<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 20, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
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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.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES AND 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 JANUARY 20, 2000
[MYPOINTS LOGO]
4,000,000 SHARES
COMMON STOCK
-------------------------
MyPoints.com, Inc. is offering 2,000,000 shares of common stock. The
selling stockholders identified in this prospectus are offering an additional
2,000,000 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 January 18, 2000 was
$66.25 per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------------------
<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> 3
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................................ 61
Shares Eligible For Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 68
Experts..................................................... 68
Where You Can Find Additional Information................... 68
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, Cooking.com,
MotherNature.com and Sprint. Our more than 50 rewards providers include Barnes &
Noble, Macy's, Sprint and Tower Records. According to the November 1999 report
from Media Metrix, a leading web rating service, the MyPoints.com web site,
www.mypoints.com, is the internet's sixth most popular shopping site.
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........ 2,000,000 shares
Common stock offered by selling
stockholders................................ 2,000,000 shares
Common stock to be outstanding after the
offering.................................... 27,440,645 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 25,440,645
shares of common stock outstanding as of December 31, 1999. It does not include:
- shares issuable upon exercise of stock options outstanding as
of December 31, 1999;
- 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.
<TABLE>
<CAPTION>
NOVEMBER 7,
1996 YEARS ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ----------------- ------------------
1996 1997 1998 1998 1999
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ -- $ 151 $ 1,286 $ 574 $ 10,893
Gross profit............................ -- 73 165 74 6,863
Total operating expenses................ 68 3,018 8,494 5,021 32,635
Operating loss.......................... (68) (2,945) (8,329) (4,947) (25,772)
Net loss................................ (67) (2,889) (8,266) (4,902) (25,623)
Net loss attributable to common
stockholders.......................... $ (67) $(2,889) $(8,266) $(4,902) $(35,423)
Net loss per share:
Basic and diluted..................... $(0.08) $ (2.56) $ (4.37) $ (3.23) $ (4.21)
Weighted average shares -- basic and
diluted............................ 891 1,127 1,890 1,517 8,408
</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
2,000,000 shares of common stock offered by us at an assumed public offering
price of $66.25 per share, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------
ACTUAL PRO FORMA
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 37,051 $161,595
Working capital............................................. 25,173 149,717
Total assets................................................ 61,680 186,224
Long-term obligations, less current maturities.............. 945 945
Accumulated deficit......................................... (46,645) (46,645)
Total stockholders' equity.................................. 39,410 163,954
</TABLE>
PRELIMINARY FOURTH QUARTER 1999 RESULTS OF OPERATIONS
We expect to report revenues for the three months ended December 31, 1999
of approximately $13 million.
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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 UNTIL AT LEAST 2001
Our accumulated deficit as of September 30, 1999 was $46.6 million. We have
never operated profitably and, given our planned level of operating expenses, we
expect to continue to incur losses until at least 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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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 companies
affiliated with Experian Information Solutions, Inc., we acquired internet and
electronic commerce related assets and technologies to support a web-based
rewards program known as MyPoints. We integrated MyPoints with our BonusMail
email service during March 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 ADG's offline program with MyPoints. If we
are unable to do this in a timely manner, we may be unable to realize the
anticipated benefits of this acquisition. We have not yet determined the
accounting treatment for this transaction. If this transaction were accounted
for under the purchase method of accounting, we
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expect that we would incur annual charges for amortization of goodwill of
approximately $3.75 million over each of the next four 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 214
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. Although we currently have more than six million members, 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
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<PAGE> 10
marketing resources than we do. These advantages may allow them to respond more
quickly to new or emerging technologies and changes in customer requirements. It
may also allow them to engage in more extensive research and development,
undertake more far-reaching marketing campaigns, adopt more aggressive pricing
policies, and make more attractive offers to potential employees, strategic
partners and advertisers. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products or services to address
the needs of our prospective advertisers and advertising agency customers. As a
result, it is possible that new competitors may emerge and rapidly acquire
significant market share. 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 typically have a four-year life
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
10
<PAGE> 11
capital to fund these redemptions. Accordingly, the timing of points redemptions
by members could materially and adversely affect our results of operations.
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 in the nine months ended September 30, 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 30% of our revenues during the nine months ended September 30,
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.
11
<PAGE> 12
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 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> 13
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> 14
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> 15
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> 16
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 % 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 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 27,440,645 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 shares of common stock are subject to lock-up
agreements between the holders of those shares and the representatives of the
underwriters, under to which the holders have agreed not to offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of their
common stock until 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,
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, 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.
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> 17
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 $60.54 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 $66.25 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, branding,
membership expansion, advertising, expansion of our sales and marketing
operations, new technology and products, 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> 18
USE OF PROCEEDS
Our proceeds from the sale of the 2,000,000 shares of common stock we are
offering are estimated to be $124.5 million ($162.2 million if the underwriters'
over-allotment option is exercised in full) at an assumed public offering price
of $66.25 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 January 18, 2000).................... $76.88 $52.38
</TABLE>
On January 18, 2000 the reported last sale price of the common stock on the
Nasdaq National Market was $66.25. As of December 31, 1999 there were
approximately 155 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> 19
CAPITALIZATION
The following table sets forth:
- the actual capitalization of MyPoints.com at September 30, 1999; and
- the as adjusted capitalization, which gives effect to the sale in this
offering of 2,000,000 shares of common stock offered by us at an assumed
public offering price of $66.25 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Long-term obligations, less current maturities.............. $ 945 $ 945
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: 25,229,321 shares
As adjusted: 27,229,321 shares......................... 25 27
Additional paid-in capital................................ 96,239 220,781
Deferred compensation..................................... (10,209) (10,209)
Accumulated deficit....................................... (46,645) (46,645)
-------- --------
Total stockholders' equity............................. 39,410 163,954
-------- --------
Total capitalization................................. $ 40,355 $164,899
======== ========
</TABLE>
This table excludes the following shares:
- 4,388,915 shares issuable upon exercise of stock options outstanding as
of September 30, 1999;
- 1,245,355 shares available for future grant or issuance under our stock
option and stock purchase plans as of September 30, 1999; and
- 704,902 shares issuable upon exercise of warrants outstanding as of
September 30, 1999.
See Note 8 of Notes to Consolidated Financial Statements.
19
<PAGE> 20
DILUTION
Our net tangible book value as of September 30, 1999 was approximately
$30.9 million, or approximately $1.23 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 2,000,000
shares of common stock in this offering at an assumed public offering price of
$66.25 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 September 30, 1999 would have been approximately
$155.5 million, or $5.71 per share. This represents an immediate increase in net
tangible book value of $4.48 per share to existing stockholders and an immediate
dilution in net tangible book value of $60.54 per share to purchasers of common
stock in this offering.
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $66.25
Net tangible book value per share before offering......... $1.23
Increase per share attributable to new investors.......... 4.48
-----
Pro forma net tangible book value per share after
offering.................................................. 5.71
------
Net tangible book value dilution per share to new
investors................................................. $60.54
======
</TABLE>
The above table assumes that no options or warrants were exercised after
September 30, 1999. As of September 30, 1999, there were outstanding options to
purchase a total of 4,388,915 shares of common stock at a weighted average
exercise price of approximately $7.44 per share; 704,902 shares of common stock
issuable upon exercise of outstanding warrants at a weighted average exercise
price of $2.89 per share; and 1,245,355 shares of common stock reserved for
issuance under our stock plans. If all of these options and warrants had been
exercised on September 30, 1999, our net tangible book value on that date would
have been $190.2 million, or $5.88 per share, the increase in net tangible book
value per share attributable to new investors would have been $4.65 per share
and the dilution in net tangible book value to new investors would have been
$60.37 per share.
