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 at the end of 1998 to approximately $426 billion worldwide by the end
of 2002. The internet allows 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.
According to Jupiter Communications, a leading internet market research
firm, online direct marketing programs offer other 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;
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- high rates of response to direct marketing offers of between 5% and 15%,
compared to the click-through rates of traditional internet
advertising -- consisting of "banners" on web sites -- which have
reportedly declined from 2.0% to 0.5% over the past two years;
- low cost per email message of between $0.01 and $0.25, compared to $1.00
and $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.
Because of these advantages, advertisers are committing relatively more
dollars to online direct marketing campaigns than to other forms of internet
advertising, such as brand marketing using banner advertisements. Forrester
Research, a leading internet research firm, projects internet advertising
expenditures in the U.S. to increase from $2.8 billion in 1999 to $22.2 billion
in 2004. Forrester estimates that direct marketing will account for 53% of total
online advertising expenditures in the U.S. in 2004, up from 15% in 1999.
Online Loyalty Programs
Membership-based loyalty programs have long been a standard part of
companies' customer relationship management programs. Consumer loyalty programs
now operating in the United States serve businesses as diverse as supermarkets,
telecommunication companies, airlines, credit cards and music and book sellers.
As the numbers of internet users and web sites increase, the importance of
customer retention to online businesses 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.
Market Opportunity
Because of continuing corporate interest in using the internet to acquire
customers, and because of the need for online businesses to find effective ways
to retain customers once they have attracted them, we believe there is a
significant opportunity for a company that can overcome the barriers to direct
marketing and loyalty on the internet, and bring cost-effective, integrated
direct marketing and loyalty solutions to the online market.
THE MYPOINTS.COM SOLUTION
MyPoints.com is a leading provider of internet direct marketing services
and loyalty infrastructure. In the internet marketing sector, we believe that we
are the first to combine targeted email and web-based direct marketing offers
with a rewards program, called MyPoints. We provide our advertisers and loyalty
partners with online customer acquisition channels and retention tools.
By building our direct marketing service around the MyPoints program, we
believe we have overcome key barriers to effective direct marketing on the
internet. These barriers include inundation (the amount of email people
receive), spam (unsolicited commercial email) and anonymity (the difficulty of
matching a user's email address to a demographic profile). Our members opt into
the MyPoints program and we award them points for giving us personal
information. We inform our members that we will use the information to tailor
email offers to their interests and that they can earn additional points by
responding to those offers.
Consumers benefit from our direct marketing and loyalty programs through
the ability to earn and redeem points by interacting with our advertisers and
loyalty partners online. Advertisers and
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loyalty partners benefit from the ability to acquire and retain customers on the
internet cost-effectively.
Consumer Benefits
We have designed the MyPoints program to offer the following benefits to
members:
- Relevant Offers. The depth of our member database enables us to
accurately target advertisements to our members. 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 BMG Entertainment, Cooking.com, MotherNature.com and Sprint.
- Wide Variety of Rewards. We have designed our rewards programs to be
broad. 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, travel awards, prepaid phone cards and credits in other
popular rewards programs.
- 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 for major retailers such as Barnes & Noble and for
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.
- Engaging Member Experience. We have designed our web site to be highly
personalized and easy-to-use, featuring one-click purchase and redemption
capability. We provide personalized web and email interfaces that feature
the member's name and current point balance. Our members also have the
option to receive our email offers in rich-media format, such as HTML.
- 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, for whom we deliver
direct marketing messages, and our loyalty partners, for whom we build and
manage co-branded and private label online point programs, with a competitive
advantage in the acquisition of new customers and the retention of existing
customers:
- Integrated Approach to Online Direct Marketing. We believe we are the
first direct marketing provider that has integrated online direct
marketing with an online rewards program. This enables our advertisers to
increase consumer response rates by rewarding consumers who take
advantage of their targeted offers. The most recent survey by NFO
Interactive found that approximately 53% of online customers would
increase the amount they spend in online transactions if loyalty points
were offered.
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- Access to Our Proprietary Member Database. Our members provide us with
demographic, behavioral and transactional information. We use these
detailed member profiles to target offers, allowing our advertising
clients to reach the most relevant audience for their promotions and
increase consumer response rates.
- Detailed Real Time Reporting. Online direct marketing campaigns generally
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 the
current and future campaigns of our advertisers.
- 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.
- Rewards-Based Shopping Channel. We offer web retailers the ability to
take advantage of our traffic and our customer loyalty infrastructure by
joining MyPoints Shopping!, our rewarded shopping channel. Through
MyPoints Shopping!, retailers can join a select group of web businesses
that offer points for every dollar our members spend on their sites.
- 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. These programs
enable our loyalty partners to reward their users for a variety of
relationship-building activities, such as registering for a service or
customizing a home page. Additionally, the ability to reward consumers
enrolled in co-branded or private label loyalty programs for responding
to targeted email from our advertisers enables our loyalty partners to
provide consumers with substantial earning opportunities while
controlling the overall cost of the program. Our proprietary Digital
Loyalty Engine technology enables our business partners to design and
manage innovative and flexible online loyalty programs. We currently
operate or have agreed to operate loyalty programs on behalf of the
following companies: About.com, Excite@Home, FasTV, Food.com, Garden.com,
GTE, MyWay.com, NextCard, OurHouse.com, Prodigy, Providian Financial,
Talk City, USA.net, XOOM.com and ZDNet.
STRATEGY
Our objective is to build leading online consumer membership services and
to enable our advertising clients and loyalty partners to more easily and
effectively acquire and retain customers. Key elements of our strategy to
achieve this objective are to:
Expand Our Membership and Deepen Our Proprietary Database
We seek to continually expand the size of our membership base and deepen
our proprietary database to provide a large audience to our advertisers and the
ability to more accurately target messages to our members. 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.
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We also increase the depth of our database by tracking the transaction activity
of our members in the MyPoints program as our members respond to direct offers
and make purchases through our rewarded shopping channel, MyPoints Shopping!. We
will also continue to use 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 expertise 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 use our tools and technology to assist
merchants in targeting members for specific marketing promotions based on a
variety of targeting criteria, including demographic profile and past-purchase
behavior. As we implement campaigns, we will continue to accumulate additional
data and improve our targeting capabilities and technologies. Additionally, we
will continue to provide our advertisers with support services, including the
design and production of rich-media email and web-based offers and the graphical
interfaces for our partners' loyalty programs.
Increase Awareness of Our Brand
We seek to increase awareness of the MyPoints brand through consumer and
trade advertising campaigns and through partnerships with high-profile internet
brands. We also extend our brand presence through our association with the
strong brands of our rewards providers, advertisers and network of co-brand
loyalty partners.
We will also seek to leverage our loyalty partnerships to increase the
reach of our direct marketing services across the internet. Reach is defined by
Media Metrix, a leading web audience measurement firm, as "the percentage of
projected individuals within a designated demographic or market break category
that accessed the web content of specific site or category among the total
number of projected individuals using the web during the month." According to
Media Metrix, in November 1999 the MyPoints program and the MyPoints Network of
co-branded loyalty partnerships, fully implemented, would have had a combined,
unduplicated reach of 36.2% of the internet. We are still in the process of
implementing some of these partnerships.
Pursue "Clicks and Mortar" Opportunities
We define "clicks and mortar" as using online marketing activities to
motivate offline purchases. Forrester estimates that 70 million shoppers
researched products and services on the web in 1999, leading to more than $100
billion in offline purchases. By 2003, Forrester predicts that online purchases
will reach $108 billion, and that online marketing will influence approximately
$500 billion in purchases at offline stores.
We believe the challenge for many merchants in the years to come will be to
effectively establish consumer relationships online and then to attract
consumers to an offline store for the final purchase. We are implementing a
number of initiatives to build out a "clicks and mortar" business to take
advantage of this large market. On behalf of some of our advertisers, we give
our members the opportunity to sign up for services online, but to earn points
for their offline purchases. For example, through our relationship with Sprint,
we reward members to sign up for Sprint long distance through our web site and
for every time they use Sprint long distance, an offline activity.
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Maintain Our Technology Leadership
The MyPoints Digital Loyalty Engine, which underlies our rewards programs,
is a highly scalable software platform designed to serve the needs of our
members and business partners. The system currently supports more than six
million member accounts in proprietary, co-branded and private label loyalty
environments. We plan to continue developing and improving our technology to
meet the needs of a growing online marketplace. We also intend to continue to
leverage the technology and experience of Experian, a leading information
services and database management company and the parent of our largest
stockholder.
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 Enhanced
Response Technologies, Inc. and a company 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 investment
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. In addition, in January 2000, we acquired
Alliance Development Group, Inc., a company that operates offline customer
rewards programs. We intend to integrate our technology with ADG's offline
programs to make them more efficient.
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 at the end of 1998 to approximately
184 million by the end of 2002. Currently, we have signed agreements with
international partners including MetaLand, a leading Korean e-commerce site,
StarMedia, a leading Latin American portal, Sweden Post, the Swedish postal
service, TVSN, an Australian television shopping network, and Experian, a
subsidiary of The Great Universal Stores P.L.C. Our program with Sweden Post to
license a localized version of MyPoints BonusMail for the Swedish market has
been operational since May 1999. Sweden Post operates one of Europe's leading
electronic commerce web sites. We expect that we will announce other
international programs in the course of 2000.
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MYPOINTS.COM PRODUCTS AND SERVICES
The following table summarizes our products and services:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
PRODUCT/SERVICE DESCRIPTION SELECTED CLIENTS
- ------------------------------------------------------------------------------------------------------
MYPOINTS AND MYPOINTS Direct marketing system integrating targeted email - eBay
BONUSMAIL: Internet and web-based offers with incentive points to - BMG Entertainment
Direct Marketing respond to those offers - Intuit
Services - Macy's
- MotherNature.com
- Sprint
- ------------------------------------------------------------------------------------------------------
MYPOINTS SHOPPING!: Rewards-based shopping channel featuring select - Avon
Internet Direct online retailers with whom MyPoints members can earn - Hickory Farms
Marketing Services points for dollars spent - JC Penney
- Lands End
- Orvis
- ------------------------------------------------------------------------------------------------------
MYPOINTS NETWORK: Network of web sites that use a co-branded version - About.com
Internet Loyalty of our Digital Loyalty Engine technology to provide - Excite@Home
Infrastructure and their users with loyalty points to interact with - Food.com
Direct Marketing their on-site offerings - Garden.com
Services - GTE
- MyWay.com
- OurHouse.com
- Providian Financial
(Aria)
- Talk City - USA.NET
- ------------------------------------------------------------------------------------------------------
PRIVATE LABEL LOYALTY Private label loyalty programs based on our Digital - NextCard
PROGRAMS: Internet Loyalty Engine technology - Prodigy
Loyalty - XOOM.com
Infrastructure and - ZDNet
Direct Marketing
Services
- ------------------------------------------------------------------------------------------------------
LICENSING: Internet Licensing of proprietary internet direct marketing - Sweden Post
Direct Marketing and and loyalty technology
Loyalty
Infrastructure
- ------------------------------------------------------------------------------------------------------
</TABLE>
MyPoints and MyPoints BonusMail
The MyPoints program serves two primary constituencies, our members and our
advertising clients. 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 first direct marketing program that integrates electronic
commerce by email and web-based offers with the infrastructure to reward
consumers with points to respond to these offers.
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 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,
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including electronic gift certificates, travel awards, prepaid phone cards and
points in other loyalty programs. Members may also spend their points at
participating catalog sites where merchandise prices are denominated in points
for MyPoints members. Our rewards providers benefit from the MyPoints program
through increased revenue and additional customers.
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 Shopping!
In July 1999, we launched MyPoints Shopping!, a shopping service that
enables our MyPoints members to earn points by shopping online at a network of
internet merchants. We work with our retail partners to increase site traffic
and sales through our rewarded shopping channel, MyPoints Shopping!. The
following merchants are among those participating in the program: Avon, Hickory
Farms, JC Penney, Lands End and Orvis.
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
rewards 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 are co-branded with each partner. In these partnerships, the
currency always retains the MyPoints brand and we retain direct marketing rights
to the members generated by the service. We currently have agreements with the
following companies to participate in the MyPoints Network: About.com,
Excite@Home, Food.com, Garden.com, GTE, MyWay.com, OurHouse.com, Providian
Financial (Aria), Talk City and USA.NET.
We compensate each MyPoints Network partner with points and/or a cash
bounty for each new member the partner brings to the MyPoints program. Our
partner issues points as a loyalty tool to its users. 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 each partner 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.
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Private Label Loyalty Programs
We also build and operate fully customized, private label point programs
based on the MyPoints technology. We currently operate private label programs on
behalf of NextCard Internet VISA (NextCard Rewards), Prodigy (Prodigy Points)
and XOOM.com (XOOMPoints). We also have an agreement with ZDNet to develop and
implement a private label program named ZDNet Points on its behalf in the first
quarter of 2000. Private label loyalty programs operate in a manner similar to
the MyPoints Network programs, except that the points are branded exclusively
for our partners. In most cases, we may still market to our partners' members;
however, the marketing material we use is branded for our partners and the
points issued as a response incentive are in the form of our partners' branded
currencies. Our private label redemption options can also be adjusted to
maximize support for our partners' brands. For instance, we may include a
partner's own product line in the rewards chart, providing a set of redemption
options highly relevant to the partner's own consumer base. At all levels, a
private label loyalty program reinforces and builds loyalty to our partners'
brands, while at the same time expanding our direct marketing membership base.
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 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
At December 31, 1999, our advertising sales organization consisted of 46
employees located primarily in San Francisco, New York, Los Angeles and Chicago.
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. This organization is also responsible
for developing 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.
At December 31, 1999, our consumer marketing and business development
organization consisted of 31 employees in San Francisco, New York and Chicago.
This organization is dedicated to acquiring members for our online direct
marketing program. MyPoints consumer marketing group uses a variety of member
acquisition strategies, including referrals by current members, banner bars and
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 variety of affiliate programs in place, including one with Times
Company Digital, the internet business unit of The New York Times, under which
the MyPoints Program is an integrated feature in The New York Times on the Web's
registration process. Under the agreement, nytimes.com enables visitors to join
the MyPoints Program in the course of their online registration for The New York
Times on the Web.
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ADVERTISING CLIENTS AND REWARDS PROVIDERS
Set forth below is a list of our ten largest advertising clients, based on
the amount of revenues we generated during 1999:
Advertising Clients
<TABLE>
<S> <C>
AnyDay.com BMG Entertainment
drkoop.com Electronic News
Freeshop Garden.com
healthshop.com MotherNature.com
Sprint Zoomerang
</TABLE>
Our ten largest rewards providers, based on points redeemed as of December
31, 1999, are as follows:
Rewards Providers
<TABLE>
<S> <C>
Barnes & Noble Blockbuster Video
Brinker International Darden Restaurants
JCPenney Macy's
Sprint Target
Tower Records Toys 'R' Us
</TABLE>
MEMBER CARE
We have established a 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 is designed to answer member questions automatically.
Through this member inquiry system, customers contact us via a web form that
generates an email containing relevant customer account information for
efficient handling by our member care staff.
24-hour/7-day 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 an expandable, secure and reliable technology
infrastructure to support our online direct marketing and loyalty rewards
programs. The principal element of our proprietary technology is our Digital
Loyalty Engine. The Digital Loyalty Engine is an internet based software
application that enables our loyalty partners to set the parameters of
point-earning transactions
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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.