20
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the period from November 7, 1996 (inception) to December 31, 1996, and
the years ended December 31, 1997 and 1998 and the balance sheet data as of
December 31, 1997 and 1998 are derived from our consolidated financial
statements that have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are included elsewhere in this prospectus. The statement of
operations data for the nine months ended September 30, 1998 and 1999 and the
balance sheet data as of September 30, 1999 are derived from unaudited financial
statements included elsewhere in this prospectus. The balance sheet data as of
December 31, 1996 are derived from unaudited financial statements that are not
included in this prospectus. The unaudited financial statements include all
adjustments, consisting of only normal recurring adjustments, which we consider
necessary for a fair presentation of our financial position and results of
operations for these periods. The results of operations for the nine months
ended September 30, 1999 are not necessarily indicative of the results to be
expected for the entire year. See Note 3 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
NOVEMBER 7, 1996 DECEMBER 31, SEPTEMBER 30,
(INCEPTION) TO ------------------ -------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ -- $ 151 $ 1,286 $ 574 $ 10,893
Cost of revenues.......................... -- 78 1,121 500 4,030
------ ------- ------- ------- --------
Gross profit............................ -- 73 165 74 6,863
Operating expenses:
Technology costs........................ 16 560 1,520 934 5,049
Sales and marketing expenses............ 36 1,669 4,513 2,742 17,371
General and administrative expenses..... 16 712 2,028 1,220 5,889
Amortization of intangible assets....... -- -- 275 -- 2,367
Stock-based compensation................ -- 77 158 125 1,959
------ ------- ------- ------- --------
Total operating expenses......... 68 3,018 8,494 5,021 32,635
------ ------- ------- ------- --------
Operating loss............................ (68) (2,945) (8,329) (4,947) (25,772)
Interest and other income (expense),
net..................................... 1 56 63 45 149
------ ------- ------- ------- --------
Net loss................................ $ (67) $(2,889) $(8,266) $(4,902) $(25,623)
====== ======= ======= ======= ========
Net loss attributable to common
stockholders............................ $ (67) $(2,889) $(8,266) $(4,902) $(35,423)
====== ======= ======= ======= ========
Net loss per share:
Basic and diluted....................... $(0.08) $ (2.56) $ (4.37) $ (3.23) $ (4.21)
====== ======= ======= ======= ========
Weighted average shares -- basic and
diluted............................... 891 1,127 1,890 1,517 8,408
====== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- SEPTEMBER 30,
1996 1997 1998 1999
------ ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $1,118 $ 2,948 $ 5,089 $ 37,051
Working capital (deficit)................................. 1,099 2,381 (307) 25,173
Total assets.............................................. 1,205 3,474 18,306 61,680
Long-term obligations, less current maturities............ -- 47 2,408 945
Accumulated deficit....................................... (67) (2,956) (11,222) (46,645)
Total stockholders' equity................................ 1,412 2,692 9,283 39,410
</TABLE>
21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon current
expectations that involve risks and uncertainties. When used in this prospectus,
the words "intend," "anticipate," "believe," "estimate," "plan" and "expect" and
similar expressions are included to identify forward-looking statements. Our
actual results and the timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
MyPoints.com was founded as Intellipost Corporation in November 1996. In
May 1997, we launched our email direct marketing and rewards program. In
November and December 1998, through our acquisition of companies affiliated with
Experian, we acquired internet and electronic commerce related assets and
technologies through a series of related transactions. 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.
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 of the MyPoints BonusMail
program for the Swedish market. This license agreement provides for a
22
<PAGE> 23
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 $25.6 million in the
nine months ended September 30, 1999. We intend to implement our strategies by
spending substantial amounts on member acquisition and retention, brand
development, new product offerings, sales and marketing strategic relationships,
and technology and operating infrastructure development. As a result, we expect
increases in our net losses and negative cash flows for the next several
quarters. We expect to incur net losses at least through 2001. Our limited
operating history makes it difficult to forecast future operating results.
Although we have experienced revenue growth in recent quarters, we cannot be
certain that revenues will increase at a rate sufficient to achieve and maintain
profitability. Even if we were to achieve profitability in any period, we might
fail to sustain or increase that profitability on a quarterly or annual basis.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 RESULTS OF OPERATIONS
We completed the acquisitions of internet and electronic commerce related
assets from affiliates of Experian during November and December 1998.
Accordingly, actual results of operations for the nine months ended September
30, 1999 include results for the acquired businesses and actual results for the
nine months ended September 30, 1998 do not include results for the acquired
businesses.
Revenues
For the nine months ended September 30, 1999, total revenues increased to
$10.9 million from $574,000 in the nine months ended September 30, 1998. The
increase in revenues for the nine month period ended September 30, 1999 from the
same period of 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 the nine
months ended September 30, 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. For the nine months ended September
30, 1999, cost of revenues increased to $4.0 million from $500,000 in the nine
months ended September 30, 1998. As a percentage of revenues, these costs
decreased to 37% in the nine months ended September 30, 1999 from 87% in the
nine months ended September 30, 1998. The decrease in the cost of revenues as a
percentage of revenues in the nine months ended September 30, 1999 from the same
period in 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 receiving email direct marketing
offers. This reduction in points cost resulted from us discontinuing our
practice of providing points to members for simply receiving our email direct
marketing offers beginning in April 1999. We now require members to respond to
email direct offers to earn points.
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<PAGE> 24
Technology Costs
Technology costs primarily consist of compensation for personnel associated
with the development and delivery of technology and costs associated with the
management and delivery of our products. We expense technology costs as
incurred. For the nine months ended September 30, 1999, technology costs
increased to $5.0 million from $934,000 in the nine months ended September 30,
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 the nine months ended September 30, 1999, sales and marketing expenses
increased to $17.4 million from $2.7 million in the nine months ended September
30, 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 $5.9
million in the nine months ended September 30, 1999 from $1.2 million in the
nine months ended September 30, 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 companies affiliated with
Experian, Inc. 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 $2.4 million in the nine months ended September 30, 1999. No
amortization of intangible assets was recorded in the nine months ended
September 30, 1998 as the acquisition of assets from companies affiliated with
Experian occurred in the fourth quarter of 1998.
24
<PAGE> 25
Stock-Based Compensation
As of September 30, 1999, we recorded aggregate deferred compensation
totaling $12.4 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 $2.0 million during the nine months ended
September 30, 1999 from $125,000 during the nine months ended September 30,
1998. We expect amortization of approximately $800,000 in the fourth quarter of
1999 and annual amortization of approximately $3.2 million in 2000, $2.8 million
in 2001, $2.5 million in 2002 and $900,000 thereafter relating to these options.
Interest Income
Interest income increased to $233,000 in the nine months ended September
30, 1999 from $75,000 in the nine months ended September 30, 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
completed in August 1999.
Income Taxes
We recorded a net loss of $25.6 million for the nine months ended September
30, 1999. Accordingly, no provisions for income taxes were recorded in the nine
month period and no tax benefit has been recognized due to the uncertainty of
realizing a future tax deduction for these losses.
ANNUAL RESULTS OF OPERATIONS
We completed the acquisitions of internet and electronic commerce related
assets from affiliates of 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.
25
<PAGE> 26
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.
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> 27
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,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 150 $ 156 $ 268 $ 712 $ 1,275 $ 2,663 $ 6,955
Cost of revenues................. 137 108 255 621 878 999 2,153
------- ------- ------- ------- -------- -------- --------
Gross profit................. 13 48 13 91 397 1,664 4,802
------- ------- ------- ------- -------- -------- --------
Operating expenses:
Technology costs............... 204 328 402 586 968 1,423 2,658
Sales and marketing expenses... 387 860 1,495 1,771 2,564 7,321 7,486
General and administrative
expenses..................... 452 301 467 808 1,074 1,671 3,144
Amortization of intangibles.... -- -- -- 275 832 802 733
Stock-based compensation....... 63 19 43 33 449 710 800
------- ------- ------- ------- -------- -------- --------
Total operating expenses..... 1,106 1,508 2,407 3,473 5,887 11,927 14,821
------- ------- ------- ------- -------- -------- --------
Operating loss................... (1,093) (1,460) (2,394) (3,382) (5,490) (10,263) (10,019)
Interest and other expense,
net.......................... 23 22 -- 18 9 (41) 181
------- ------- ------- ------- -------- -------- --------
Net loss......................... $(1,070) $(1,438) $(2,394) $(3,364) $ (5,481) $(10,304) $ (9,838)
======= ======= ======= ======= ======== ======== ========
Net loss attributable to common
stockholders................... $(1,070) $(1,438) $(2,394) $(3,364) $(15,281) $(10,304) $ (9,838)
======= ======= ======= ======= ======== ======== ========
</TABLE>
Revenues
Revenues increased sequentially in each of the last six 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 the first nine months of
1999. Direct marketing offers generated nearly all of the revenues in each
quarter of 1998, as well as in the first nine months of 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 to the third quarter of 1999. The increase in gross
profit in the last three 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 and third quarters of 1999.
Technology Costs
Technology costs increased from the first to the second quarter of 1998,
increased from the second to the third quarter, remained relatively constant
from the third to the fourth quarter, increased each quarter beginning with the
fourth quarter of 1998 through the third quarter of 1999. The significant
increase in the technology costs over the last six quarters is a result of
increased hiring of technical employees and consultants.
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<PAGE> 28
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 the first three quarters 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 the nine months ended September 30, 1999.
General and Administrative Expenses
As a percentage of revenues, general and administrative expenses decreased
during each quarter of 1998 and the first three quarters of 1999. The absolute
dollar increase in the second half of 1998 and the first nine months 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 companies
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.
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 $16.2 million. We have not yet determined the
accounting treatment for this transaction. If this transaction were accounted
for under the purchase
28
<PAGE> 29
method of accounting, we expect that we would incur annual charges for
amortization of goodwill of approximately $3.75 million over each of the next
four 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 $12.5 million for the nine months ended September 30, 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 non cash charges of $555,000 for depreciation and amortization.
For the nine months ended September 30, 1999, the net cash used by our $25.6
million net loss was partially offset by a $4.6 million increase in points
redemption liability, non-cash charges of $3.1 million for depreciation and
amortization, and $2.0 million in stock-based compensation and a $10.6 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 $25.2 million at
September 30, 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 the Experian-affiliated companies. The
outstanding points issued by us and acquired with the Experian 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 Experian-affiliated 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
Experian-affiliated companies' program were converted 1 to 1 into the new
program points. Accordingly, the total number of outstanding points issued to
members as of September 30, 1999 was 916 million points with a redemption
liability of $7.3 million. This liability was calculated based on an assumption
that 100% of points issued in 1997 and 80% of points issued in 1998 and in the
nine months ended September 30, 1999 would be redeemed in the future. We use
historical redemption activity and individual member account activity to
determine our estimated redemption liability. The 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 78.6 million in the nine months ended September 30,
1999.
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<PAGE> 30
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 for the nine
months ended September 30, 1999 was $6.4 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 $50.9 million in the nine months ended September 30, 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. Our current payment
obligations under these loans are approximately $16,000 per month.
In addition, in 1997, 1998 and 1999, we entered into various non-cancelable
capital lease agreements for certain types of capital expenditures. As a result
of these capital lease agreements, we had an outstanding lease payment
obligation of $1.4 million as of September 30, 1999. 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 leases are
approximately $45,000 per month.
At December 31, 1998 and September 30, 1999, we had cash and cash
equivalents of $5.1 million and $37.1 million, respectively. We estimate that we
will make capital expenditures of approximately $9.1 million during the next 12
months.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements 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 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
30
<PAGE> 31
establishes standards for related disclosures about products and services,
geographic areas and major customers. The disclosures prescribed by SFAS No. 131
are effective for the year ended December 31, 1998. We have determined that we
do 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. We do not expect that the
adoption of SOP No. 98-1 will have a material impact on our consolidated
financial statements.
FACTORS AFFECTING OPERATING RESULTS
Our results of operations have varied widely in the past and we expect that
they will continue to vary significantly in the future due to number of factors,
including those set forth under "Risk Factors." You should read the "Risk
Factors" section of this prospectus carefully. Due to these factors, we believe
that quarter-to-quarter or year-to-year comparisons of our results of operations
are not a good indication of our future performance. Our results of operations
in some future quarter may be below the expectations of public market analysts
and investors. In this event, the price of our common stock is likely to
decline.
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> 32
BUSINESS
MyPoints.com is a leading developer of internet direct marketing programs
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 the November 1999 report from Media Metrix, a leading web
rating service, the MyPoints.com web site, www.mypoints.com, is the internet's
sixth most popular shopping site.
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 developer of internet direct marketing programs
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, including 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 cost-effectively acquire and retain
customers on the internet.
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, credits in other popular rewards programs, long distance
minutes and travel awards.
- Easily Attainable Rewards. Many of our reward opportunities are at point
levels that are low enough to be earned in a matter of weeks by a typical
active member. These easily attainable rewards include $10 gift
certificates 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
offering our members points for every dollar spent 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. Such programs
enable our loyalty partners to reward their users for a wide 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, 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. We also increase the depth of our database by
tracking the transaction activity of our members in the
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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 in 1999 70 million shoppers
researched products and services on the web, 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 actually 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 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 companies
affiliated with Experian. This acquisition enabled us to integrate email and
web-based direct marketing and loyalty programs under the MyPoints name. Through
this acquisition, we believe we have become a key element of Experian's
long-term internet strategy. We intend to pursue additional strategic alliances
and acquisitions aggressively to increase membership through co-branded and
private label programs, offer new products and services, access new geographic
markets and obtain proprietary technologies. In addition, in January 2000, we
acquired Alliance Development Group, Inc., a company that operates offline
customer rewards programs. We intend to integrate the programs operated by ADG
with our rewards programs and to change the rewards currency in the ADG programs
to MyPoints.
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 Sweden Post, the Swedish postal service, and
Experian, the parent of our largest stockholder and 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 - Prodigy
PROGRAMS: Internet Loyalty Engine technology - NextCard
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 long distance minutes, travel awards, points in other loyalty programs
and electronic gift certificates. 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 Prodigy (Prodigy Points), NextCard Internet VISA (NextCard Rewards),
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 wide 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 the nine months ended September 30,
1999:
Advertising Clients
<TABLE>
<S> <C>
BMG Entertainment Cooking.com
Freeshop Garden.com
Healthshop.com Lifeminders
MotherNature.com Sprint
uBid ZineZone.com
</TABLE>
Our ten largest rewards providers, based on points redeemed as of September
30, 1999, are as follows:
Rewards Providers
<TABLE>
<S> <C>
Barnes & Noble Blockbuster Video
Brinker International Darden Restaurants
Macy's Magazine Mall
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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<PAGE> 44
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 214 people, including 72 in sales and
marketing, 110 in technology and production and 32 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> 45
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> 46
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> 47
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> 48
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, Kentek Information Systems, Inc.,
MetaCreations Corporation, Segue Software, Inc. and Unitronix Corp. Dr. Morgan
holds a B.S. from City College of New York and a Ph.D. from Cornell University.