Expandability
To date, we have demonstrated that our architecture is capable of rapid
expansion. Membership in our direct marketing and loyalty programs has grown
from fewer than two million members in January 1999 to more than six million
members in January 2000. Our systems are also designed to capture a large amount
of data from our members, which is critical to the creation of a successful
online loyalty rewards program. In addition, our systems can 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-hour/7-day
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 would typically affect only a particular client or function and
would 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
centers in Jersey City, New Jersey and Oak Brook, Illinois. The Exodus data
centers provide redundant network connections, redundant connections to power
grids, diesel generators for emergency power, air conditioning and 24-hour/7-day
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.
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 in the online advertising market. 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. Online direct marketing service companies that we currently
compete with or may in the future compete with include 24/7 Media, DoubleClick,
Flycast Communications, MatchLogic, Netcreations and yesmail.com. In addition,
several other companies offer competitive online products,
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services and rewards programs, including Cybergold and Netcentives. We 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.
Therefore, although we believe we were the first company to integrate
online direct marketing with an online rewards program, we may face additional
competition from companies engaged in online direct marketing that introduce
rewards programs and from online rewards program providers that begin offering
direct marketing 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.
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 laws. We
have filed three patent applications in the United States. For some of these
applications, 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 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.
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Our business activities may infringe upon the proprietary rights of others,
and other parties may assert infringement claims against us. We have received
three claims of alleged infringement, one of which has been resolved through a
license agreement. We are currently in the process of negotiating a settlement
of the second claim, which was made by Cybergold in May 1999. If this claim
cannot be resolved through a license or similar arrangement, we could become a
party to litigation with Cybergold. Also, in July 1999, we received an
infringement claim from another party, along with an offer to grant a license to
us at a cost that would not be material. To our knowledge, no litigation has
been filed against us based on this claim. We are evaluating the claim and have
not yet begun substantive discussions regarding it. Litigation may also 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 party's patent, or license alternative
technology from another party. Implementation of any of these alternatives could
be costly and time consuming, and might not be possible. Accordingly, an adverse
determination in any litigation that might ensue between a third party and us
could have a material adverse effect on our business, results of operations and
financial condition. In addition, any intellectual property litigation, even if
successfully defended, would result in substantial costs and diversion of
resources and management attention and could therefore 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.
PRODUCT AND SERVICE WARRANTIES
When members purchase products in response to direct marketing offers that
we send them or redeem points for products and services, we pass on to these
members the warranties made by the manufacturers of products or providers of
services. We do not provide separate additional warranties.
EMPLOYEES
As of December 31, 1999, we employed 213 people, including 72 in sales and
marketing, 110 in technology and production and 31 in support, administration,
finance, management and human resources. We believe that we maintain good
relations with our employees.
FACILITIES
We are currently leasing approximately 40,000 square feet of office space
in San Francisco, California, approximately 23,000 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
Schaumburg. The lease for the San Francisco facility expires in November 2006,
with an option to extend the lease for an additional five years. The Schaumburg
facility is currently leased under a lease which expires in March 2001 and two
month-to-month leases. These leases will automatically convert into a 60-month
lease upon completion of improvements to our new Schaumburg facility.
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<PAGE> 46
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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<PAGE> 47
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, as of December 31, 1999, certain
information concerning our executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven M. Markowitz............ 29 Chief Executive Officer and Chairman of the Board
Robert C. Hoyler............... 49 President, Chief Operating Officer and Director
Thomas P. Caldwell............. 41 Senior Vice President, Finance and Chief Financial Officer
Charles H. Berman.............. 48 Executive Vice President, Sales
Eugene A. Pierce............... 42 Senior Vice President, Technology
Steven E. Parker............... 36 Senior Vice President, Marketing
Frank J. Pirri................. 59 Senior Vice President, Offline Commerce
Layton S. Han.................. 34 Vice President, Business Development
Howard L. Morgan............... 54 Director
Thomas Newkirk................. 54 Director
Lawrence E. Phillips........... 33 Director
Mario M. Rosati................ 53 Director
Lester Wunderman............... 79 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 Diversified Businesses unit. Mr. Hoyler holds a B.A.
from Loyola University and a Master of Management from J.L. Kellogg Graduate
School of Management, Northwestern University.
Thomas P. Caldwell joined us as our Senior Vice President, Finance and
Chief Financial Officer in April 1999. Prior to joining MyPoints.com, Mr.
Caldwell served as Senior Vice President, Finance and Administration, Chief
Financial Officer and Secretary of Dynamic Circuits, Inc., a printed circuit
board manufacturer, since November 1996. In July 1998, Dynamic Circuits, Inc.
was acquired by Dynamic Details, Inc., and at that time Mr. Caldwell was also
appointed to the position of Vice President, Strategic Development of Dynamic
Details, Inc. From May 1996 to November 1996, Mr. Caldwell served as Director,
Corporate Finance in the San Francisco office of Coopers & Lybrand L.L.P., an
accounting firm, where he provided financial consulting services. From February
1993 to May 1996, Mr. Caldwell served as a Vice President of Houlihan, Lokey,
Howard & Zukin, Inc., an investment banking firm. Mr. Caldwell holds a B.S. from
Santa Clara University and an M.B.A. from the University of Chicago, Graduate
School of Business.
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<PAGE> 48
Charles H. Berman has served as our Executive 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.
Eugene A. Pierce joined us as Senior Vice President, Technology in November
1999. Prior to joining MyPoints.com, Mr. Pierce served as the Chief Technology
Officer of LEXIS-NEXIS since November 1998, where he was responsible for the
system architecture for a database service that fielded more than 800,000
inquiries per day. From February 1997 to November 1998, Mr. Pierce worked as
Vice President of Development for Update Marketing in Vienna, Austria. Prior to
Update Marketing, Mr. Pierce held numerous management positions over a 15-year
period at AT&T GIS, Health Magic Incorporated and NCR Inc. Mr. Pierce holds a
B.S. from Wright State University and a Masters of Computer Science from Wright
State University.
Steven E. Parker has served as our Senior Vice President, Marketing since
July 1999. From November 1998 to July 1999, Mr. Parker served as our Vice
President, Product and Trade Marketing. From September 1997 to November 1998,
Mr. Parker served as Vice President, Marketing, for MotivationNet. From December
1995 to September 1997, Mr. Parker served as President of Select Brands, Inc.
From May 1990 to December 1995, Mr. Parker held several positions with Keebler
Company, most recently Director of Category Management and New Product
Development in Keebler's Diversified Businesses unit. Mr. Parker holds a B.S. in
Commerce from the McIntire School at the University of Virginia and an M.B.A.
from Loyola University.
Frank J. Pirri has served as our Senior Vice President, Offline Commerce
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.
Layton S. Han has served as our Vice President, Business Development since
April 1999. From November 1996 to April 1999, Mr. Han served as our Vice
President, Finance and Chief Financial Officer. 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 has also served as a General Partner of
Idealab! Corporation, an incubator of internet and e-commerce
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<PAGE> 49
companies, since January 1999. In addition, Dr. Morgan 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 of 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, 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 Marketing Solutions, a subsidiary
of the information services company Experian, since 1998. Mr. Newkirk founded
Direct Marketing Technology, a wholly-owned subsidiary of Experian, in 1981 and
has served as one of its directors since 1990. Mr. Newkirk holds a B.S. from
Massachusetts Institute of Technology.
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. From February 1995 to
April 1998, Mr. Phillips founded and managed an internet division for Primedia's
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 as a director of Sanmina
Corporation, Symyx Technologies, Inc., The Management Network Group, Inc., 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 and
is also a member of our board of advisors. Through December 1998, 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 of 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 provide that our board is divided into three classes,
Class I, Class II and Class III, with each class serving staggered three-year
terms. The Class I directors, Messrs. Markowitz, Morgan 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
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<PAGE> 50
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.
BOARD COMMITTEES
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 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 "Transactions with Directors,
Executive Officers and Principal Stockholders" for a description of transactions
between MyPoints.com and entities affiliated with members of our compensation
committee.
DIRECTOR COMPENSATION
We currently pay each of our directors $2,500 per quarter for their
services as members of the board of directors and an additional $2,000 for each
meeting they attend. We also reimburse them for reasonable expenses in
connection with attending our board and committee meetings. Each year, we grant
each of our outside directors an option to purchase 7,500 shares at a per share
exercise price equal to the fair market value at the time of grant. 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. In December 1999, we
granted Mssrs. Morgan, Newkirk, Phillips, Rosati and Wunderman each an option to
purchase 7,500 shares at a per share purchase price of $38.25.
EMPLOYMENT AGREEMENTS
In December 1999, our Board of Directors approved in principle the terms of
new employment agreements with Steven Markowitz, our Chairman and Chief
Executive Officer, and Robert Hoyler, our President and Chief Operating Officer.
The terms of these employment agreements include
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<PAGE> 51
annual salaries of $200,000 for Messrs. Markowitz and Hoyler and the
establishment of cash and stock option-based incentive compensation plans. The
terms of these agreements also provide for 18 months of severance pay in the
event of termination of employment under certain circumstances. In addition, if
within 18 months of a change of control of MyPoints.com, the employment of
either individual is terminated or either individual resigns as a result of a
decrease in compensation or work-related responsibilities, that individual will
be entitled to vesting of all then-unvested stock options as well as 18 months
of severance pay. MyPoints.com anticipates entering into these agreements during
the first quarter of 2000.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us during 1998 and
1999 to our Chief Executive Officer and our four next most-highly compensated
executive officers who received salary compensation of more than $100,000 during
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
---------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Steven M. Markowitz................... 1999 $140,000 $ -- 625,000 $ --
Chief Executive Officer and Chairman 1998 100,000 -- -- --
of the Board of Directors
Robert C. Hoyler...................... 1999 150,440 -- 440,000 --
President and Chief Operating 1998 139,682 -- -- --
Officer
Charles H. Berman..................... 1999 137,614 -- 164,905 171,760(1)
Executive Vice President, Sales 1998 76,000 -- 128,000 --
Steven E. Parker...................... 1999 129,509 -- 222,931 25,000(2)
Senior Vice President, Marketing 1998 107,312 5,000 27,069 --
Frank J. Pirri........................ 1999 156,895 -- 115,000 --
Senior Vice President, Offline 1998 109,384 -- -- --
Commerce
</TABLE>
- -------------------------
(1) Represents sales commissions.
(2) Represents a relocation bonus.
Messrs. Hoyler's and Pirri's salaries in 1998 include amounts earned at
MotivationNet before its acquisition by MyPoints.com. Thomas P. Caldwell joined
MyPoints.com in April 1999 at an annual salary of $150,000.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information relating to stock options
granted during 1999 to our Chief Executive Officer and our other executive
officers who received salary compensation of more than $100,000. All of these
options were awarded under our 1996 stock plan or our 1999 stock plan and have a
term of ten years from the date of grant.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED FOR OPTION TERM
OPTIONS IN FISCAL EXERCISE EXPIRATION ------------------------
NAME GRANTED(#) 1999 PRICE($/SH.) DATE 5%($) 10%($)
---- ---------- ------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Markowitz.. 350,000 6.2% $ 1.00 1/31/2009 $ 220,113 $ 557,810
90,000 1.6 8.00 4/12/2009 452,804 1,147,495
185,000 3.3 38.25 12/08/2009 4,450,216 11,277,720
Robert C. Hoyler..... 250,000 4.5 1.00 1/31/2009 157,224 398,436
90,000 1.6 8.00 4/12/2009 452,804 1,147,495
100,000 1.8 38.25 12/08/2009 2,405,522 6,096,065
Charles H. Berman.... 30,000 0.5 1.00 1/31/2009 18,867 47,812
60,000 1.1 8.00 4/12/2009 301,869 764,996
1,905 -- 8.00 5/12/2009 9,584 24,289
73,000 1.3 8.00 7/26/2009 367,274 930,746
Steven E. Parker..... 47,931 0.9 5.00 2/26/2009 150,718 381,948
90,000 1.6 8.00 5/12/2009 452,804 1,147,495
85,000 1.5 8.00 7/26/2009 427,648 1,083,745
Frank J. Pirri....... 90,000 1.6 8.00 4/12/2009 452,804 1,147,495
25,000 0.4 8.00 8/19/2009 125,779 318,748
</TABLE>
In 1999, we granted options to purchase an aggregate of 5,614,630 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. Because we are a
publicly-held company, the fair market value of our stock equals its trading
market price.
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% and 10%, 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 our common stock.
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<PAGE> 53
FISCAL YEAR-END OPTION VALUES
The following table sets forth information for our Chief Executive Officer
and our other executive officers who received salary compensation of more than
$100,000 in 1999, relating to the number and value of securities underlying
exercisable and unexercisable options held at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999(#) DECEMBER 31, 1999($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven M. Markowitz................ 241,458 383,542 $15,711,122 $22,392,629
Robert C. Hoyler................... 172,291 267,709 11,453,493 16,311,507
Charles H. Berman.................. 240,219 47,500 17,037,623 3,135,000
Steven E. Parker................... 44,756 155,507 2,971,357 10,446,543
Frank J. Pirri..................... 27,500 87,500 1,815,000 5,775,000
</TABLE>
The value of unexercised in-the-money options at December 31, 1999 above is
based on a value of $74.00 per share, the last reported sale price of our common
stock on the Nasdaq National Market on December 31, 1999, less the per share
exercise price, multiplied by the number of shares issuable 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. As of December 31, 1999, options to purchase an aggregate of
4,560,216 shares were outstanding, 178,475 shares of common stock had been
purchased pursuant to exercises of stock options and stock purchase rights, and
261,309 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 authorizing grants 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
interpretations 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 must be no less than 110% of the
fair market value and, for any service provider, the exercise price must 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. The maximum term of
options granted under the 1999 stock plan is 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 this cessation, or any other period
of time determined by the administrator, unless these
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<PAGE> 54
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 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. 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 would be made
pursuant to restricted stock purchase agreements, and the price to be paid for
the shares granted 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 rights equivalent to those of a stockholder.
1996 Stock Plan. Our 1996 stock plan was adopted by the board of directors
in November 1996. As of December 31, 1999, options to purchase an aggregate of
497,002 shares were outstanding, 420,950 shares of common stock had been
purchased pursuant to exercises of stock options and stock purchase rights and
17,881 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 interpretations 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 must 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 must be no less than 110% of the fair market value and, for
any service provider, the exercise price must 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 this cessation, or any other period
of time 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
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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 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 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 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 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, 60,380
shares of which have been issued as of December 31, 1999. The purchase plan is
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. Six-month offering periods 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.
1999 Supplemental Stock Plan. In December 1999, MyPoints.com's board of
directors approved our 1999 supplemental stock plan and reserved 350,000 shares
of our common stock for issuance under this plan. The 1999 supplemental stock
plan permits the grant of nonstatutory stock options to employees and
consultants. The 1999 supplemental stock plan does not permit the grant of
incentive stock options and does not permit the grant of options to executive
officers or directors of MyPoints.com. As of December 31, 1999, options to
purchase an aggregate of 331,000 shares of our common stock had been granted
pursuant to the 1999 supplemental stock plan.
Senior Management Incentive Plan. For fiscal year 2000, we have adopted a
senior management incentive plan under which our executive officers may receive
grants of options upon our achievement of various revenue and earnings targets.
The plan sets quarterly, semi-annual and annual targets.
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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 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.
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 this capacity, regardless of whether the bylaws would
permit indemnification. We have purchased directors and officers liability
insurance, which provides coverage against specified liabilities.
We have entered into indemnification agreements with our directors and
executive officers that provide for indemnification beyond what is 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.