Thomas Newkirk has served as one of our directors since January 1999. Mr.
Newkirk has served as the Chairman of Experian 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 its Chairman 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> 49
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, Mr. Markowitz an option to purchase 125,000 shares and
Mr. Hoyler an option to purchase 100,000 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,
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<PAGE> 50
our President and Chief Operating Officer. The terms of these employment
agreements include 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 $ -- $ --
Chief Executive Officer and Chairman 1998 100,000 -- -- --
of the Board of Directors
Robert C. Hoyler...................... 1999 150,440 -- --
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 1.00 1/31/2009 $220,113 $ 557,810
90,000 8.00 4/12/2009 $452,804 $1,147,495
Robert C. Hoyler....... 250,000 1.00 1/31/2009 $157,224 $ 398,436
90,000 8.00 4/12/2009 $452,804 $1,147,495
Charles H. Berman...... 30,000 1.00 1/31/2009 $ 18,867 $ 47,812
60,000 8.00 4/12/2009 $301,869 $ 764,996
1,905 8.00 5/12/2009 $ 9,584 $ 24,289
73,000 8.00 7/26/2009 $367,274 $ 930,746
Steven E. Parker....... 47,931 5.00 2/26/2009 $150,718 $ 381,948
90,000 8.00 5/12/2009 $452,804 $1,147,495
85,000 8.00 7/26/2009 $427,648 $1,083,745
Frank J. Pirri......... 90,000 8.00 4/12/2009 $452,804 $1,147,495
25,000 8.00 8/19/2009 $125,779 $ 318,748
</TABLE>
In 1999, we granted options to purchase an aggregate of 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> 52
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................ 195,208 $14,057,684
Robert C. Hoyler................... 147,292 10,559,816
Charles H. Berman.................. 115,500 47,500 7,833,000 3,135,000
Steven E. Parker................... 42,500 180,431 2,805,000 12,052,239
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
shares were outstanding, 178,475 shares of common stock had been
purchased pursuant to exercises of stock options and stock purchase rights, and
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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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
shares were outstanding, 420,950 shares of common stock had been
purchased pursuant to exercises of stock options and stock purchase rights and
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. 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 336,000 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 ($10,000 in 2000) 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 EXPERIAN AND RELATED ENTITIES
In November 1998 and December 1998, we entered into a series of
transactions to acquire internet and electronic commerce related assets from
companies affiliated with Experian. As part of these transactions, Experian
acquired shares of our common stock equal to 19.9% of our then outstanding
shares of common stock. These transactions involved the following principal
elements:
- The merger of a subsidiary of MyPoints.com with and into Enhanced
Response Technologies, Inc., an affiliate of Experian, where the
outstanding shares and options of Enhanced Response Technologies were
exchanged for 1,435,946 shares of our common stock and options to
purchase 402,818 shares of our common stock;
- The acquisition from two subsidiaries of Experian of all of the
outstanding ownership interests of MotivationNet, LLC in exchange for
1,213,592 shares of our Series D preferred stock and 2,164,535 shares of
our common stock;
- The acquisition from Metromail Corporation, an affiliate of Experian, of
certain assets relating to the "Direct Value to You" internet sponsorship
product, 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 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.
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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 shares issuable upon exercise of
warrants as follows:
- S-7 Associates, L.L.C., 133,495 shares;
- Howard L. Morgan, 12,136 shares; and
- Lester Wunderman, 12,136 shares.
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
S-7 Associates, L.L.C. ................... 866,667 300,000 400,485 160,447
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 chairman of Direct Marketing Technology, a wholly-owned
subsidiary of Experian.
Holders of our preferred stock are entitled to registration rights with
respect to the shares of common stock that they will hold following this
offering. See "Description of Capital Stock -- Registration Rights."
OTHER TRANSACTIONS
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
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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 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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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 25,440,645 shares
of common stock outstanding as of December 31, 1999, and also lists applicable
percentage ownership based on 27,440,645 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 SHARES SHARES
TOTAL SUBJECT TO TO BE TOTAL SUBJECT TO
BENEFICIAL OWNER NUMBER OPTIONS PERCENT SOLD NUMBER OPTIONS PERCENT
---------------- --------- ---------- ------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS AND NAMED EXECUTIVE
OFFICERS AND DIRECTORS
Direct Marketing Technology, Inc.... 3,674,356 -- 14.4%
505 City Parkway West, 10th Floor
Orange, CA 92868
S-7 Associates, L.L.C. ............. 1,720,525 -- 6.8
800 Third Avenue, 33rd Floor
New York, NY 10022
Long Island Venture Fund, L.P....... 1,333,333 -- 5.2
145 Hofstra University, Suite 213
Business Development Center
Hempstead, NY 11550-1090
Harold M. Brierley(1)............... 1,275,000 -- 5.0
1201 Main Street, Suite 2500
Dallas, TX 75202
Steven M. Markowitz................. 1,053,566 209,791 4.1
Robert C. Hoyler.................... 596,450 157,708 2.3
Layton S. Han....................... 303,541 53,541 1.2
Charles H. Berman................... 247,310 242,124 1.0
</TABLE>
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES TO BE BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
-------------------------------- --------------------------------
SHARES SHARES SHARES
TOTAL SUBJECT TO TO BE TOTAL SUBJECT TO
BENEFICIAL OWNER NUMBER OPTIONS PERCENT SOLD NUMBER OPTIONS PERCENT
---------------- --------- ---------- ------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank J. Pirri...................... 140,319 27,500 *
Steven E. Parker.................... 77,603 57,866 *
Thomas P. Caldwell.................. 60,000 60,000 *
Eugene Pierce....................... -- -- *
Thomas Newkirk(2)................... 3,681,126 6,770 14.5
Lawrence E. Phillips(3)............. 1,239,928 6,770 4.9
Howard L. Morgan.................... 353,150 145,469 1.4
Mario M. Rosati(4).................. 158,333 25,279 *
Lester Wunderman.................... 78,325 20,833 *
All directors and executive officers
as a group (13 persons)........... 7,989,651 1,013,651 31.3%
Other Selling Stockholders..........
</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 Chairman of Direct Marketing Technology, disclaims beneficial ownership
of the shares held by that entity, except to the extent of his proportionate
pecuniary interest therein based upon his beneficial ownership of the
capital stock of Direct Marketing Technology. Mr. Newkirk is a member of our
board of directors.
(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.
(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, no 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, 25,440,645 shares of common stock were
issued and outstanding and held by 155 stockholders of record, options to
purchase shares of common stock were issued and outstanding and held
by 225 optionholders, and warrants to purchase 277,477 shares of common stock
were issued and outstanding and held by 5 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 shares of common stock and
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 waived with respect to
this offering. MyPoints.com will bear all expenses in connection with any
registration, other than underwriting discounts and commissions. All
registration rights will terminate five years following the consummation of this
offering or, 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. Sales of substantial amounts of our common stock in the
public market after the restrictions lapse could adversely affect the prevailing
market price and our ability to raise the equity capital in the future.
Upon completion of this offering, we will have outstanding 27,440,645
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 shares, subject in certain instances to volume
resale limitations under Rule 144.