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TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS
AND PRINCIPAL STOCKHOLDERS
MYPOINTS.COM TRANSACTIONS WITH ENHANCED RESPONSE TECHNOLOGIES, INC., 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
Enhanced Response Technologies, Inc., known as ERT, and a company 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 ERT, where the
outstanding shares and options of ERT 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, a targeted, web-based coupon program with a complementary
membership base, 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 are required for MyPoints.com to
operate and administer its programs; 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.
In August 1999, following completion of our initial public offering, we
made a $2.6 million payment pursuant to the license agreement. This amount
represented the present value of future royalties payable under the license
agreement. As a result of this payment, MyPoints.com will not have any future
royalty or other obligations under the license.
In January 2000, we signed a binding letter of intent with Experian to form
a European joint venture, called MyPoints Europe. We intend for the joint
venture to develop, implement and operate customer loyalty infrastructure
services, including internet database and direct marketing services, for
corporate clients in Europe. As part of this transaction, Experian will invest
approximately $13.0 million in the joint venture, and we will develop and
operate its programs.
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 $.001 per share, paid in
cash. These founders' shares are subject to a right of repurchase by us at the
original purchase of $.001 per share. This repurchase right lapsed as to
one-third of the shares upon
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issuance and lapses as to the remaining shares on a cumulative monthly basis
over a period of 48 months from the date of issuance of the shares.
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 issued to
various investors a total of 2,000,000 shares of Series E preferred stock at a
purchase price of $5.00 per share.
All shares shown below for Direct Marketing Technology represent shares
issued in exchange for the acquisition of MotivationNet, L.L.C. The shares of
Series D preferred stock shown below include 12,136 shares issuable upon
exercise of warrants held by each of Howard L. Morgan and Lester Wunderman.
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
--------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
HOLDERS OF MORE THAN 5%:
Direct Marketing Technology, Inc., a
wholly owned subsidiary of Experian.... -- -- 1,213,592 296,229
Long Island Venture Fund, L.P............. 1,000,000 333,333 -- --
Harold M. Brierley........................ 1,000,000 200,000 -- --
DIRECTORS:
Thomas Newkirk............................ -- -- 1,213,592 296,229
Lawrence E. Phillips...................... -- -- 1,165,049 68,109
Howard L. Morgan.......................... 133,333 33,333 36,408 16,743
Lester Wunderman.......................... -- 16,667 36,408 4,986
</TABLE>
Thomas Newkirk is Vice President, Secretary and Director of Direct
Marketing Technology, a wholly-owned subsidiary of Experian.
OTHER TRANSACTIONS
Harold M. Brierley, a former member of our board of directors and a holder
of more than 5% of our stock, 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, 1998 or 1999.
As of December 31, 1997 and 1998, we owed no amounts to Targeted Marketing
Systems. While a member of our board, Mr. Brierley received an option to
purchase 75,000 shares of our common stock. On June 4, 1998, Mr. Brierley
exercised this option.
Mario M. Rosati, one of our directors, and Christopher D. Mitchell, our
assistant secretary, are members of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, which has served as our
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outside corporate counsel since our formation. From our inception through
December 31, 1999, we have accrued a total of $819,166.65 in fees to Wilson
Sonsini Goodrich & Rosati.
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 our disinterested
stockholders.
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<PAGE> 60
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock, as of December 31, 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;
- each selling stockholder; 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., 100 California Street, 11th 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 for all of the shares of common stock held
by them.
This table lists applicable percentage ownership based on 25,924,533 shares
of common stock outstanding as of December 31, 1999, and also lists applicable
percentage ownership based on 28,224,533 shares of common stock outstanding
after completion of this offering. Options to purchase shares of our common
stock that are exercisable within 60 days of December 31, 1999 are deemed to be
beneficially owned by the persons holding these options 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. Shares underlying options that are deemed beneficially owned are
listed in this table separately in the column labeled "Shares Subject to
Options." These shares are included in the number of shares listed in the column
labeled "Total Number."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES TO BE BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
------------------------------------ -------------------------------------
SHARES SUBJECT SHARES SHARES SUBJECT
TOTAL TO OPTIONS AND TO BE TOTAL TO OPTIONS AND
BENEFICIAL OWNER NUMBER WARRANTS PERCENT SOLD NUMBER WARRANTS PERCENT
---------------- --------- -------------- ------- -------- ---------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS AND NAMED EXECUTIVE
OFFICERS AND DIRECTORS
Direct Marketing Technology, Inc..... 3,674,356 -- 14.2% -- 3,674,356 -- 13.0%
505 City Parkway West, 10th Floor
Orange, CA 92868
Long Island Venture Fund, L.P........ 1,333,333 -- 5.1 200,000 1,133,333 -- 4.0
145 Hofstra University, Suite 213
Business Development Center
Hempstead, NY 11550-1090
Harold M. Brierley(1)................ 1,275,000 -- 4.9 161,250 1,113,750 -- 3.9
1201 Main Street, Suite 2500
Dallas, TX 75202
Steven M. Markowitz.................. 1,164,711 320,936 4.4 77,181 1,087,530 320,936 3.8
Robert C. Hoyler..................... 638,116 199,374 2.4 45,280 592,836 199,374 2.1
Layton S. Han........................ 316,041 66,041 1.2 28,028 288,013 66,041 1.0
Charles H. Berman.................... 257,905 252,719 1.0 25,000 232,905 232,905 *
Frank J. Pirri....................... 152,819 40,000 * 15,280 137,539 40,000 *
Steven E. Parker..................... 90,103 70,366 * 8,954 81,149 70,366 *
Thomas P. Caldwell................... 72,500 72,500 * 7,250 65,250 65,250 *
Eugene Pierce........................ -- -- -- -- -- -- --
Thomas Newkirk(2).................... 3,771,126 6,770 14.5 -- 3,771,126 520 13.4
</TABLE>
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES TO BE BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
------------------------------------ -------------------------------------
SHARES SUBJECT SHARES SHARES SUBJECT
TOTAL TO OPTIONS AND TO BE TOTAL TO OPTIONS AND
BENEFICIAL OWNER NUMBER WARRANTS PERCENT SOLD NUMBER WARRANTS PERCENT
---------------- --------- -------------- ------- -------- ---------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence E. Phillips(3).............. 1,239,928 6,770 4.8% -- 1,239,928 6,770 4.4%
Howard L. Morgan..................... 353,150 145,469 1.4 35,315 317,835 145,469 1.1
Mario M. Rosati(4)................... 152,916 19,862 * -- 152,916 19,862 *
Lester Wunderman..................... 78,325 20,833 * 11,749 66,576 1,250 *
All directors and executive officers
as a group (13 persons)............ 8,287,640 1,221,640 30.5 266,876 8,020,764 1,175,993 27.3
OTHER SELLING STOCKHOLDERS
Amabel Investments Ltd............... 114,639 -- * 17,196 97,443 -- *
Auber Investments Limited............ 1,228,464 -- 4.7 184,270 1,044,194 -- 3.7
Virgil Bistriceanu................... 207,045 188,242 * 12,839 194,206 188,242 *
Peter Burnim......................... 11,810 3,641 * 817 10,993 3,641 *
Comoros LDC.......................... 78,169 -- * 11,725 66,444 -- *
Craig Muller, As Trustee For The
Craig Muller Trust U/T/A Dated
August 13, 1999.................... 672,271 -- 2.6 85,000 587,271 -- 2.1
India Cutler......................... 19,684 6,069 * 2,000 17,684 -- *
Delta Holdings Corporation........... 4,631 -- * 695 3,936 -- *
Noah J. Doyle........................ 606,770 3,646 2.3 39,284 567,486 3,646 2.0
Daniel K. Kihanya.................... 150,000 -- * 12,917 137,083 -- *
John Lorimer......................... 87,696 83,696 * 8,699 78,997 78,997 *
Muller Family Limited Partnership, An
Illinois Limited Partnership....... 130,000 -- * 15,000 115,000 -- *
Geoffrey Ossias...................... 77,500 53,750 * 7,265 70,235 53,750 *
Primedia Ventures.................... 1,233,158 -- 4.8 184,974 1,048,184 -- 3.7
RenRel Limited Partnership........... 38,566 -- * 5,785 32,781 -- *
RHL Ventures LLC..................... 133,333 -- * 16,666 116,667 -- *
The Simons Foundation................ 410,000 -- 1.6 89,317 320,683 -- 1.1
Elizabeth Simons..................... 144,000 -- * 41,439 102,561 -- *
Nathaniel Simons..................... 144,000 -- * 41,439 102,561 -- *
Nicholas Simons...................... 144,000 -- * 41,439 102,561 -- *
Audrey Simons........................ 144,000 -- * 41,439 102,561 -- *
Mark Silber.......................... 2,315 -- * 347 1,968 -- *
Craig Stevens........................ 6,582 -- * 987 5,595 -- *
Targeted Marketing Systems, Inc...... 200,000 -- * 30,000 170,000 -- *
Van Merkensteijn LLC................. 76,957 -- * 11,544 65,413 -- *
Wheatley Partners II, L.P............ 1,187,560 145,631 4.6 178,134 1,009,426 145,631 3.6
David Zelman, PhD.................... 23,304 -- * 3,496 19,808 -- *
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) 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.
(2) Includes 3,674,356 shares held by Direct Marketing Technology. Mr. Newkirk,
the Vice President, Secretary and Director 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.
(3) Includes 1,233,158 shares held by Primedia Ventures. Mr. Phillips, Managing
Director of Primedia, disclaims beneficial ownership of the shares held by
Primedia, except to the extent of his proportionate pecuniary interest
therein. Mr. Phillips is a member of our board of directors.
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(4) Includes 22,500 shares held by WS Investment Company 96B, 87,125 shares held
by WS Investment Company 97B and 10,124 shares held by WS Investment Company
98A. Mr. Rosati is a general partner of each of these entities and disclaims
beneficial ownership of the shares held by those entities, except to the
extent of his proportionate partnership interest therein. Mr. Rosati is a
member of our board of directors.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our certificate of incorporation authorizes the issuance of 100,000,000
shares of common stock, $.001 par value, and authorizes the issuance of
10,000,000 shares of undesignated preferred stock, $.001 par value. From time to
time, our board of directors may establish the rights and preferences of the
preferred stock. As of December 31, 1999, 25,924,533 shares of common stock were
issued and outstanding and held by 227 stockholders of record, options to
purchase 5,388,218 shares of common stock were issued and outstanding and held
by 251 optionholders, and warrants to purchase 277,477 shares of common stock
were issued and outstanding and held by 6 warrantholders.
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.
No shares of preferred stock are outstanding, and MyPoints.com has no
present plans to issue any shares of preferred stock.
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WARRANTS AND OTHER OBLIGATIONS TO ISSUE CAPITAL STOCK
As of December 31, 1999, we had outstanding warrants to purchase an
aggregate of 277,477 shares of our common stock. These warrants have a weighted
average exercise price of $4.18 per share. These warrants expire between 2000
and 2008.
REGISTRATION RIGHTS
After this offering, holders of 15,281,229 shares of common stock and
177,477 shares of common stock issuable upon exercise of outstanding warrants
(the "registrable securities") or their transferees will have rights to request
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 February 16, 2000, 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 a 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 exercised or 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 in August 2004 or, for each individual holder
of registrable securities, at any time the holder is able to sell all of its
shares in a 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 these
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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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 the manner specified in Section 203. 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 by
discouraging takeover attempts not approved in advance by the board of
directors, 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. Norwest's telephone number for stockholder inquiries is (800)
468-9716.
LISTING
Our common stock is quoted on the Nasdaq National Market under the trading
symbol "MYPT."
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SHARES ELIGIBLE FOR FUTURE SALE
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.
Upon completion of this offering, we will have outstanding 28,224,533
shares of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or warrants after December 31,
1999. Of these shares, the following are 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 4,000,000 shares sold in this offering;
- the 5,750,000 shares sold in our initial public offering in August 1999;
- an additional 892,457 shares, subject in certain instances to volume
resale limitations under Rule 144.
Of the remaining 17,582,076 shares of common stock, 13,965,469 shares held
by existing stockholders are subject to lock-up agreements with the underwriters
providing that the stockholder will not offer to sell, contract to sell or
otherwise sell, dispose of, loan, pledge or grant any rights 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, until May 14, 2000,
subject to limited exceptions, without the prior written consent of FleetBoston
Robertson Stephens Inc. As a result of these lock-up agreements, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701 under the Securities Act, 13,498,035 of these shares will not be
resellable until May 14, 2000. In addition, 183,717 of these shares will not be
resellable until 31 days after the date of this prospectus and 283,717 of these
shares will not be resellable until 61 days after the date of this prospectus.
FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any time
without notice, release all or any portion of the shares subject to lock-up
agreements.
Beginning on May 14, 2000, approximately 13,498,035 shares will be eligible
for sale in the public market. All of these shares will be subject to volume
limitations under Rule 144, except 8,078,430 shares eligible for sale under Rule
144(k) and 264,007 shares eligible for sale under Rule 701. In some cases, these
shares are subject to repurchase rights of MyPoints.com.
In addition, 1,666,885 shares will be eligible for sale in the public
market beginning on February 16, 2000, when the lock-up agreements signed in
connection with our initial public offering expire, and 1,145,841 shares will be
eligible for sale in the public market beginning on April 9, 2000, subject to
the volume and other limitations of Rule 144. As of December 31, 1999, there
also were outstanding warrants to purchase 277,477 shares of common stock, some
of which may be exercised prior to this offering.
In general, under Rule 144, as currently in effect, 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 282,245 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.
65
<PAGE> 67
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 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 contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell 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.
On December 2, 1999, we filed a registration statement on Form S-8
registering 5,548,494 shares of common stock subject to outstanding options or
reserved for future issuance under our employee benefit plans. As of December
31, 1999, options to purchase a total of 5,388,218 shares were outstanding, and
437,810 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 and shares subject to the lock-up agreements, will be available for
immediate resale in the open market.
Also, holders of 15,281,229 restricted shares and holders of warrants to
purchase 177,477 shares of common stock will be entitled to registration rights
on 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 immediately upon the effectiveness of the registration.
66
<PAGE> 68
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, acting as joint book-running managers, and Salomon Smith Barney
Inc., Bear, Stearns & Co. Inc. and J.P. Morgan Securities Inc., have each
separately agreed with MyPoints.com and the selling stockholders, subject to the
terms and conditions of the underwriting agreement, to purchase from
MyPoints.com and the selling stockholders the number of shares of common stock
set forth opposite their names below. The underwriters are committed to purchase
and pay for these shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................
Salomon Smith Barney Inc....................................
Bear, Stearns & Co. Inc.....................................
J.P. Morgan Securities Inc..................................
---------
Total......................................... 4,000,000
=========
</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 completion of this
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 or the selling stockholders 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.
FleetBoston Robertson Stephens Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated expect to deliver the shares of common stock to purchasers on
, 2000.
Over-Allotment Option. We and some of the selling stockholders have granted
to the underwriters an option, exercisable during the 30-day period after the
date of this prospectus, to purchase up to 600,000 additional shares of common
stock at the same price per share as we and the selling stockholders will
receive for the 4,000,000 shares that the underwriters have agreed to purchase
from us and the selling stockholders. 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 the underwriter shown in the
table above bears to the total number of the shares shown in the table above. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the 4,000,000 shares are being sold. We and the selling
stockholders 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 in this offering. If the option is exercised in full, the total
public offering price will be $206.4 million, the total underwriting discounts
and commissions will be $10.8 million, the total
67
<PAGE> 69
proceeds to us will be $103.2 million and the total proceeds to selling
stockholders will be $91.4 million at an assumed public offering price of
$44.88. The expenses of this offering are estimated at $1.0 million and are
payable entirely by MyPoints.com.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters, MyPoints.com and the selling stockholders against 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. All of our executive officers and directors, and a
substantial number of our stockholders have agreed, until May 14, 2000, not to
offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or
grant any rights 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 subsequently acquired directly by the holders or to which they have or
subsequently acquire the power of disposition, without the prior written consent
of FleetBoston Robertson Stephens Inc. However, FleetBoston 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
this lock-up period, except that Steven M. Markowitz may pledge up to 50,000
shares free of the lock-up.