Of the remaining shares of common stock, 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
without the prior written consent of FleetBoston Robertson Stephens. As a result
of these lock-up agreements, notwithstanding possible earlier eligibility for
sale under the provisions of Rules 144, 144(k) and 701 under the Securities Act,
none of these shares will be resellable until May 14, 2000. FleetBoston
Robertson Stephens 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 shares will be eligible
for sale in the public market. All of these shares will be subject to volume
limitations under Rule 144, except shares eligible for sale under Rule
144(k) and shares eligible for sale under Rule 701. In some cases,
these shares are subject to repurchase rights of MyPoints.com.
In addition, as of December 31, 1999, there were outstanding warrants to
purchase 267,477 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 274,406 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.
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
64
<PAGE> 65
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 shares were outstanding,
shares were reserved for future issuance under our stock plans and
were reserved for issuance under our employee stock purchase plan.
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 90 day lock-up agreements, will be
available for immediate resale in the open market.
Also holders of restricted shares and holders of warrants to
purchase 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.
65
<PAGE> 66
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 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 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 $276.0 million, the
total underwriting discounts and commissions will be $14.5 million, the total
proceeds to us will be $147.8 million and the total
66
<PAGE> 67
proceeds to selling stockholders will be $113.7 million. 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, optionholders and warrantholders 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.
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 this 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 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.
67
<PAGE> 68
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,
1997 and 1998, and for the period from November 7, 1996 (inception) to December
31, 1996, and for each of the two years in the period ended December 31, 1998
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.
68
<PAGE> 69
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> 70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
MyPoints.com, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
MyPoints.com, Inc. (formerly Intellipost Corporation) at December 31, 1997 and
1998, and the results of its operations and its cash flows for the period from
November 7, 1996 (inception) to December 31, 1996, and the years ended December
31, 1997 and 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
March 26, 1999
San Francisco, California
F-2
<PAGE> 71
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1997 1998 1999
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,948 $ 5,089 $ 37,051
Restricted cash........................................... -- -- 275
Accounts receivable, net.................................. 116 586 6,398
Unbilled receivables, net................................. -- 413 465
Deposits and prepaid expenses............................. 52 220 1,519
Other current assets...................................... -- -- 790
------- -------- --------
Total current assets................................... 3,116 6,308 46,498
Intangible assets........................................... -- 10,888 8,487
Property and equipment, net................................. 345 1,041 6,618
Other assets................................................ 13 69 77
------- -------- --------
Total assets........................................... $ 3,474 $ 18,306 $ 61,680
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 106 $ 1,702 $ 9,575
Bank overdraft............................................ 54 -- --
Notes payable, current portion............................ 50 143 129
Obligations under capital leases, current portion......... 6 91 495
Other current liabilities................................. -- 479 3,188
Deferred revenue.......................................... -- 631 614
Software license liability, current portion............... -- 842 --
Points redemption liability............................... 519 2,727 7,324
------- -------- --------
Total current liabilities.............................. 735 6,615 21,325
Notes payable, less current portion......................... 32 179 79
Long-term debt.............................................. -- 240 --
Obligations under capital leases, less current portion...... 15 207 866
Software license liability, less current portion............ -- 1,782 --
------- -------- --------
782 9,023 22,270
------- -------- --------
Commitments and contingencies (Note 10)
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 15,500,000,
15,500,000 and 10,000,000 shares authorized at December
31, 1997 and 1998 and September 30, 1999 (unaudited)
respectively; 5,900,000, 10,388,315 and 0 shares issued
and outstanding at December 31, 1997 and 1998 and
September 30, 1999 (unaudited) respectively............ 6 10 --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 2,500,000, 6,015,727 and 25,229,321
(unaudited) shares issued and outstanding at December
31, 1997 and 1998 and September 30, 1999 (unaudited),
respectively........................................... 3 6 25
Additional paid-in capital................................ 6,027 22,851 96,239
Stock subscription receivable............................. -- (350) --
Deferred compensation..................................... (388) (2,012) (10,209)
Accumulated deficit....................................... (2,956) (11,222) (46,645)
------- -------- --------
Total stockholders' equity............................. 2,692 9,283 39,410
------- -------- --------
Total liabilities and stockholders' equity........ $ 3,474 $ 18,306 $ 61,680
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 72
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
NOVEMBER 7, 1996 DECEMBER 31, SEPTEMBER 30,
(INCEPTION) TO ----------------- -------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
-------------------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Advertising...................... $ -- $ 151 $ 1,286 $ 574 $ 10,279
License........................ -- -- -- -- 614
------ ------- ------- ------- --------
Total revenue............... -- 151 1,286 574 10,893
------ ------- ------- ------- --------
Cost of revenue:
Advertising.................... -- 78 1,121 500 3,835
License........................ -- -- -- -- 195
------ ------- ------- ------- --------
Total cost of revenue....... -- 78 1,121 500 4,030
------ ------- ------- ------- --------
Gross profit................... -- 73 165 74 6,863
------ ------- ------- ------- --------
Operating expenses:
Technology costs............... 16 560 1,520 934 5,049
Sales and marketing expenses... 36 1,669 4,513 2,742 17,371
General and administrative
expenses.................... 16 712 2,028 1,220 5,889
Amortization of intangible
assets...................... -- -- 275 -- 2,367
Stock-based compensation....... -- 77 158 125 1,959
------ ------- ------- ------- --------
Total operating expenses.... 68 3,018 8,494 5,021 32,635
------ ------- ------- ------- --------
Operating loss................... (68) (2,945) (8,329) (4,947) (25,772)
Interest income.................. 1 64 87 75 233
Interest expense and other,
net............................ -- (8) (24) (30) (84)
------ ------- ------- ------- --------
Net loss.................... (67) (2,889) (8,266) (4,902) (25,623)
Dividend related to beneficial
conversion feature of preferred
stock.......................... -- -- -- -- (9,800)
------ ------- ------- ------- --------
Net loss attributable to
common stockholders....... $ (67) $(2,889) $(8,266) $(4,902) $(35,423)
====== ======= ======= ======= ========
Net loss per share:
Basic and diluted.............. $(0.08) $ (2.56) $ (4.37) $ (3.23) $ (4.21)
====== ======= ======= ======= ========
Weighted average shares --basic
and diluted................. 891 1,127 1,890 1,517 8,408
====== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 73
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>
Issuance of common stock to founders........... -- $ -- 2,500 $ 3 $ --
Issuance of Series A preferred stock for cash,
net of issuance costs of $21................... 3,000 3 1,475
Net loss.......................................
------- ------- ------ ------- --------
BALANCE, DECEMBER 31, 1996..................... 3,000 3 2,500 3 1,475
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 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 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..................... 5,750 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.................. 631 1 1,299
Cashless exercise of warrants.................. 42
Exercise of stock options for cash............. 378 179
Exercise of stock options for note
receivable................................... 25
Conversion of preferred stock to common
stock........................................ (12,389) (12) 12,389 12
Net loss.......................................
Deferred compensation.......................... 10,156
------- ------- ------ ------- --------
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED)...... -- $ -- 25,230 $ 25 $ 96,239
======= ======= ====== ======= ========
<CAPTION>
STOCK
SUBSCRIPTION DEFERRED ACCUMULATED
RECEIVABLE COMPENSATION DEFICIT TOTAL
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
Issuance of common stock to founders........... $ (2) $ -- $ -- $ 1
Issuance of Series A preferred stock for cash,
net of issuance costs of $21................... 1,478
Net loss....................................... (67) (67)
------- -------- -------- --------
BALANCE, DECEMBER 31, 1996..................... (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 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 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.................. 1,300
Cashless exercise of warrants..................
Exercise of stock options for cash............. 179
Exercise of stock options for note
receivable...................................
Conversion of preferred stock to common
stock........................................
Net loss....................................... (25,623) (25,623)
Deferred compensation.......................... (8,197) 1,959
------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED)...... $ -- $(10,209) $(46,645) $ 39,410
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 74
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
NOVEMBER 7, 1996 YEARS ENDED ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------ -------------------------
1996 1997 1998 1998 1999
---------------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (67) $(2,889) $(8,266) $(4,902) $(25,623)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 1 70 555 169 3,115
Provision for bad debts................................. -- -- 60 39 686
Points redemption liability............................. -- 519 1,732 965 4,597
Barter revenues, net.................................... -- (20) (59) -- 67
Issuance of stock options to non-employees for
services.............................................. -- -- 15 25 --
Stock-based compensation................................ -- 77 158 125 1,959
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables.......... (1) (116) (639) (280) (6,550)
Deposits and prepaid expenses......................... (33) 2 (138) (88) (1,299)
Other assets.......................................... -- -- (28) 17 (41)
Accounts payable, accrued and other liabilities....... 54 52 878 637 10,582
Deferred revenue...................................... -- -- 258 -- (17)
------ ------- ------- ------- --------
Net cash used in operating activities............... (46) (2,305) (5,474) (3,293) (12,524)
------ ------- ------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (40) (353) (358) (266) (6,169)
Organization costs........................................ (14) -- -- -- --
Proceeds received pursuant to acquisition................. -- -- 1,747 -- --
Restricted cash........................................... -- -- -- -- (275)
------ ------- ------- ------- --------
Net cash (used in) provided by investing
activities........................................ (54) (353) 1,389 (266) (6,444)
------ ------- ------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance
costs................................................... 1,478 4,090 6,084 784 10,300
Proceeds from issuance of common stock.................... -- 2 -- -- 41,205
Bank overdraft............................................ -- 54 (54) (54) --
Borrowings under line of credit........................... -- 100 400 370 --
Repayments of borrowings.................................. -- (18) (160) (83) (354)
Repayments of software license............................ -- -- -- (30) (2,624)
Principal payments under capital lease obligations........ -- -- (53) -- (329)
Borrowings under capital lease line....................... -- -- -- -- 1,253
Exercise of stock options................................. -- -- 9 9 179
Exercise of warrants...................................... -- -- -- -- 1,300
------ ------- ------- ------- --------
Net cash provided by financing activities........... 1,478 4,228 6,226 996 50,930
------ ------- ------- ------- --------
Net increase in cash and cash equivalents........... 1,378 1,570 2,141 (2,563) 31,962
Cash and cash equivalents, beginning of period.............. -- 1,378 2,948 2,948 5,089
------ ------- ------- ------- --------
Cash and cash equivalents, end of period.................... $1,378 $ 2,948 $ 5,089 $ 385 $ 37,051
====== ======= ======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ -- $ 12 $ 34 $ 30 $ 132
====== ======= ======= ======= ========
Noncash transactions:
Equipment acquired under capital leases................... $ -- $ 22 $ 329 $ 222 $ 139
====== ======= ======= ======= ========
Cashless exercise of warrants............................. $ -- $ -- $ -- $ -- $ 400
====== ======= ======= ======= ========
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 $ 295 $ 10,156
====== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 75
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.
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 for the year then
ended are consolidated and include the accounts of the Company and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated in the consolidation process.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying interim consolidated financial statements as of September
30, 1998 and 1999 and the nine months then ended together with the related notes
are unaudited but include all adjustments, consisting of only normal recurring
adjustments, which management considers necessary to present fairly, in all
material respects, the consolidated financial position, and consolidated results
of operations and cash flows for the nine month periods ended September 30, 1998
and 1999. Results for the nine months ended September 30, 1999 are not
necessarily indicative of results for the entire 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 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.
F-7
<PAGE> 76
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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, 1997, 1998 and
F-8
<PAGE> 77
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, the allowance for unredeemed points was $0, $563,000 and
$1.9 million (unaudited), respectively. As of September 30, 1999 the unaudited
gross points redemption liability is $9.2 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 $1,551,000 (unaudited) for the periods ended December 31,
1997, 1998 and September 30, 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 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 e-mails 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 exclusivity 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,
F-9
<PAGE> 78
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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> 79
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>
NOVEMBER 7, 1996 YEARS ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ----------------- -------------------------
1996 1997 1998 1998 1999
---------------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss............................ $ (67) $(2,889) $(8,266) $(4,902) $(25,623)
Dividend related to beneficial
conversion feature of preferred
stock.......................... -- -- -- -- (9,800)
------ ------- ------- ------- --------
Net loss available to common
stockholders................... $ (67) $(2,889) $(8,266) $(4,902) $(35,423)
====== ======= ======= ======= ========
Denominator:
Weighted average shares........... 2,500 2,500 2,856 2,534 9,018
Weighted average unvested common
shares subject to repurchase
agreements..................... (1,609) (1,373) (966) (1,017) (610)
------ ------- ------- ------- --------
Denominator for basic
calculation.................... 891 1,127 1,890 1,517 8,408
Weighted average effect of
dilutive securities:
Net effect of dilutive stock
options...................... -- -- -- -- --
Net effect of dilutive stock
warrants..................... -- -- -- -- --
------ ------- ------- ------- --------
Denominator for diluted
calculation.................... 891 1,127 1,890 1,517 8,408
====== ======= ======= ======= ========
Net loss per share:
Basic............................. $(0.08) $ (2.56) $ (4.37) $ (3.23) $ (4.21)
====== ======= ======= ======= ========
Diluted........................... $(0.08) $ (2.56) $ (4.37) $ (3.23) $ (4.21)
====== ======= ======= ======= ========
</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 PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for the year
ended December 31, 1998. The Company has determined that it does not have any
separately reportable business segments as of December 31, 1998.
F-11
<PAGE> 80
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, Software for Internal Use, which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.
4. ACQUISITION
Effective November 30, 1998, the Company agreed to acquire all the
outstanding shares of MotivationNet, LLC, and Enhanced Response Technologies,
Inc., two companies operating as affiliates under common management. The
acquisition has been accounted for using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
relative fair values on the acquisition date. The fair value of intangible
assets was determined using a combination of the income approach and 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 is an obligation under a
software license agreement. According to the terms of the agreement, the Company
is to pay the licensor a royalty, payable in monthly installments of the greater
of 3.0% of monthly revenues, or $35,000, up to a maximum cumulative royalty of
$4.2 million. The Company has recorded the obligation at its estimated fair
value as determined by estimated future cash payments, discounted at a market
interest rate. The Company has an option to purchase the licensed software at
the conclusion of the ten-year license term. Under the agreement, upon the
completion of an initial public offering of the Company's stock, the Company 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.