Future Sales. In addition, we have agreed that during the period of 90 days
after the date of this prospectus, we will not, without the prior written
consent of FleetBoston Robertson Stephens Inc. and Merrill Lynch, Pierce, Fenner
& Smith Incorporated 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."
Share Purchase. In March 1999, Bayview Investors Ltd., an affiliate of
FleetBoston Robertson Stephens Inc., purchased 50,000 shares of Series E
preferred stock at a price of $5.00 per share. The purchase of these shares was
deemed by the National Association of Securities Dealers, Inc., to constitute
underwriting compensation in connection with our initial public offering.
Therefore, these shares cannot be sold, transferred, assigned, pledged or
hypothecated by any person until August 19, 2000, except to officers or partners
of the underwriters or members of the selling group and their officers or
partners.
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 a 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
68
<PAGE> 70
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 sold in this offering
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 December 31, 1999, investment partnerships and a member of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, beneficially owned an aggregate of
149,720 shares of common stock of MyPoints.com. Mario M. Rosati, one of our
directors and our secretary, and Christopher D. Mitchell, our assistant
secretary, are members of Wilson Sonsini Goodrich & Rosati. Of these shares,
16,666 are issuable upon exercise of options held by Mr. Rosati, which options
have an exercise price of $0.10 per share. From our inception through December
31, 1999, MyPoints.com, Inc. has accrued a total of $819,166.65 in fees to
Wilson Sonsini Goodrich & Rosati.
EXPERTS
The consolidated financial statements of MyPoints.com, Inc. at December 31,
1998 and 1999, and for each of the three years in the period ended December 31,
1999 included in this Prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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, included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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 for the common stock
sold in this offering. This prospectus does not contain all of the information
set forth in the registration statement and the accompanying exhibits and
schedule. For further information about MyPoints.com and our common stock, we
refer you to the registration statement and the accompanying exhibits and
schedule. 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 that reference. Copies of the registration
statement and the accompanying exhibits and schedule, 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 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.
69
<PAGE> 71
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
MYPOINTS.COM, INC. -- PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION
Overview.................................................... F-23
Pro Forma Consolidated Statement of Operations.............. F-24
Notes to Pro Forma Consolidated Statement of Operations..... F-25
ENHANCED RESPONSE TECHNOLOGIES, INC. COMBINED -- FINANCIAL
STATEMENTS
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-26
Combined Balance Sheets..................................... F-27
Combined Statements of Operations........................... F-28
Combined Statements of Shareholders' Deficiency............. F-29
Combined Statements of Cash Flows........................... F-30
Notes to Combined Financial Statements...................... F-31
</TABLE>
F-1
<PAGE> 72
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, 1998 and
1999, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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.
/s/ PricewaterhouseCoopers LLP
January 26, 2000
San Francisco, California
F-2
<PAGE> 73
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,089 $ 21,792
Accounts receivable, net.................................. 586 12,500
Unbilled receivables, net................................. 413 257
Deposits and prepaid expenses............................. 220 1,702
Other current assets...................................... -- 484
-------- --------
Total current assets................................... 6,308 36,735
Intangible assets........................................... 10,888 7,757
Restricted cash............................................. -- 2,208
Property and equipment, net................................. 1,041 8,891
Other assets................................................ 69 78
-------- --------
Total assets........................................... $ 18,306 $ 55,669
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 1,702 $ 13,842
Notes payable, current portion............................ 143 327
Obligations under capital leases, current portion......... 91 105
Other current liabilities................................. 479 --
Deferred revenue.......................................... 631 1,873
Software license liability, current portion............... 842 --
Points redemption liability............................... 2,727 9,640
-------- --------
Total current liabilities.............................. 6,615 25,787
Notes payable, less current portion......................... 179 932
Long-term debt.............................................. 240 --
Obligations under capital leases, less current portion...... 207 97
Software license liability, less current portion............ 1,782 --
-------- --------
9,023 26,816
-------- --------
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $0.001 par value; 0 and 10,000,000 shares
authorized at December 31, 1998 and 1999, respectively;
none issued and outstanding at December 31, 1998 and
1999................................................... -- --
Convertible preferred stock, $0.001 par value; 15,500,000
and 0 shares authorized at December 31, 1998 and 1999
respectively; 10,388,315 and 0 shares issued and
outstanding at December 31, 1998 and 1999
respectively........................................... 10 --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 6,015,727 and 25,924,533 shares issued and
outstanding at December 31, 1998 and December 31, 1999,
respectively........................................... 6 26
Additional paid-in capital................................ 22,851 96,711
Stock subscription receivable............................. (350) --
Deferred stock-based compensation......................... (2,012) (9,406)
Accumulated deficit....................................... (11,222) (58,478)
-------- --------
Total stockholders' equity............................. 9,283 28,853
-------- --------
Total liabilities and stockholders' equity........ $ 18,306 $ 55,669
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 74
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenue:
Advertising............................................... $ 151 $ 1,286 $ 23,526
License................................................... -- -- 614
------- ------- --------
Total revenue.......................................... 151 1,286 24,140
------- ------- --------
Cost of revenue:
Advertising............................................... 78 1,121 7,212
License................................................... -- -- 195
------- ------- --------
Total cost of revenue.................................. 78 1,121 7,407
------- ------- --------
Gross profit.............................................. 73 165 16,733
------- ------- --------
Operating expenses:
Technology costs.......................................... 560 1,520 8,665
Sales and marketing expenses.............................. 1,669 4,513 30,247
General and administrative expenses....................... 712 2,028 9,601
Amortization of intangible assets......................... -- 275 3,116
Stock-based compensation.................................. 77 158 3,054
------- ------- --------
Total operating expenses............................... 3,018 8,494 54,683
------- ------- --------
Operating loss.............................................. (2,945) (8,329) (37,950)
Interest income............................................. 64 87 633
Interest expense and other, net............................. (8) (24) (139)
------- ------- --------
Net loss............................................... (2,889) (8,266) (37,456)
Dividend related to beneficial conversion feature of
preferred stock........................................... -- -- (9,800)
------- ------- --------
Net loss attributable to common stockholders........... $(2,889) $(8,266) $(47,256)
======= ======= ========
Net loss per share:
Basic and diluted......................................... $ (2.56) $ (4.37) $ (3.53)
======= ======= ========
Weighted average shares -- basic and diluted.............. 1,127 1,890 13,397
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 75
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
CONVERTIBLE COMMON STOCK ADDITIONAL
----------------- --------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997........................ 3,000 $ 3 2,500 $ 3 $ 1,475
Issuance of Series B preferred stock for cash,
net of issuance costs of $4................... 500 1 496
Receipt of subscription receivable from common
stock.........................................
Issuance of Series C preferred stock for cash,
net of issuance costs of $7................... 2,400 2 3,591
Deferred stock-based compensation............... 465
Net loss........................................
------- ------- ------ --- -------
BALANCE, DECEMBER 31, 1997...................... 5,900 6 2,500 3 6,027
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....................................... 96 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
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 stock-based compensation............... 1,782
Net loss........................................
Repurchase of common stock...................... (181)
------- ------- ------ --- -------
BALANCE, DECEMBER 31, 1998...................... 10,389 10 6,015 6 22,851
Issuance of common stock for cash, net of
issuance costs of $1,575...................... 5,811 6 41,199
Receipt of subscription receivable from Series D
preferred stock...............................
Issuance of Series E preferred stock for cash,
net of issuance costs of $50.................. 2,000 2 9,948
Issuance of warrants............................ 807
Receipt of subscriptions receivable from Series
E preferred stock.............................
Beneficial conversion feature related to
issuance of preferred stock................... (9,800) 9,800
Dividend related to beneficial conversion
feature of preferred stock.................... 9,800
Exercise of warrants for cash................... 704 1 1,449
Cashless exercise of warrants................... 503 1
Exercise of stock options for cash.............. 478 209
Exercise of stock options for note receivable... 25
Conversion of preferred stock to common stock... (12,389) (12) 12,389 12
Net loss........................................
Deferred stock-based compensation............... 10,448
------- ------- ------ --- -------
BALANCE AT DECEMBER 31, 1999.................... -- $ -- 25,925 $26 $96,711
======= ======= ====== === =======
<CAPTION>
STOCK DEFERRED
SUBSCRIPTION STOCK-BASED ACCUMULATED
RECEIVABLE COMPENSATION DEFICIT TOTAL
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997........................ $ (2) $ -- $ (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 2
Issuance of Series C preferred stock for cash,
net of issuance costs of $7................... 3,593
Deferred stock-based compensation............... (388) 77
Net loss........................................ (2,889) (2,889)
------- ------- -------- --------
BALANCE, DECEMBER 31, 1997...................... -- (388) (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.................. (350) 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 stock-based compensation............... (1,624) 158
Net loss........................................ (8,266) (8,266)
Repurchase of common stock...................... --
------- ------- -------- --------
BALANCE, DECEMBER 31, 1998...................... (350) (2,012) (11,222) 9,283
Issuance of common stock for cash, net of
issuance costs of $1,575...................... 41,205
Receipt of subscription receivable from Series D
preferred stock............................... 350 350
Issuance of Series E preferred stock for cash,
net of issuance costs of $50.................. (9,950)
Issuance of warrants............................ 807
Receipt of subscriptions receivable from Series
E preferred stock............................. 9,950 9,950
Beneficial conversion feature related to
issuance of preferred stock...................
Dividend related to beneficial conversion
feature of preferred stock.................... (9,800)
Exercise of warrants for cash................... 1,450
Cashless exercise of warrants................... 1
Exercise of stock options for cash.............. 209
Exercise of stock options for note receivable...
Conversion of preferred stock to common stock...
Net loss........................................ (37,456) (37,456)
Deferred stock-based compensation............... (7,394) 3,054
------- ------- -------- --------
BALANCE AT DECEMBER 31, 1999.................... $ -- $(9,406) $(58,478) $ 28,853
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 76
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,889) $(8,266) $(37,456)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 70 555 4,901
Provision for bad debts................................. -- 60 1,228
Points redemption liability............................. 519 1,732 6,913
Barter revenues, net.................................... (20) (59) 67
Issuance of stock options to non-employees for
services............................................... -- 15 --
Stock-based compensation................................ 77 158 3,054
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables.......... (116) (639) (12,986)
Deposits and prepaid expenses......................... 2 (138) (1,482)
Other assets.......................................... -- (28) (61)
Accounts payable, accrued and other liabilities....... 52 878 9,679
Deferred revenue...................................... -- 258 1,242
------- ------- --------
Net cash used in operating activities............... (2,305) (5,474) (24,901)
------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (353) (358) (7,191)
Proceeds received pursuant to acquisition................. -- 1,747 --
Restricted cash........................................... -- -- (2,208)
------- ------- --------
Net cash (used in) provided by investing
activities.......................................... (353) 1,389 (9,399)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance
costs................................................... 4,090 6,084 10,300
Proceeds from issuance of common stock.................... 2 -- 41,205
Bank overdraft............................................ 54 (54) --
Borrowings under line of credit........................... 100 400 --
Repayments of borrowings.................................. (18) (160) (695)
Repayments of software license............................ -- -- (2,624)
Principal payments under capital lease obligations........ -- (53) (96)
Borrowings under capital lease line....................... -- -- 1,254
Exercise of stock options................................. -- 9 209
Exercise of warrants...................................... -- -- 1,450
------- ------- --------
Net cash provided by financing activities........... 4,228 6,226 51,003
------- ------- --------
Net increase in cash and cash equivalents........... 1,570 2,141 16,703
Cash and cash equivalents, beginning of period.............. 1,378 2,948 5,089
------- ------- --------
Cash and cash equivalents, end of period.................... $ 2,948 $ 5,089 $ 21,792
======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 12 $ 34 $ 194
======= ======= ========
Noncash transactions:
Equipment acquired under capital leases................... $ 22 $ 329 $ 139
======= ======= ========
Cashless exercise of warrants............................. $ -- $ -- $ 1,407
======= ======= ========
Conversion of preferred stock to common stock............. $ -- $ -- $ 12
======= ======= ========
Exercise of stock options for notes receivable............ $ -- $ -- $ 200
======= ======= ========
Exchange of advertising services.......................... $ 20 $ 128 $ 85
======= ======= ========
Issuance of capital stock for business acquisition........ $ -- $(8,582) $ --
======= ======= ========
Stock subscription receivable............................. $ -- $ 350 $ --
======= ======= ========
Stock options issued to non-employees..................... $ -- $ 277 $ --
======= ======= ========
Warrants issued to non-employees.......................... $ -- $ 12 $ 807
======= ======= ========
Deferred stock compensation from issuance of options...... $ 465 $ 1,782 $ 10,448
======= ======= ========
Disposal of fully depreciated assets...................... $ -- $ -- $ 54
======= ======= ========
Property and equipment included in accounts payable....... $ -- $ -- $ 1,982
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 77
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 responding to advertisements. Rewards points may be
redeemed by members for promotional awards provided by the Company. The Company
has determined that it does not have any separately reportable business segments
as of December 31, 1999.
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.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements as of December 31, 1998 and 1999 and for the years
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
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.
F-7
<PAGE> 78
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 outstanding points, less an allowance for
points expected to expire prior to redemption, which may be converted by
enrolled members into various third party gift certificates, frequent travel
programs, 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, if and when such members seek to redeem accumulated points
upon reaching required redemption thresholds. The cost of points is determined
as the weighted average cost of awards that may be redeemed. Under the current
program, points are valid through December 31st of the third calendar year
following the date they are awarded to a member and may be redeemed at any time
prior to expiration. The Company bases its estimate of points that will not be
redeemed on an analysis of historical redemption activity and individual member
accounts. This analysis is updated quarterly. At December 31, 1998 and December
31, 1999, the allowance for unredeemed points was $563,000 and $2.8 million,
respectively. As of December 31, 1999 the gross points redemption liability is
$12.4 million.
Membership development costs include the cost of points awarded to members
upon initial enrollment and subsequently for responding to surveys conducted by
the Company. Costs are charged to marketing expense as incurred, and amounted to
$442,000, $764,000 and $2,274,000 for the years ended December 31, 1997, 1998
and 1999.
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
F-8
<PAGE> 79
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the internet. It is the Company's policy to recognize revenues when email is
transmitted to members, when responses are received and when the Company is
notified of purchases. Each of these activities are discrete, independent
activities, which generally are specified in the advertising sales agreement
entered into with the customer. As the earning activities take place, activity
measurement data e.g., number of emails sent, and number of responses received
is accumulated and the related revenues and unbilled receivables are recorded.
Thus, unbilled receivables are recorded as the earning activities for a campaign
are being performed.
Under new and certain existing advertising contracts and partnerships, the
Company sells points to private label partners and advertisers for use in such
partners or advertisers' promotional campaigns. The Company is responsible for
redeeming member's points upon the balance reaching required thresholds and
request by the member recipients of points. Revenues and estimated point costs
under these contracts are deferred until the time points are redeemed and an
award is provided by the Company. The Company expects that sales of points will
likely represent a decreasing percentage of its business in the future, but
expects to continue to participate in the sale of points business.
On December 23, 1998, the Company entered into a license agreement to grant
a third party a limited exclusive license to use certain software technology
developed by the Company. Under the agreement the Company was required to
perform significant customization of the software. The Company accounts for the
entire agreement under Accounting Research Bulletin No. 45, Long Term
Construction-Type Contracts, using the completed-contract method. Income is
recognized upon the third party's acceptance of the software, and all costs and
related revenue are reported as deferred items in the balance sheet until that
time. During the third quarter of 1999, the Company recognized revenue under
this agreement when the custom development work was completed and accepted by
the third party.
TECHNOLOGY COSTS
Product development costs and costs of enhancing 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 these 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
F-9
<PAGE> 80
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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, Series
D and Series E convertible preferred stock, are not included in diluted net loss
per share because such shares are anti-dilutive.
F-10
<PAGE> 81
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Numerator:
Net loss............................................... $(2,889) $(8,266) $(37,456)
Dividend related to beneficial conversion feature of
preferred stock..................................... -- -- (9,800)
------- ------- --------
Net loss attributable to common stockholders........... $(2,889) $(8,266) $(47,256)
======= ======= ========
Denominator:
Weighted average shares................................ 2,500 2,856 13,964
Weighted average unvested common shares subject to
repurchase agreements............................... (1,373) (966) (567)
------- ------- --------
Denominator for basic calculation...................... 1,127 1,890 13,397
Weighted average effect of dilutive securities:
Net effect of dilutive stock options................ -- -- --
Net effect of dilutive stock warrants............... -- -- --
------- ------- --------
Denominator for diluted calculation.................... 1,127 1,890 13,397
======= ======= ========
Net loss per share:
Basic.................................................. $ (2.56) $ (4.37) $ (3.53)
======= ======= ========
Diluted................................................ $ (2.56) $ (4.37) $ (3.53)
======= ======= ========
</TABLE>
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 PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for transactions entered into after March 31, 2000 and requires that
all derivative instruments be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and the type of hedge transaction. The
ineffective portion of all hedges will be recognized in earnings. MyPoints.com
is currently assessing the impact of this statement.
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
F-11
<PAGE> 82
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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
and 213,703 unvested shares of the Company's stock options, the vested options
having an estimated fair value of approximately $264,000, $400,000 in cash and
$4.5 million of assumed liabilities. The fair value of the common and preferred
stock was estimated by referring to (i) market capitalization ratios of
companies with comparable operations and (ii) the most recent independent sales
of the Company's stock. All vested common stock options of the acquired
companies were exchanged for 189,115 vested common stock options of the Company
and have been included in the purchase price based on their fair value. The fair
value of the vested common stock options was estimated using the Black-Scholes
model with the following weighted average assumptions, deemed fair value of the
underlying common stock of $1.49, risk-free interest rate of 4.59%, expected
life of 5 years, expected dividend rate of 0%, and volatility rate of 109%. The
213,703 unvested shares of common stock options were included in the Company's
1999 Stock Plan and accounted for in accordance with APB No. 25 and related
interpretations. 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 are being amortized over their
estimated useful lives of six to 60 months.
Among the liabilities assumed in the acquisition was 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 recorded the obligation at its estimated fair value as
determined by estimated future cash payments, discounted at a market interest
rate. The Company had 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 was
obligated to purchase the rights to the software. The purchase price in this
event would be the then existing present value of future required minimum
payments. In September 1999, the Company paid approximately $2.6 million to the
licensor to complete the purchase of the licensed software.
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.
F-12
<PAGE> 83
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following unaudited pro forma consolidated financial information
reflects the results of operations for the years ended December 31, 1997 and
1998, as if the acquisition had occurred on January 1, 1997, 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,
1997, and may not be indicative of future operating results (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues....................................... $ 151 $ 1,316
Operating loss................................. (6,899) (17,826)
Net loss....................................... (6,968) (17,970)
Net loss per share:
Basic and diluted............................ $ (1.49) $ (3.47)
Weighted average shares - basic and
diluted................................... 4,677 5,185
</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 1998 or 1999. As of December 31, 1998 and 1999,
there were no amounts due to Targeted Marketing Systems.
One of the Company's directors is also a member of the law firm that has
served as the Company's corporate counsel since its inception. From inception
through December 31, 1998 and 1999, the Company has incurred a total of $227,737
and $875,000, respectively, 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 services for the Company. From inception through
December 31, 1998 and December 31, 1999, the Company has incurred a total of $0
and $226,000, respectively, in fees under this agreement.
During the year ended December 31, 1998, the Company repurchased 181,420
shares of common stock at $0.001 per share from one of its founders as a result
of his resignation.
F-13
<PAGE> 84
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Computer equipment......................... $1,185 $ 6,852
Computer software.......................... 308 2,948
Furniture and fixtures..................... 152 720
Leasehold improvements..................... 22 405
------ -------
1,667 10,925
Accumulated depreciation................... (626) (2,034)
------ -------
$1,041 $ 8,891
====== =======
</TABLE>
Depreciation expense amounted to $49,000, $265,000 and $1,462,000 for the
years ended December 31, 1997, 1998 and 1999, 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 a minimum liquidity coverage ratio 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 earlier violations and was in compliance with these covenants as of December
31, 1999.
On March 26, 1999, the Company entered into a senior loan and security
agreement with a financing company. The lender has committed to finance up to
$1.5 million under this capital lease line of which borrowings of $1.1 million
were outstanding as of December 31, 1999. These capital lease agreements have
terms ranging three to five years with interest rates ranging from 7.2% to
18.0%. Borrowings against this line are collateralized by certain fixed assets
of the Company. The agreement contains certain negative covenants including
financial covenants related to minimum liquidity coverage ratios.
F-14
<PAGE> 85
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Annual maturities of notes payable are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000............................................ $ 327
2001............................................ 351
2002............................................ 327
2003............................................ 254
------
$1,259
======
</TABLE>
8. CAPITAL STRUCTURE
The Company is authorized to issue 100,000,000 shares of $0.001 par value
common stock and 10,000,000 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.
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 to an equipment leasing company in connection with an equipment lease. 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. The
fair value of the warrant of $9,500 was estimated using the Black-Scholes model
with the following weighted average assumptions, risk-free interest rate of
4.59%, expected life of 5 years, expected dividend rate of 0%, and volatility
rate of 109%. The estimated fair value of the warrant is accounted for as a
deferred asset and is amortized over the lease term of 42 months. In connection
with the issuance of Series D preferred stock, the Company issued warrants to
the holders of Series D preferred stock to purchase 1,374,028 additional shares
of Series D preferred stock 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. The fair value of the warrants was estimated using
the Black-Scholes model with the following weighted average assumptions,
risk-free interest rate of 4.59%, expected life of five years, expected dividend
rate of 0%, and volatility rate of 109%. The estimated fair value of the
warrants of $1.5 million is included in additional paid-in capital.
During May and June 1999, the Company issued warrants in connection with
commercial agreements entered into with two third parties. The warrants were
fully vested at the date of grant, enable the holders to purchase an aggregate
of 150,000 shares of the Company's common stock at a price of $8.00 per share
and are exercisable for a period of one year. The fair value of these warrants,
estimated at approximately $807,000 using the Black-Scholes valuation model,
will be charged to operations over the term of the agreements.
COMMON STOCK OPTIONS
The Company adopted the 1996 Stock Plan on November 7, 1996, the 1999 Stock
Plan on November 13, 1998, and the 1999 Supplemental Stock Plan on December 8,
1999 (together, the
F-15
<PAGE> 86
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
"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 6,485,833 shares of common stock for issuance
under the Plans as of December 31, 1999. The Company has granted incentive and
nonstatutory 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.
Following is a summary of stock option activity for the years ended
December 31, 1997, 1998 and 1999:
<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.............................................. (96,174) 0.063
Canceled............................................... (310,696) 0.114
----------
Outstanding as of December 31, 1998...................... 1,357,358 0.173
Granted................................................ 5,614,630 11.843
Exercised.............................................. (503,251) 0.804
Canceled............................................... (1,080,519) 6.441
----------
Outstanding as of December 31, 1999...................... 5,388,218 11.018
==========
Options vested as of December 31, 1999................... 1,099,989 $ 4.811
==========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998 and 1999:
<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............ 577,166 8.24 $0.084 214,214 $0.081
$0.20 - $0.26............ 780,192 9.11 0.240 40,371 0.219
--------- -------
1,357,358 8.74 $0.173 254,585 $0.103
========= =======
</TABLE>
F-16
<PAGE> 87
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE AT
AT DECEMBER 31, 1999 DECEMBER 31, 1999
--------------------------------------- -------------------------
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........ 290,074 7.52 $ 0.073 265,041 $0.063
$ 0.20 - $ 0.26........ 457,259 8.89 0.249 344,912 0.255
$ 1.00 - $ 5.00........ 1,267,300 9.09 1.452 78,043 1.041
$ 8.00................. 2,141,785 9.42 8.000 352,149 8.000
$12.37 - $88.50........ 1,231,800 9.90 32.682 59,844 38.250
--------- ---------
5,388,218 $11.018 1,099,989 $4.811
========= =========
</TABLE>
The Company accounts for the Plans in accordance with APB No. 25 and
related Interpretations and complies with the disclosure requirements of SFAS
No. 123, Accounting for Stock-Based Compensation. In connection with certain
stock option grants during the years ended December 31, 1997, 1998 and 1999, the
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, 1998 and 1999 totaled
$77,000, $158,000, and $3,054,000, respectively.
In accordance with SFAS No. 123, the fair value of employee stock option
grants has been estimated on the date of grant using the minimum value model for
grants in 1997 and 1998. For grants in 1999, the fair value has been estimated
using the Black-Scholes Option Pricing Model.
The Black-Scholes Option Pricing Model was developed for use in estimating
the fair value of traded options and warrants that have no vesting restrictions
and are fully transferable. In addition, valuation models require the input of
highly subjective assumptions, including the expected stock volatility. The
Company's options have characteristics significantly different from those of
traded options, and changes in the subjective input assumptions can materially
affect the fair value estimate. Utilizing the minimum value model, the weighted
average fair value of employee stock options granted during 1997 and 1998 was
$0.53 and $2.27, respectively. Utilizing the Black-Scholes Option Pricing Model,
the weighted average fair value of employee stock options granted during 1999
was $11.59 per share.
The following assumptions were used in determining the fair value of
options granted and warrants issued:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rates............................ 5.72% 4.59% 5.17%
Expected life....................................... 5 years 5 years 5 years
Dividends........................................... -- -- --
Volatility.......................................... -- -- 109%
</TABLE>
F-17
<PAGE> 88
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
YEARS ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net loss as reported............................. $(2,889) $(8,266) $(47,256)
Net loss pro forma............................... $(2,890) $(8,291) $(54,370)
</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. EMPLOYEE BENEFIT PLANS
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.
In March 1999, the Company adopted an employee stock purchase plan
effective on the date of the prospectus for the Company's initial public
offering. A total of 200,000 shares is reserved for issuance under the plan.
In April 1999, the Company adopted the senior management incentive plan.
The terms of this plan apply to discretionary option grants to executive
officers under the 1999 Stock Plan. In 1999, options to purchase a total of
690,000 shares with exercise prices of $8.00 per share were granted under this
senior management incentive plan.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under capital and
noncancelable operating leases with various expiration dates through the year
2004. Rent expense amounted to $57,000, $180,000 and $775,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.
F-18
<PAGE> 89
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancelable capital leases and
operating leases are as follows (in thousands):
<TABLE>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------------------------------------------ ---- -------
<S> <C> <C>
2000........................................................ $118 $ 1,135
2001........................................................ 100 2,127
2002........................................................ -- 2,180
2003........................................................ -- 2,231
2004........................................................ -- 2,067
Thereafter.................................................. -- 4,250
---- -------
Total minimum lease payments................................ 218 $13,990
=======
Less amount representing interest........................... 16
----
Present value of capital lease obligations.................. 202
Less current portion........................................ 105
----
Long-term portion........................................... $ 97
====
</TABLE>
LEGAL
The Company has received three claims of alleged infringement. 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
of approximately $65,000 plus ongoing royalties based on a percentage of the
value of points issued to members. A second claim was made by a third party and
the Company is currently in the process of negotiating the settlement of this
claim. If the claim cannot be resolved through a license or similar arrangement,
the Company could become party to litigation. Also, in July 1999, the Company
received an infringement claim from a third party, along with an offer to grant
a license to the Company at a cost that would not be material. To the Company's
knowledge, no litigation has been filed based on this claim.
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.
11. INCOME TAXES
As of December 31, 1998 and December 31, 1999, the Company had net
operating loss carryforwards of approximately $7,810,000 and $27,332,000 for
federal income tax purposes, and $7,820,000 and $27,371,000 for state income tax
purposes, respectively. The federal and state net operating loss carryforwards
begin to expire in the years 2011 and 2004, respectively.
The Company's ability to utilize its net operating loss carryforwards to
offset any future taxable income 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.
F-19
<PAGE> 90
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the provision for income taxes to the federal statutory
rate of 34% is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Tax at statutory rate....................................... 34% 34% 34%
State taxes, net of federal benefit......................... 6 6 6
Permanent differences....................................... (2) (1) (2)
Valuation allowance......................................... (38) (39) (38)
--- --- ---
-- -- --
=== === ===
</TABLE>
The estimated tax effects of significant temporary differences and
carryforwards that give rise to deferred income tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Non-deducted start-up costs........................ $ 303 $ 205
Net operating loss carryforwards................... 3,177 10,890
Non-deducted research and experimental costs....... 1,328 430
Points redemption liability........................ 1,185 4,270
Accrued liabilities and other...................... 106 2,045
Non-deducted intangible assets..................... (834) (1,250)
------- --------
Gross deferred tax assets.......................... 5,265 16,590
Valuation allowance................................ (5,265) (16,590)
------- --------
Net deferred tax assets............................ $ -- $ --
======= ========
</TABLE>
The Company has recorded a valuation allowance against gross deferred tax
assets due to uncertainties surrounding their realization. The change in the
valuation allowance amounted to $4,039,000 and $11,325,000 in 1998 and 1999,
respectively.
F-20
<PAGE> 91
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. POINTS REDEMPTION LIABILITY
Following is a summary of points redemption liability activity for the
years ended December 31, 1997, 1998 and 1999:
<TABLE>
<S> <C>
Outstanding as of January 1, 1997........................... $ --
Accrual for new points redemption liability................. 519
Allowance for unredeemed points............................. --
Points redemption........................................... --
-------
Outstanding as of December 31, 1997......................... 519
Accrual for new points redemption liability................. 2,825
Allowance for unredeemed points............................. (563)
Points redemption........................................... (54)
-------
Outstanding as of December 31, 1998......................... 2,727
Accrual for new points redemption liability................. 11,372
Allowance for unredeemed points............................. (2,212)
Points redemption........................................... (2,247)
-------
Outstanding as of December 31, 1999......................... $ 9,640
=======
</TABLE>
13. INITIAL PUBLIC OFFERING
On August 19, 1999, the Securities and Exchange Commission declared
effective the Company's Registration Statement on Form S-1. Pursuant to this
Registration Statement, the Company completed an initial public offering of
5,750,000 shares of its common stock (including 750,000 shares sold pursuant to
the exercise of the Underwriters' over-allotment option) at an initial public
offering price of $8.00 per share ("the Offering"). The Offering was managed by
BancBoston Robertson Stephens, Bear, Stearns & Co. Inc., Salomon Smith Barney,
and Wit Capital Corporation. Proceeds to the Company, after calculation of the
underwriters discount and commission, from the Offering totaled approximately
$41.2 million, net of offering costs of approximately $1.6 million.