F-12
<PAGE> 81
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Certain portions of the acquisition were structured as a tax-free exchange
of stock. Therefore, the differences between the recognized fair values of
certain acquired assets, including tangible assets, and their historical tax
bases are not deductible for tax purposes.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the 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 1996 or 1998. As of December 31, 1997 and 1998
and September 30, 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 September 30, 1999, the Company has incurred a
total of $227,737 and $758,000 (unaudited), 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 market research services for the Company. From
inception through December 31, 1998 and September 30, 1999, the Company has
incurred a total of $0 and $118,000 (unaudited), 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> 82
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,
-------------- SEPTEMBER 30,
1997 1998 1999
---- ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software........... $359 $1,493 $ 7,171
Furniture and fixtures.................... 24 152 581
Leasehold improvements.................... 15 22 224
---- ------ -------
398 1,667 7,976
Accumulated depreciation.................. (53) (626) (1,358)
---- ------ -------
$345 $1,041 $ 6,618
==== ====== =======
</TABLE>
Depreciation expense amounted to $1,000, $49,000, $265,000 and $732,000
(unaudited) for the period ended December 31, 1996 the years ended December 31,
1997 and 1998 and nine months ended September 30, 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
September 30, 1999 (unaudited).
Annual maturities of notes payable are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999............................................. $143
2000............................................. 115
2001............................................. 64
----
$322
====
</TABLE>
F-14
<PAGE> 83
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STRUCTURE
The Company is authorized to issue 100,000,000 shares of $0.001 par value
common stock and 15,500,000 shares of $0.001 par value preferred stock. The
Board of Directors has the authority to issue the undesignated preferred stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof.
PREFERRED STOCK
The Company is authorized to issue 15,500,000 shares of preferred stock of
which 4,000,000 are designated as Series A preferred stock, 1,000,000 are
designated as Series B preferred stock, 3,000,000 are designated as Series C
preferred stock, 5,500,000 are designated as Series D preferred stock, and
2,000,000 are designated as Series E preferred stock.
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 prices ranging from $8.00 per
share to the initial public offering price 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
On November 7, 1996, the Company adopted the 1996 Stock Plan and on
November 13, 1998, the Company adopted the 1999 Stock Plan (together, the
"Plans"). The Plans provide for the grant of incentive stock options and
nonstatutory stock options to employees and consultants of the Company.
F-15
<PAGE> 84
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has reserved 4,685,833 shares of common stock for issuance
under the Plans as of September 30, 1999 (unaudited). The Company has granted
incentive stock options with vesting equal to either 25.0% at the first
anniversary date and 1/48th per month thereafter or 25.0% immediately with the
remainder vesting 1/48th per month thereafter. These options are exercisable for
a period of no more than ten years from the date of grant.
The Company accounts for the Plans in accordance with APB No. 25 and
related Interpretations. In connection with certain stock option grants during
the years ended December 31, 1997 and 1998 and the nine months ended September
30, 1999 (unaudited), 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 and
1998 totaled $77,000 and $158,000, respectively and $1,959,000 (unaudited)
during the nine months ended September 30, 1999.
Following is a summary of incentive stock option activity for the years
ended December 31, 1997, 1998, and nine months ended September 30, 1999. There
was no activity in the Plans prior to January 1, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE
SHARES PRICE
----------- --------
<S> <C> <C>
Outstanding as of January 1, 1997......................... -- --
Granted................................................... 687,166 $0.074
Exercised............................................... -- --
Canceled................................................ (2,500) 0.100
---------
Outstanding as of December 31, 1997....................... 684,666 0.074
Granted................................................. 1,079,562 0.210
Exercised............................................... (96,174) 0.063
Canceled................................................ (310,696) 0.114
---------
Outstanding as of December 31, 1998....................... 1,357,358 0.173
Granted................................................. 4,373,633 8.000
Exercised............................................... (407,194) 7.235
Canceled................................................ (934,882) 7.669
---------
Outstanding as of September 30, 1999 (unaudited).......... 4,388,915 7.438
=========
Options vested as of September 30, 1999 (unaudited)....... 1,259,460 $7.269
=========
</TABLE>
F-16
<PAGE> 85
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998 and September 30, 1999 (unaudited):
<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>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE AT
OPTIONS OUTSTANDING SEPTEMBER 30, 1999
AT SEPTEMBER 30, 1999 (UNAUDITED) (UNAUDITED)
--------------------------------------- -------------------------
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.......... 348,282 8.13 $0.090 409,484 $0.089
$0.20 - $0.26.......... 487,997 9.07 0.250 239,730 0.250
$1.00 - $5.00.......... 1,276,050 9.36 2.549 232,977 2.214
$8.00.................. 2,276,586 9.70 8.000 377,269 8.000
--------- ---------
4,388,915 $7.438 1,259,460 $7.269
========= =========
</TABLE>
The Company has determined that the fair value of its common stock exceeded
the option exercise price at the date options were granted. The Company
recognized this difference as deferred compensation and is amortizing these
amounts over the vesting period.
The following disclosures are provided in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation. The weighted average fair values of
options granted in 1997 and 1998 were $0.53 and $2.27, respectively.
Had compensation cost for the Plans been determined based on fair value at
the grant date consistent with the method prescribed by SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts below (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 7, 1996 DECEMBER 31,
(INCEPTION) TO ------------------
DECEMBER 31, 1996 1997 1998
----------------- ------- -------
<S> <C> <C> <C>
Net loss as reported...................... $(67) $(2,889) $(8,266)
Net loss pro forma........................ -- (2,890) (8,291)
</TABLE>
F-17
<PAGE> 86
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of employee stock option grants has been estimated on the
date of grant using the minimum value model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997 1998
---- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................... -- 5.72% 4.59%
Expected life......................................... -- 5 years 5 years
Dividends............................................. -- -- --
</TABLE>
OTHER
A portion of the common stock issued to the Company's founders at inception
is subject to restricted stock purchase agreements which provide that one-third
of the Company's repurchase right lapses on the vesting start date and 1/48th of
the Company's remaining repurchase right lapses at the end of the each month
thereafter. Upon a merger or sale of the Company, one-half of the remaining
shares subject to the Company's right of repurchase will become vested.
9. 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 $5,000, $57,000, $180,000 and $487,000
(unaudited) for the period ended December 31, 1996, the years ended December 31,
1997 and 1998, and the nine months ended September 30, 1999, respectively.
F-18
<PAGE> 87
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>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1999........................................................ $ 113 $ 146
2000........................................................ 125 --
2001........................................................ 98 --
------- ------
Total minimum lease payments................................ 336 $ 146
======
Less amount representing interest........................... 38
-------
Present value of capital lease obligations.................. 298
Less current portion........................................ 91
-------
Long-term portion........................................... $ 207
=======
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDING CAPITAL OPERATING
SEPTEMBER 30, LEASES LEASES
------------- ------- ---------
<S> <C> <C>
2000........................................................ $ 493 $ 429
2001........................................................ 526 411
2002........................................................ 426 424
2003........................................................ 352 437
2004........................................................ -- 350
------- ------
Total minimum lease payments................................ 1,797 $2,051
======
Less amount representing interest........................... 436
Present value of capital lease obligations.................. 1,361
Less current portion........................................ 495
-------
Long-term portion........................................... $ 866
=======
</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.
F-19
<PAGE> 88
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER
The Company is obligated to pay commissions to certain third parties for
the referral of members to the Company. Commissions are determined based on
revenues derived from these members over the first two years of membership. For
the year ended December 31, 1998 the referral commissions amounted to $26,000.
None were incurred during the nine months ended September 30, 1999.
11. INCOME TAXES
As of December 31, 1997, December 31, 1998 and September 30, 1999
(unaudited), the Company had net operating loss carryforwards of approximately
$1,360,000, $7,810,000 and $21,386,000 for federal income tax purposes, and
$1,380,000, $7,820,000 and $21,425,000 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.