Upon completion of the Offering, the Company's preferred stock was
converted into 12,388,316 shares of common stock, and all outstanding shares of
preferred stock were cancelled and retired. Upon conversion of the preferred
stock, all rights to accrued and unpaid dividends were waived.
14. SUBSEQUENT EVENT
Effective January 13, 2000, the Company acquired all the outstanding shares
of Alliance Development Group, Inc., a company that operates offline customer
rewards programs. The acquisition will be accounted for using the purchase
method of accounting and, accordingly, the purchase price will be allocated to
the tangible and intangible assets acquired and liabilities assumed on the basis
of their relative fair values on the acquisition date.
The total purchase price of $16.7 million included 270,000 shares of the
Company's common stock with an estimated fair value of $16.5 million. Of the
total purchase price, $1.9 million was allocated to tangible assets and $14.8
million was allocated to intangible assets. The Company expects to amortize the
intangible assets over their estimated useful lives of one to eight years.
F-21
<PAGE> 92
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following unaudited pro forma consolidated financial information
reflects the results of operations for the years ended December 31, 1998 and
1999, 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, and 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 1999
-------- --------
<S> <C> <C>
Revenues.................................................... $ 5,035 $ 26,982
Operating loss.............................................. (11,180) (40,897)
Net loss.................................................... (11,082) (38,310)
Net loss attributable to common stockholders................ (11,082) (48,110)
Net loss per share:
Basic and diluted......................................... $ (5.13) $ (3.52)
Weighted average shares -- basic and diluted.............. 2,160 13,667
</TABLE>
F-22
<PAGE> 93
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
PRO FORMA 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
and 213,703 unvested shares of the Company's stock options, the vested options
having an estimated fair value of approximately $264,000, $400,000 in cash and
$4.5 million of assumed liabilities. The fair value of the common and preferred
stock was estimated using a market capitalization approach. All vested common
stock options of the acquired companies were exchanged for 189,115 vested common
stock options of the Company and have been included in the purchase price based
on their fair value. The fair value of the vested common stock options was
estimated using the Black-Scholes model with the following weighted average
assumptions, risk-free interest rate of 4.59%, expected life of 5 years,
expected dividend rate of 0%, and volatility rate of 109%. 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 agreement to purchase the outstanding
units of the limited liability corporation.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the years ended December 31, 1998 and
1999, 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-23
<PAGE> 94
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 YEAR ENDED
MYPOINTS.COM, INC. COMPANIES ADJUSTMENTS FORMA DECEMBER 31, 1999
------------------ --------- ----------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 1,286 $ 30 $ -- $ 1,316 $ 24,140
Cost of revenues.......... 1,121 1 1,122 7,407
------- ------- -------- -------- --------
Gross profit............ 165 29 194 16,733
------- ------- -------- -------- --------
Operating expenses:
Technology costs........ 1,520 2,393 3,913 8,665
Sales and marketing
expenses............. 4,513 2,647 7,160 30,247
General and
administrative
expenses............. 2,028 756 242 3,026 9,601
Amortization of
intangible assets.... 275 3,025 3,300 3,116
Stock-based
compensation......... 158 463 621 3,054
------- ------- -------- -------- --------
Total operating
expenses........... 8,494 6,259 3,267 18,020 54,683
------- ------- -------- -------- --------
Operating loss............ (8,329) (6,230) (3,267) (17,826) (37,950)
Interest income........... 87 87 633
Interest expense and
other, net.............. (24) (207) (231) (139)
------- ------- -------- -------- --------
Net loss.................. (8,266) (6,437) (3,267) (17,970) (37,456)
Dividend related to
beneficial conversion
feature of preferred
stock................... -- -- -- -- (9,800)
------- ------- -------- -------- --------
Net loss attributable to
common stockholders..... $(8,266) $(6,437) $(3,267) $(17,970) $(47,256)
======= ======= ======== ======== ========
Net loss per share:
Basic and diluted....... $ (4.37) $ (3.06) $ (3.53)
======= ======= ========
Weighted average
shares -- basic and
diluted.............. 1,890 2,105 13,397
======= ======= ========
Pro forma net loss per
share:
Basic and diluted....... $ (3.47)
========
Weighted average
shares -- basic and
diluted.............. 5,185
========
</TABLE>
See accompanying notes to pro forma consolidated statement of operations.
F-24
<PAGE> 95
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
1. PRO FORMA ADJUSTMENTS
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.
- To record amortization of a technology license agreement of $7.3 million
on a straight-line basis over the estimated period of benefit of 48
months.
- To record amortization of acquired customer base totaling $500,000 on a
straight-line basis over the estimated period of benefit of 6 to 36
months, and acquired membership base totaling $800,000 on a straight-line
basis over the estimated period of benefit of 6 to 30 months.
- To record amortization of acquired employee workforce totaling $800,000
on a straight-line basis for employees of ERT subsequently retained by
the Company over the estimated period of benefit of 24 months.
- To record amortization of acquired trademark and trade name totaling $1.8
million on a straight-line basis over the estimated period of benefit of
60 months.
A summary of these pro forma adjustments relating to acquired intangible
assets is as follows (in thousands):
<TABLE>
<CAPTION>
11 MONTH
AMORTIZATION
------------
<S> <C>
Technology license agreement and intangible assets.......... $1,682
Customer base............................................... 271
Membership base............................................. 452
Employee workforce.......................................... 312
Trademark................................................... 308
------
$3,025
======
</TABLE>
In addition, the Company's historical financial statements, and those of
the acquired companies, reflect a pro forma adjustment to record 11 months of
depreciation expense of $242,000. This represents depreciation of acquired fixed
assets depreciated on a straight-line basis over their estimated remaining life
of three years.
2. NET LOSS PER SHARE
Basic net loss per share for the year ended December 31, 1998 is computed
using the weighted average number of common shares outstanding during the year.
Diluted net loss per share is computed excluding the weighted average number of
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.
F-25
<PAGE> 96
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.
/s/ PricewaterhouseCoopers LLP
March 26, 1999
Chicago, Illinois
F-26
<PAGE> 97
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-27
<PAGE> 98
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-28
<PAGE> 99
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-29
<PAGE> 100
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-30
<PAGE> 101
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.
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
F-31
<PAGE> 102
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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.
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
F-32
<PAGE> 103
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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
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.
F-33
<PAGE> 104
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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.
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>
F-34
<PAGE> 105
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 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
F-35
<PAGE> 106
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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.
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
F-36
<PAGE> 107
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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.
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
F-37
<PAGE> 108
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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-38
<PAGE> 109
[MYPOINTS LOGO]
<PAGE> 110
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, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-------------
<S> <C>
SEC Registration Fee........................................ $ 72,646.00
NASD Filing Fee............................................. 28,017.20
Nasdaq National Market Listing Fee.......................... 17,500.00
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...................................... 96,836.80
-------------
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, and through December 31, 1999, 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) From our inception through December 31, 1999, we have granted
options to purchase 7,361,689 shares of common stock to employees,
directors and consultants under our stock plans at exercise prices ranging
from $0.05 to $88.50 per share. Of the 7,361,689 shares granted, 5,388,218
remain outstanding, 599,425 shares of common stock have been purchased
pursuant to exercises of stock options and 1,374,046 shares have been
canceled and returned to the stock plans.
II-1
<PAGE> 111
(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 at an exercise price of $1.50 per share.
(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 sold 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 these investors qualified as "accredited investors" under Securities
and Exchange Commission Rule 501.
(9) In May 1999, we issued a warrant for the purchase of 50,000 shares
of common stock at an exercise price equal to the initial public offering
price of our stock.
(10) In June 1999, we issued a warrant for the purchase of 100,000
shares of common stock at an exercise price of the lower of $8.00 per share
or the initial public offering price of our stock.
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).
II-2
<PAGE> 112
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1(b)* Certificate of Incorporation, as currently in effect
3.2(b)* Bylaws of the registrant, as currently in effect
4.1 Form of Lock-Up Agreements
5.1O 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.
10.18O Office Lease dated November 16, 1999 between Registrant and
WHLNF Real Estate Limited Partnership for facility located
at 100 California Street, 11th Floor, San Francisco,
California 94111
23.1O Consent of PricewaterhouseCoopers LLP, independent
accountants
23.2O Consent of PricewaterhouseCoopers LLP, independent
accountants
23.3O Consent of Counsel (included in Exhibit 5.1)
24.1O Power of Attorney
27.1O Financial Data Schedule
</TABLE>
- -------------------------
* Incorporated by reference to the like-numbered exhibit to Registrant's
registration statement on Form S-1 filed with the Securities and Exchange
Commission April 1, 1999 (File
II-3
No. 333-75523).
II-4
<PAGE> 113
+ Confidential treatment has been granted for portions of this exhibit.
O Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
The following schedule is filed herewith:
Schedule II -- Valuation and Qualifying Accounts
Other 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.
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) 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.
(b) 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> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
MyPoints.com has duly caused this Amendment No. 2 to the 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 22nd day
of February, 2000.
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 Amendment No. 2 to the 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 February 22, 2000
- ---------------------------------- Chairman of the Board (Principal
Steven M. Markowitz Executive Officer)
/s/ THOMAS CALDWELL Senior Vice President, Finance and February 22, 2000
- ---------------------------------- Chief Financial Officer (Principal
Thomas Caldwell Financial and Accounting Officer)
* /s/ ROBERT C. HOYLER Director February 22, 2000
- ----------------------------------
Robert C. Hoyler
Director
- ----------------------------------
Howard L. Morgan
* /s/ THOMAS NEWKIRK Director February 22, 2000
- ----------------------------------
Thomas Newkirk
* /s/ LAWRENCE E. PHILLIPS Director February 22, 2000
- ----------------------------------
Lawrence E. Phillips
* /s/ MARIO M. ROSATI Director February 22, 2000
- ----------------------------------
Mario M. Rosati
* /s/ LESTER WUNDERMAN Director February 22, 2000
- ----------------------------------
Lester Wunderman
*By: /s/ STEVEN M. MARKOWITZ
- ----------------------------------
Steven M. Markowitz
Attorney-In-Fact
</TABLE>
II-5
<PAGE> 115
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, 1998........................ $-- $ 60 $-- $ 60
December 31, 1999........................ 60 1,228 -- 1,288
</TABLE>
II-6
<PAGE> 116
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 IT IS NOT SOLICITING
AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 23, 2000
[MYPOINTS LOGO]
4,000,000 SHARES
COMMON STOCK
-------------------------
MyPoints.com, Inc. is offering 2,300,000 shares of common stock. The
selling stockholders identified in this prospectus are offering an additional
1,700,000 shares. MyPoints.com will not receive any of the proceeds from the
sale of the shares being sold by the selling stockholders.
Our common stock is quoted on the Nasdaq National Market under the symbol
"MYPT." The last reported sale price of the common stock on February 3, 2000 was
$44.88 per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to MyPoints.com, Inc............................... $ $
Proceeds to the Selling Stockholders........................ $ $
</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.
The underwriters may also purchase up to an additional 600,000 shares at
the public offering price, less the underwriting discounts and commissions,
within 30 days of this prospectus to cover over-allotments.
-------------------------
Joint book-running managers
ROBERTSON STEPHENS INTERNATIONAL MERRILL LYNCH INTERNATIONAL
-------------------------
SALOMON SMITH BARNEY INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
J.P. MORGAN SECURITIES LTD.
The date of this prospectus is , 2000.
<PAGE> 117
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, acting as joint book-running managers, and Salomon Smith Barney
Inc., Bear, Stearns & Co. Inc. and J.P. Morgan Securities Inc., have each
separately agreed with MyPoints.com and the selling stockholders, subject to the
terms and conditions of the underwriting agreement, to purchase from
MyPoints.com and the selling stockholders the number of shares of common stock
set forth opposite their names below. The underwriters are committed to purchase
and pay for these shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................
Salomon Smith Barney Inc....................................
Bear, Stearns & Co. Inc.....................................
J.P. Morgan Securities Inc..................................
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITERS
--------------------------
<S> <C>
FleetBoston Robertson Stephens International Limited........
Merrill Lynch International.................................
Salomon Brothers International Limited......................
Bear, Stearns International Limited.........................
J.P. Morgan Securities Ltd..................................
---------
Total......................................... 4,000,000
=========
</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 completion of this
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 or the selling stockholders 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.
FleetBoston Robertson Stephens Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated expect to deliver the shares of common stock to purchasers on
, 2000.
Over-Allotment Option. We and some of the selling stockholders have granted
to the underwriters an option, exercisable during the 30-day period after the
date of this prospectus, to purchase up to 600,000 additional shares of common
stock at the same price per share as we and the selling stockholders will
receive for the 4,000,000 shares that the underwriters have agreed to purchase
from us and the selling stockholders. 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
67
<PAGE> 118
stock to be purchased by the underwriter shown in the table above bears to the
total number of the shares shown in the table above. If purchased, these
additional shares will be sold by the underwriters on the same terms as those on
which the 4,000,000 shares are being sold. We and the selling stockholders 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
in this offering. If the option is exercised in full, the total public offering
price will be $206.4 million, the total underwriting discounts and commissions
will be $10.8 million, the total proceeds to us will be $103.2 million and the
total proceeds to selling stockholders will be $91.4 million at an assumed
public offering price of $44.88. The expenses of this offering are estimated at
$1.0 million and are payable entirely by MyPoints.com.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters, MyPoints.com and the selling stockholders against 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. All of our executive officers and directors, and a
substantial number of our stockholders have agreed, until May 14, 2000, not to
offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or
grant any rights 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 subsequently acquired directly by the holders or to which they have or
subsequently acquire the power of disposition, without the prior written consent
of FleetBoston Robertson Stephens Inc. However, FleetBoston 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
this lock-up period, except that Steven M. Markowitz may pledge up to 50,000
shares free of the lock-up.
Future Sales. In addition, we have agreed that during the period of 90 days
after the date of this prospectus, we will not, without the prior written
consent of FleetBoston Robertson Stephens Inc. and Merrill Lynch, Pierce, Fenner
& Smith Incorporated 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."
Share Purchase. In March 1999, Bayview Investors Ltd., an affiliate of
FleetBoston Robertson Stephens Inc., purchased 50,000 shares of Series E
preferred stock at a price of $5.00 per share. The purchase of these shares was
deemed by the National Association of Securities Dealers, Inc., to constitute
underwriting compensation in connection with our initial public offering.
Therefore, these shares cannot be sold, transferred, assigned, pledged or
hypothecated by any person until August 19, 2000, except to officers or partners
of the underwriters or members of the selling group and their officers or
partners.
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 a 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
68
<PAGE> 119
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 sold in this offering
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 December 31, 1999, investment partnerships and a member of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, beneficially owned an aggregate of
149,720 shares of common stock of MyPoints.com. Mario M. Rosati, one of our
directors and our secretary, and Christopher D. Mitchell, our assistant
secretary, are members of Wilson Sonsini Goodrich & Rosati. Of these shares,
16,666 are issuable upon exercise of options held by Mr. Rosati, which options
have an exercise price of $0.10 per share. From our inception through December
31, 1999, MyPoints.com, Inc. has accrued a total of $819,166.65 in fees to
Wilson Sonsini Goodrich & Rosati.
EXPERTS
The consolidated financial statements of MyPoints.com, Inc. at December 31,
1998 and 1999, and for each of the three years in the period ended December 31,
1999 included in this Prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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, included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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 for the common stock
sold in this offering. This prospectus does not contain all of the information
set forth in the registration statement and the accompanying exhibits and
schedule. For further information about MyPoints.com and our common stock, we
refer you to the registration statement and the accompanying exhibits and
schedule. 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 that reference. Copies of the registration
statement and the accompanying exhibits and schedule, 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 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.
69
<PAGE> 120
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1(b)* Certificate of Incorporation, as currently in effect
3.2(b)* Bylaws of the registrant, as currently in effect
4.1 Form of Lock-Up Agreements
5.1O 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.
10.18O Office Lease dated November 16, 1999 between registrant and
WHLNF Real Estate Limited Partnership for facility located
at 100 California Street, 11th Floor, San Francisco,
California 94111
23.1O Consent of PricewaterhouseCoopers LLP, independent
accountants
23.2O Consent of PricewaterhouseCoopers LLP, independent
accountants
23.3O Consent of Counsel (included in Exhibit 5.1)
24.1O Power of Attorney
27.1O Financial Data Schedule
</TABLE>
- -------------------------
* Exhibit incorporated by reference to the like-numbered exhibit to
Registrant's registration statement on Form S-1 filed with the Securities and
Exchange Commission April 1, 1999 (File No. 333-75523).
+ Confidential treatment has been granted for portions of this exhibit.
O Previously filed.
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
__________, 2000
FleetBoston Robertson Stephens Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Bear, Stearns & Co. Inc.
Salomon Smith Barney Inc.
J. P. Morgan & Co., Inc.
As Representatives of the several Underwriters
c/o FleetBoston 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 2,300,000 shares of its Common
Stock, par value $0.001 per share (the "Common Shares"); and certain
stockholders of the Company identified as Principal Selling Stockholders (the
"Principal Selling Stockholders") or Other Selling Stockholders (the "Other
Selling Stockholders") in Schedule B (collectively, the "Selling Stockholders")
severally propose to sell to the Underwriters an aggregate of 1,700,000 Common
Shares. The 2,300,000 Common Shares to be sold by the Company and the 1,700,000
Common Shares to be sold by the Selling Stockholders are collectively called the
"Firm Shares". In addition, the Company has granted to the Underwriters an
option to purchase up to an additional [___] Common Shares and the Selling
Stockholders have severally granted to the Underwriters an option to purchase up
to an additional [___] Common Shares, each Selling Stockholder selling up to the
amount set forth opposite such Selling Stockholder's name in Schedule B, all as
provided in Section 2. The additional [___] Common Shares to be sold by the
Company and the additional [___] Common Shares to be sold by the Selling
Stockholders pursuant to such option are collectively called the "Option
Shares". The Firm Shares and, if and to the extent such option is exercised, the
Option Shares are collectively called the "Shares". FleetBoston Robertson
Stephens Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns
& Co. Inc., Salomon Smith Barney Inc. and J.P. Morgan & Co., Inc. have agreed to
act as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-95009), which contains a form of prospectus, subject to completion, to be
used in connection with the public offering and sale of the Shares. Each such
prospectus, subject to completion, used in connection with such public offering
is called a "preliminary prospectus". Such registration statement, as amended,
including the financial statements, exhibits and schedules thereto, in
<PAGE> 2
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 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 prospectus, in the form first used by the Underwriters to confirm sales of
the Shares, is called the "Prospectus". All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus 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 and each of the Selling Stockholders hereby confirm
their respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
SELLING STOCKHOLDERS. The Company and the Principal Selling Stockholders
hereby represent, warrant and covenant 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. Each preliminary
prospectus, as of its date, and the Prospectus, as amended or supplemented, as
of its date and at all subsequent times through the 30th day after the date
hereof, 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 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.
2
<PAGE> 3
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to 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. The Common Shares to be purchased by the Underwriters from the
Selling Stockholders, when issued, were 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, other than the Selling Stockholders
with respect to the Shares included in the Registration Statement, 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, 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
3
<PAGE> 4
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 and the
Securities Exchange Act of 1934 (the "Exchange 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 Consolidated Data", "Selected Consolidated Financial
Data", "Pro Forma Consolidated Financial Information", "Capitalization" 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 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.
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(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.
(p) Stock Exchange Listing. The Shares are registered pursuant to Section
12(g) of the Exchange Act and are listed on the Nasdaq National Market, and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Shares under the Exchange Act or
delisting the Common Shares from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, LLC is contemplating terminating such registration or
listing.
(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
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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 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(A)(i) above or elsewhere in the
Prospectus, 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(A)(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
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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. Except as disclosed in the Prospectus,
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, except as
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 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. Except as disclosed in the Prospectus, 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 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 or by the Exchange Act or the rules and
regulations of the Commission thereunder 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. 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.
(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
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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. Substantially all outstanding Common Shares
(other than those sold in the Company's initial public offering), and all
securities convertible into or exercisable or exchangeable for Common Shares,
are subject to valid, binding and enforceable agreements (collectively, the
"Company Lock-up Agreements") that restrict the holders thereof from selling,
making any short sale of, granting any option for the purchase of, or otherwise
transferring or disposing of, any of such shares of Common Shares, or any such
securities convertible into or exercisable or exchangeable for Common Shares,
through February 16, 2000 without the prior written consent of the Company or
FleetBoston Robertson Stephens Inc. Each officer and director of the Company,
each Selling Stockholder 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 "Underwriter Lock-up
Agreements" and, together with the Company Lock-up Agreements, 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 FleetBoston 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.
(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
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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.
(jj) Merger Agreement. The execution and delivery of the Agreement and
Plan of Merger dated as of November 30, 1998 (the "Merger Agreement") among the
Company, IPOST Acquisition Subsidiary, Inc. ("Sub") and Enhanced Response
Technologies, Inc. ("ERT"), was duly authorized by all necessary corporate
action on the part of each of the Company, Sub and ERT. Each of the Company, Sub
and ERT had all corporate power and authority to execute and deliver the Merger
Agreement, to file the Merger Agreement and the related Articles of Merger with
the Secretary of State of the State of Illinois and to complete the transactions
contemplated by the Merger Agreement, and the Merger Agreement at the time of
execution and filing constituted a valid and binding obligation of each of the
Company, Sub and ERT.
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.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder represents, warrants and covenants to each Underwriter as
follows:
(a) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the
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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.
(b) The Custody Agreement and Power of Attorney. Each of the (i) Custody
Agreement signed by such Selling Stockholder and Norwest Bank Minnesota, N.A.,
as custodian (the "Custodian"), relating to the deposit of the Shares to be sold
by such Selling Stockholder (the "Custody Agreement") and (ii) Power of Attorney
appointing certain individuals named therein as such Selling Stockholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth therein
relating to the transactions contemplated hereby and by the Prospectus (the
"Power of Attorney"), of such Selling Stockholder has been duly authorized,
executed and delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification thereunder may be limited by applicable law
and except as the enforcement thereof 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. Each
Selling Stockholder agrees that the Shares to be sold by such Selling
Stockholder on deposit with the Custodian is subject to the interests of the
Underwriters, that the arrangements made for such custody are to that extent
irrevocable, and that the obligations of such Selling Stockholder hereunder
shall not be terminated, except as provided in this Agreement or in the Custody
Agreement, by any act of the Selling Stockholder, by operation of law, by death
or incapacity of such Selling Stockholder or by the occurrence of any other
event. If such Selling Stockholder should die or become incapacitated, or in any
other event should occur, before the delivery of the Shares to be sold by such
Selling Stockholder hereunder, the documents evidencing the Shares to be sold by
such Selling Stockholder then on deposit with the Custodian shall be delivered
by the Custodian in accordance with the terms and conditions of this Agreement
as if such death, incapacity or other event had not occurred, regardless of
whether or not the Custodian shall have received notice thereof.
(c) Title to Shares to be Sold. Such Selling Stockholder is the lawful
owner of the Shares to be sold by such Selling Stockholder hereunder and upon
sale and delivery of, and payment for, such Shares, as provided herein, such
Selling Stockholder will convey good and marketable title to such Shares, free
and clear of all liens, encumbrances, equities and claims whatsoever.
(d) All Authorizations Obtained. Such Selling Stockholder has, and on the
First Closing Date and the Second Closing Date (as defined below) will have,
good and valid title to all of the Company Shares which may be sold by such
Selling Stockholder pursuant to this Agreement on such date and the legal right
and power, and all authorizations and approvals required by law and under its
charter or by-laws, partnership agreement, trust agreement or other
organizational documents to enter into this Agreement and its Custody Agreement
and Power of Attorney, to sell, transfer and deliver all of the Shares which may
be sold by such Selling Stockholder pursuant to this Agreement and to comply
with its other obligations hereunder and thereunder.
(e) No Further Consents, Authorization or Approvals. No consent, approval,
authorization or order of any court or governmental agency or body is required
for the consummation by such Selling Stockholder of the transactions
contemplated herein, except such as may have been obtained under the Securities
Act and such as may be required under the federal and provincial securities laws
of Canada or the blue sky laws or any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters and such other
approvals as have been obtained.
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(f) Non-Contravention. Neither the sale of the Securities being sold by
such Selling Stockholder nor the consummation of any other of the transactions
herein contemplated by such Selling Stockholder or the fulfillment of the terms
hereof by such Selling Stockholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the terms of any
indenture or other agreement or instrument to which such Selling Stockholder is
party or bound, any judgment, order or decree applicable to such Selling
Stockholder or any court or regulatory body, administrative agency, governmental
body or arbitrator having jurisdiction over such Selling Stockholder.
(g) No Registration or Other Similar Rights. Such Selling Stockholder does
not have any registration or other similar rights to have any equity or debt
securities registered for sale by the Company under the Registration Statement
or included in the offering contemplated by this Agreement, except for such
rights as are described in the Prospectus under "Shares Eligible for Future
Sale".
(h) No Preemptive, Co-sale or other Rights. Such Selling Stockholder does
not have, or has waived prior to the date hereof, any preemptive right, co-sale
right or right of first refusal or other similar right to purchase any of the
Shares that are to be sold by the Company or any of the other Selling
Stockholders to the Underwriters pursuant to this Agreement; and such Selling
Stockholder does not own any warrants, options or similar rights to acquire, and
does not have any right or arrangement to acquire, any capital stock, right,
warrants, options or other securities from the Company, other than those
described in the Registration Statement and the Prospectus.
(i) Disclosure Made by Such Selling Stockholder in the Prospectus. All
information furnished by or on behalf of such Selling Stockholder in writing
expressly for use in the Registration Statement and Prospectus is, and on the
First Closing Date and the Second Closing Date (as defined below) will be, true,
correct, and complete in all material respects, and does not, and on the First
Closing Date and the Second Closing Date will not, contain any untrue statement
of a material fact or omit to state any material fact necessary to make such
information not misleading. Such Selling Stockholder confirms as accurate the
number of shares of Company Shares set forth opposite such Selling Stockholder's
name in the Prospectus under the caption "Principal and Selling Stockholders"
(both prior to and after giving effect to the sale of the Shares).
(j) No Price Stabilization or Manipulation. Such Selling Stockholder 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.
(k) 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 sale by the Selling Stockholders
of the Shares.
(l) Distribution of Offering Materials by the Selling Stockholders. The
Selling Stockholders have 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 by such Selling Stockholder other than
a preliminary prospectus, the Prospectus or the Registration Statement.
(m) Confirmation of Company Representations and Warranties. Such Selling
Stockholder has no reason to believe that the representations and warranties of
the Company
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contained in Section 1(A) hereof are not true and correct, is familiar with the
Registration Statement and the Prospectus and has no knowledge of any material
fact, condition or information not disclosed in the Registration Statement or
the Prospectus which has had or may result in a Material Adverse Change on the
condition, financial or otherwise, or on the earnings, business, operation or
prospects, whether or not arising from transactions in the ordinary course of
business of the Company and its subsidiaries, considered as one entity, and is
not prompted to sell the Shares to be sold by such Selling Stockholder by any
information concerning the Company which is not set forth in the Registration
Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. Upon the terms herein set forth, (i) the Company
agrees to issue and sell to the several Underwriters an aggregate of 2,300,000
Firm Shares and (ii) the Selling Stockholders agree to sell to the several
Underwriters an aggregate of 1,700,000 Firm Shares, each Selling Stockholder
selling the number of Firm Shares set forth opposite such Selling Stockholder's
name on Schedule B. On the basis of the representations, warranties and
agreements herein contained, and upon the terms but subject to the conditions
herein set forth, the Underwriters agree, severally and not jointly, to purchase
from the Company and the Selling Stockholders 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 and the Selling
Stockholders 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 Sections
2(g) and 3(e) 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 and the
Selling Stockholders hereby grant an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 900,000 Option Shares
from the Company and the Selling Stockholders 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
and the Selling Stockholders, which notice may be given at any time within 30
days from the date of this Agreement. The time and
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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, (i) 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, (ii) the Company and each Selling
Stockholder agree, severally and not jointly, to sell 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 sold as the number of Option Shares set forth in
Schedule B opposite the name of such Selling Stockholder or, in the case of the
Company, as the number of Option Shares to be sold by the Company as set forth
in the paragraph "Introductory" of this Agreement, bears to the total number of
Option Shares. The Representatives may cancel the option at any time prior to
its expiration by giving written notice of such cancellation to the Company and
the Selling Stockholders.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company and the Selling Stockholders 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.
(e) Payment for the Shares. Payment for the Shares to be sold by the
Company shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Shares to be sold by the Selling
Stockholders shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Custodian.
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.
FleetBoston 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 Representative 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.
Each Selling Stockholder hereby agrees that (i) it will pay all
stock transfer taxes, stamp duties and other similar taxes, if any, payable upon
the sale or delivery of the Shares to be sold by such Selling Stockholder to the
several Underwriters, or otherwise in connection with the performance of such
Selling Stockholder's obligations hereunder and (ii) the Custodian is authorized
to deduct for such payment any such amounts from the proceeds to such Selling
Stockholder hereunder and to hold such amounts for the account of such Selling
Stockholder with the Custodian under the Custody Agreement.
(f) Delivery of the Shares. The Company and the Selling Stockholders 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
Representative for the accounts of the Representative and the several
Underwriters at the First Closing Date, against the irrevocable
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<PAGE> 14
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. The Company and the Selling Stockholders shall also
deliver, or cause to be delivered a credit representing the Option Shares to an
account or accounts at The Depository Trust Company as designated by the
Representative for the accounts of the Representative and the several
Underwriters, at the First Closing Date or the Second Closing Date, as the case
may be, 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 AND THE SELLING STOCKHOLDERS.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees with
each Underwriter as follows:
(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 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
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<PAGE> 15
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
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 $10.0 million which shall apply to
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 substantially 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
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<PAGE> 16
not be audited) covering the period of at least twelve months beginning after
__________, 2000 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 FleetBoston 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 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 as soon as
available, copies of any report or communication of the Company mailed generally
to holders of its capital stock.
(n) Enforcement of Company Lock-up. The Company agrees that, without the
prior written consent of FleetBoston Robertson Stephens Inc., it will not
release any stockholder or option holder from the Company Lock-up Agreements
earlier than 180 days after the date of the initial public offering of the Firm
Shares.
(o) Exchange Act Compliance. During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act.
B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder further
covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Stockholder will not, during the Lock-Up Period, make a disposition of
Securities (as defined in Exhibit A hereto) now owned or hereafter acquired
directly by such person or with respect to which such person 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 in writing to be bound by this
restriction, (ii) as a distribution to partners or shareholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, (iii) with respect to dispositions of Common Shares
acquired on the open market or (iv) with the prior written consent of
FleetBoston Robertson Stephens Inc. The foregoing restriction has been 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 such holder. Such
prohibited
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hedging or other transactions would include, without limitation, any short sale
(whether or not against the box) or any 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, such person has also agreed and
consented to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representative prior
to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Stockholder is a non-United States
person) or Form W-9 (if the Selling Stockholder is a United States Person).
(c) Notification of Untrue Statements, etc. If, at any time prior to the
date on which the distribution of the Common Shares as contemplated herein and
in the Prospectus has been completed, as determined by the Representative, such
Selling Stockholder has knowledge of the occurrence of any event as a result of
which the Prospectus or the Registration Statement, in each case as then amended
or supplemented, would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, such Selling
Stockholder will promptly notify the Company and the Representative.
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 and the Selling
Stockholders set forth in Sections 1(A) and 1(B) 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 and the Selling Stockholders of their respective
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, any Selling Stockholder 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 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.
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<PAGE> 18
(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 Securities 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 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
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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 Securities 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, 1998 and 1999 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, 1998
and 1999, (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
eight-quarter period ended December 31, 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, 1998 and 1999 and of
Enhanced Response Technologies, 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 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 Securities 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
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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) Underwriter 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.
(j) Underwriter Lock-up Agreement in Force. The Underwriter Lock-up
Agreements between the Underwriters and the stockholders, officers and directors
of the Company relating to sales and certain other dispositions of Common Shares
or certain other securities, delivered to you on or before the date hereof,
shall be in full force and effect on each of the First Closing Date and the
Second Closing Date;
(k) Opinion of Counsel for the Selling Stockholders. You shall have
received on the First Closing Date and the Second Closing Date, as the case may
be, the following opinion of Wilson, Sonsini, Goodrich & Rosati, P.C., counsel
for the Selling Stockholders substantially in the form of Exhibit E attached
hereto, dated as of such Closing Date, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters.
In rendering such opinion, such counsel may rely as to questions of law
not involving the laws of the United States or States of California and Delaware
upon opinions of local counsel and as to questions of fact upon representations
or certificates of the Selling Stockholders or officers of the Selling
Stockholders (when the Selling Stockholder is not a natural person), and of
governmental 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 of any material misstatement or inaccuracy in any such opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(l) Selling Stockholders' Certificate. On each of the First Closing Date
and the Second Closing Date, as the case may be, the Representative shall
received a written
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certificate executed by the Attorney-in-Fact of each Selling
Stockholder, dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such Selling
Stockholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by such
Selling Stockholder on and as of such Closing Date; and
(ii) such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at
or prior to such Closing Date.
(m) Selling Stockholders' Documents. At least three business days prior to
the date hereof, the Company and the Selling Stockholders shall have furnished
for review by the Representative copies of the Powers of Attorney and Custody
Agreements executed by each of the Selling Stockholders and such further
information, certificates and documents as the Representative may reasonably
request.
(n) Stock Exchange Listing. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(o) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(p) 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 and the Selling Stockholders 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 and the Selling Stockholders,
jointly and severally, agree to pay in such proportions as they may agree upon
among themselves all costs, fees and expenses incurred in connection with the
performance of their 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,
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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 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.
The Selling Stockholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Stockholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Stockholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 5 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Stockholders, on the other hand.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 8, Section 9 or
Section 15, 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 or the Selling Stockholders 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 and accommodation expenses,
postage, facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters.
(1) Each of the Company and each of the Principal Selling
Stockholders, jointly and severally, agree to indemnify and hold harmless each
Underwriter, its officers and
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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
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 or the Principal Selling
Stockholders contained herein; or (iv) in whole or in part upon any failure of
the Company or the Principal Selling Stockholders to perform its obligations
hereunder or under law; or (v) any untrue statement or alleged untrue statement
of any material fact contained in any audio or visual materials provided by the
Company, or based upon written information furnished by or on behalf of the
Company including, without limitation, slides, videos, films or tape recordings,
used in connection with the marketing of the Shares, including without
limitation, statements communicated to securities analysts employed by the
Underwriters; or (vi) 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 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), (iv) or (v) above,
provided that the Company and the Principal Selling Stockholders 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 FleetBoston 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 and the Principal Selling Stockholders 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, 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
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<PAGE> 24
Section 7(a) shall be in addition to any liabilities that the Company and the
Principal Selling Stockholders may otherwise have.
(2) Each of the Other Selling Stockholders, jointly and severally,
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, in the case of subparagraphs (i) and (ii) of this Section
7(a)(2) to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company or such
Underwriter by such Other Selling Stockholder, directly or through such Other
Selling Stockholder's representatives, specifically for use in the preparation
thereof; or (iii) in whole or in part upon any inaccuracy in the representations
and warranties of the Other Selling Stockholders contained herein; or (iv) in
whole or in part upon any failure of the Other Selling Stockholders to perform
their respective 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 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 Other Selling
Stockholders 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 FleetBoston 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 Other Selling Stockholders by the
Representative 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
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to such person, if required by law so to have been delivered, 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
Other Selling Stockholders 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, the Selling Stockholders and each person, if any, who
controls the Company or any Selling Stockholder 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,
Selling Stockholder 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
furnished to the Company and the Selling Stockholders by the Representatives
expressly for use therein; and to reimburse the Company, or any such director,
officer, Selling Stockholder or controlling person for any legal and other
expense reasonably incurred by the Company, or any such director, officer,
Selling Stockholder 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. Each of the Company and each
of the Selling Stockholders hereby acknowledge 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, seventh and eighth 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
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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 (FleetBoston 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 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 60 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 such party 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 such party on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims,
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<PAGE> 27
damages or liabilities, (or actions or proceedings in respect thereof), as well
as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company and the Selling
Stockholders 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, each Selling Stockholder and the 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 forty-five
(45) days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in this
Section 7 and the representation and warranties 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, any Selling
Stockholder, or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 7.
(i) Acknowledgments 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.
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
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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 5 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 and the Selling Stockholders if at any time after the execution and
delivery of this Agreement and prior to the First Closing Date (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 contemplated in the Prospectus or to enforce contracts for the sale of
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 or (b) in the case of any of
the events specified in Section 9(a)(i)-(v), such event singly or together with
any other event, makes it, in your judgement, impracticable or inadvisable to
market the Common Shares in the manner and on the terms contemplated in the
Prospectus. Any termination pursuant to this Section 9 shall be without
liability on the part of (x) the Company or the Selling Stockholders to any
Underwriter, except that the Company and the Selling Stockholders shall be
obligated to
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reimburse the expenses of the Representatives and the Underwriters pursuant to
Sections 5 and 6 hereof, (y) any Underwriter to the Company or any person
controlling the Company or the Selling Stockholders, or (z) 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 or person controlling the Company, of its officers, of
the Selling Stockholders, 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, or
the Selling Stockholders, as the case may be, and will survive delivery of and
payment for the Shares sold hereunder and any termination of this Agreement.
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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:
FLEETBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2675
Attention: General Counsel
If to the Company:
MyPoints.com, Inc.
565 Commercial Street
San Francisco, California 94111-3031
Facsimile: (415) 676-2054
Attention: Steven M. Markowitz, Chief Executive Officer
If to the Selling Stockholders:
Norwest Bank Minnesota, N.A.
[address]
Facsimile: [___]
Attention: [___]
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 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.
30
<PAGE> 31
(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 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. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND
DELIVER COMMON SHARES. If one or more of the Selling Stockholders shall fail to
sell and deliver to the Underwriters the Shares to be sold and delivered by such
Selling Stockholders at the First Closing Date pursuant to this Agreement, then
the Underwriters may at their option, by written notice from the Representative
to the Company and the Selling Stockholders, either (i) terminate this Agreement
without any liability on the part of any Underwriter or, except as provided in
Sections 5, 6, and 7 hereof, the Company or the Selling Stockholders, or (ii)
purchase the shares which the Company and other Selling Stockholders have agreed
to sell and deliver in accordance with the terms hereof. If one or more of the
Selling Stockholders shall fail to sell and deliver to the Underwriters the
Shares to be sold and delivered by such Selling Stockholders pursuant to this
Agreement at the First Closing Date or the Second Closing Date, then the
Underwriters shall have the right, by written notice from the Representative to
the Company and the Selling Stockholders, 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.
SECTION 16. 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
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<PAGE> 32
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 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.]
32
<PAGE> 33
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Custodian 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
[SELLING SHAREHOLDERS]
By:
-----------------------------------------
Attorney-in-fact for the Selling
Stockholders named in Schedule B hereto
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.
FLEETBOSTON ROBERTSON STEPHENS INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY INC.
J. P. MORGAN & CO., INC.
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
BY FLEETBOSTON ROBERTSON STEPHENS INC.
By:
------------------------------
Authorized Signatory
33
<PAGE> 34
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Common Shares
Underwriters To be Purchased
- ------------ ------------------
<S> <C>
FLEETBOSTON ROBERTSON STEPHENS INC........
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED......................
BEAR STEARNS & CO. INC....................
SALOMON SMITH BARNEY INC..................
J. P. MORGAN & CO., INC...................
------------
Total.................................
============
</TABLE>
S-A
<PAGE> 35
SCHEDULE B
<TABLE>
<CAPTION>
Number of Maximum Number
Firm Shares of Option
Selling Stockholder to be Sold Shares to be Sold
<S> <C> <C>
Selling Stockholder #1
[address]
Attention: [___] ....................... [___] [___]
Selling Stockholder #2
[address]
Attention: [___] ....................... [___] [___]
Total:............................ [___] [___]
===== =====
</TABLE>
S-B
<PAGE> 36
EXHIBIT A
LOCK-UP AGREEMENT
January 18, 2000
FleetBoston Robertson Stephens Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Smith Barney, Inc.
Bear Stearns & Company, Inc.
J.P. Morgan & Co. Inc.
As Representatives of the Several Underwriters
c/o FleetBoston Robertson Stephens
555 California Street
San Francisco, CA 94104
Ladies and 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 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 January 20, 2000 (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 90 days beginning February 15, 2000 (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 FleetBoston Robertson Stephens Inc. 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 or to have the economic consequence
of a transfer of ownership of the Common Stock 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 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. Notwithstanding the foregoing, this Lock-Up Agreement
does not prohibit the sale of shares of the Common Stock by the undersigned to
the Underwriters in the Public Offering.
Furthermore, the undersigned hereby agrees and consents to the entry of
stop transfer
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<PAGE> 37
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 February 29, 2000 this Lock-Up Agreement shall
be of no further force or effect.
This agreement will be governed and construed in accordance with the laws
of the State of New York.
Very truly yours,
-----------------------------------------
(Signature)
Name:
------------------------------------
Address:
---------------------------------
---------------------------------
A-2
<PAGE> 38
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 Securities 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 (including the Selling Stockholder Shares)
outstanding prior to the issuance of the Shares) 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 arising under the certificate of incorporation or
[jurisdiction of incorporation] General Corporation Law, co-sale right,
right of first refusal or other similar right other than any registration
rights described in Opinion (xix) hereof.
(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 arising
under the certificate of incorporation of [jurisdiction of incorporation]
General Corporation Law, co-sale right, right of first refusal or other
similar right other than any registration rights described in Opinion
(xix) hereof; and are owned by the Company free and clear of any pledge,
lien, security interest, 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 other than any registration
rights described in Opinion (xix) thereof.
(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;
(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
B-1
<PAGE> 39
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 whether relief is sought in a
proceeding at law or in equity.
(ix) The Registration Statement has become effective under the Securities
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 Securities 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;
(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
B-2
<PAGE> 40
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
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.
(xxii) Each document filed pursuant to the Exchange Act (other than the
financial statements and supporting schedules included therein, as to
which no opinion need be rendered) and incorporated or deemed to be
incorporated by reference in the Prospectus complied when so filed as to
form in all material respects with the Exchange Act; and such counsel has
no reason to believe that any of such documents, when they were so filed,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such documents
were filed, not misleading.
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
B-3
<PAGE> 41
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> 42
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 in the Prospectus under the captions "Risk
Factors - We face risks associated with third party claims and protection
of our intellectual property rights, and any litigation relating to
intellectual property rights could harm our business" 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 and any amendment
or supplement thereto made available and reviewed by such counsel, at the
time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on
which Option Stock are to be purchased, 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
C-1
<PAGE> 43
(v) Other than the matters identified in the Prospectus under the captions
"Risk Factors - We face risks associated with third party claims and
protection of our intellectual property rights, and any litigation
relating to intellectual property rights could harm our business" and
"Business - Intellectual Property and Proprietary Rights," 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> 44
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 Securities Act; the Registration
Statement has become effective under the Securities Act and, to such
counsel's knowledge, no stop order proceedings with respect thereto have
been instituted or threatened or are pending under the Securities 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 and by the Selling Stockholders.
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 a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
D-1
<PAGE> 45
EXHIBIT E
MATTERS TO BE COVERED IN THE OPINION OF SELLING STOCKHOLDER COUNSEL
(i) The Underwriting Agreement has been duly authorized, executed and delivered
by or on behalf of, and is a valid and binding agreement of, such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(ii) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, the
Underwriting Agreement and its Custody Agreement and its Power of Attorney will
not contravene or conflict with, result in a breach of, or constitute a default
under, the charter or by-laws, partnership agreement, trust agreement or other
organization documents, as the case may be, of such Selling Stockholder, or, to
the best of such counsel's knowledge, violate, result in a breach of or
constitute a default under the terms of any other agreement or instrument to
which such Selling Stockholder is a party or by which it is bound, or any
judgment, order or decree applicable to such Selling Stockholder of any court,
regulatory body, administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Stockholder.
(iii) Such Selling Stockholder has good and valid title to all of the Common
Shares which may be sold by such Selling Stockholder under the Underwriting
Agreement and has the legal right and power, and all authorization and approvals
required under its charter and by-laws, partnership agreement, trust agreement
or other organizational documents, as the case may be, to enter into the
Underwriting Agreement and its Custody Agreement and its Power of Attorney, to
sell, transfer and deliver all of the Common Shares which may be sold by such
Selling Stockholder under the Underwriting Agreement and to comply with its
other obligations under the Underwriting Agreement, its Custody Agreement and
its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such Selling
Stockholder has been duly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles.
(v) Assuming that the Underwriters purchase the Shares which are sold by such
Selling Stockholder pursuant to the Underwriting Agreement for value, in good
faith and without notice of any adverse claims, the delivery of such Shares
pursuant to the Underwriting Agreement will pass good and valid title to such
Shares, free and clear of any security interest, mortgage, pledge, lieu
encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court or
governmental authority or agency, is required for the consummation by such
Selling Stockholder of the transactions contemplated in the Underwriting
Agreement, except as required under the Securities Act, applicable state
securities or blue sky laws, and from the National Association of Securities
Dealers, LLC.
E-1
<PAGE> 1
EXHIBIT 4.1
LOCK-UP AGREEMENT
January 18, 2000
FleetBoston Robertson Stephens Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Smith Barney, Inc.
Bear Stearns & Company, Inc.
J.P. Morgan & Co. Inc.
As Representatives of the Several Underwriters
c/o FleetBoston Robertson Stephens
555 California Street
San Francisco, CA 94104
Ladies and 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 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 January 20, 2000 (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 90 days beginning February 15, 2000 (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 FleetBoston Robertson Stephens Inc. 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 or to have the economic consequence
of a transfer of ownership of the Common Stock 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 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. Notwithstanding the foregoing, this Lock-Up Agreement
does not prohibit the sale of shares of the Common Stock by the undersigned to
the Underwriters in the Public Offering.
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 February 29, 2000 this Lock-Up
Agreement shall be of no further force or effect.
This agreement will be governed and construed in accordance with the laws
of the State of New York.
Very truly yours,
----------------------------------------
(signature)
Name:
-----------------------------------
Address:
--------------------------------
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