A reconciliation of the provision for income taxes to the federal statutory
rate of 34% is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1996 1997 1998 1998 1999
----- ----- ----- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax at statutory rate....................... 34% 34% 34% 34% 34%
State taxes, net of federal benefit......... 6 6 6 6 6
Permanent differences....................... -- (2) (1) (1) (2)
Valuation allowance......................... (40) (38) (39) (39) (38)
--- --- --- --- ---
-- -- -- -- --
=== === === === ===
</TABLE>
F-20
<PAGE> 89
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated tax effects of significant temporary differences and
carryforwards that give rise to deferred income tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Non-deducted start-up costs................... $ 369 $ 303 $ 222
Net operating loss carryforwards.............. 545 3,177 8,521
Non-deducted research and experimental
costs....................................... -- 1,328 166
Points redemption liability................... 259 1,185 3,099
Accrued liabilities and other................. 53 106 1,535
Non-deducted intangible assets................ -- (834) (2,051)
------- ------- --------
Gross deferred tax assets..................... 1,226 5,265 11,492
Valuation allowance........................... (1,226) (5,265) (11,492)
------- ------- --------
Net deferred tax assets....................... $ -- $ -- $ --
======= ======= ========
</TABLE>
The Company has recorded a valuation allowance against gross deferred tax
assets due to uncertainties surrounding their realization.
12. POINTS REDEMPTION LIABILITY
Following is a summary of points redemption liability activity for the
years ended December 31, 1997 and 1998, and the nine months ended September 30,
1999. There was no activity prior to January 1, 1997:
<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................. 6,651
Allowance for unredeemed points............................. (1,268)
Points redemption........................................... (786)
-------
Outstanding as of September 30, 1999 (unaudited)............ $ 7,324
=======
</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
F-21
<PAGE> 90
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 (UNAUDITED)
In January 2000, the Company acquired a company which operates off-line
rewards programs. The Company issued an aggregate of 270,000 shares of common
stock in this transaction. Based on the value of the common stock on the date
this acquisition closed, the aggregate purchase price in the transaction was
$16.2 million. The Company has not yet determined the accounting treatment for
this transaction. If this transaction were accounted for under the purchase
method of accounting, the Company expects to incur annual charges for
amortization of goodwill of approximately $3.75 million over each of the next
four years.
F-22
<PAGE> 91
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 year ended December 31, 1998, as if
the acquisition had occurred on January 1, 1998, after giving effect to purchase
accounting adjustments. These pro forma results have been prepared for
comparative purposes only, do not purport to be indicative of what operating
results would have been had the acquisition actually taken place on January 1,
1998, and may not be indicative of future operating results.
F-23
<PAGE> 92
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
------------------------------------------------------- NINE MONTHS
ACQUIRED PRO ENDED
MYPOINTS.COM, INC. COMPANIES ADJUSTMENTS FORMA SEPTEMBER 30, 1999
------------------ --------- ----------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 1,286 $ 30 $ -- $ 1,316 $ 10,893
Cost of revenues.......... 1,121 1 1,122 4,030
------- ------- -------- -------- --------
Gross profit............ 165 29 194 6,863
------- ------- -------- -------- --------
Operating expenses:
Technology costs........ 1,520 2,393 3,913 5,049
Sales and marketing
expenses............. 4,513 2,647 7,160 17,371
General and
administrative
expenses............. 2,028 756 242 3,026 5,889
Amortization of
intangible assets.... 275 3,025 3,300 2,367
Stock-based
compensation......... 158 463 621 1,959
------- ------- -------- -------- --------
Total operating
expenses........... 8,494 6,259 3,267 18,020 32,635
------- ------- -------- -------- --------
Operating loss............ (8,329) (6,230) (3,267) (17,826) (25,772)
Interest income........... 87 87 233
Interest expense and
other, net.............. (24) (207) (231) (84)
------- ------- -------- -------- --------
Net loss.................. (8,266) (6,437) (3,267) (17,970) (25,623)
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) $(35,423)
======= ======= ======== ======== ========
Net loss per share:
Basic and diluted....... $ (4.37) $ (3.06) $ (4.21)
======= ======= ========
Weighted average
shares -- basic and
diluted.............. 1,890 2,105 8,408
======= ======= ========
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
Enhanced Response Technologies, Inc., formerly known as MotivationNet, Inc.
(the "Company"), was founded in June 1996. The Company offers advertisers the
ability to target internet users enrolled as members of its "MyPoints" incentive
program. The Company's MyPoints program awards points to enrolled members for
receiving and responding to email communications, accessing and responding to
advertisers' and MyPoints's internet web page offers, purchasing advertisers'
products, and completing of surveys to obtain demographic information. MyPoints
points may be redeemed by members for a variety of goods and services.
NOTE 2 -- BASIS OF PRESENTATION (UNAUDITED)
The Company's primary source of funding for the development of the
technology supporting the MyPoints program was obtained from Direct Marketing
Technology, Inc. ("DMT") through a note payable. In early 1998, DMT informed the
Company that it wanted to convert the note payable to an equity interest. On
March 31, 1998, the Company and DMT entered into an agreement whereby the
Company transferred its MyPoints technology, which was carried at zero net book
value, a $5,209,600 note payable to DMT and certain other assets and liabilities
to MotivationNet, LLC ("MNet"), with $5,000,000 of the note payable to DMT and
related accrued interest being converted by DMT to a capital interest in MNet.
Upon the formation of MNet, the Company's and DMT's interest in MNet were 34.0%
and 66.0%, respectively. To avoid confusion with MotivationNet, LLC, the Company
changed its name from MotivationNet, Inc. to Enhanced Response Technologies,
Inc. Also, on March 31, 1998, the Company established a wholly-owned subsidiary,
MyPoints.Com, LLC ("MyPoints.Com"), to which the Company contributed the
MyPoints operations.
In connection with its formation, MNet licensed the MyPoints technology
back to the Company. Beginning in April 1998, the MyPoints program was operated
on MNet's computer systems for which MNet began charging MyPoints.Com for use of
the computer system and technical support. In addition, MNet provided
fulfillment services related to the redemption of MyPoints points for goods and
services for which MNet charged MyPoints.Com based on the face value of the
points redeemed, $.01 per point.
Pursuant to the agreement to establish MNet, DMT agreed to provide MNet
additional financing through a note payable to fund the operations of MNet, as
well as to allow MNet to provide financing to the Company through a note payable
to fund the Company's operations, including the operations of MyPoint.Com.
In the fourth quarter of 1998, the Company and MNet were acquired by
Intellipost Corporation (subsequently renamed "MyPoints.com, Inc.").
The financial statements for periods prior to March 31, 1998 reflect the
operations of the Company as a stand-alone entity. The financial statements for
periods subsequent to March 31, 1998 reflect the operations of the Company and
MNet on a combined basis as (a) the companies have common management, (b) both
companies were acquired by Intellipost Corporation and (c) the presentation is
considered most meaningful. All intercompany transactions have been eliminated.
F-31
<PAGE> 100
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- LIQUIDITY
The Company has sustained net losses and negative cash flows from
operations since its inception. The Company's ability to meet its obligations in
the ordinary course of business is dependent upon its ability to establish
profitable operations or to obtain additional funding through public or private
equity financing, collaborative or other arrangements with corporate sources, or
other sources. Management is seeking to increase revenues through continued
marketing of its services while controlling costs to meet working capital needs;
however, additional financing will be required.
To support its working capital requirements in 1998, the Company received
additional funding from DMT through MNet. Since the merger with Intellipost
Corporation in late 1998, Intellipost Corporation has been funding the Company's
operations. Intellipost has committed to fund the Company's working capital
needs through at least December 31, 1999.
NOTE 4 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL DATA (UNAUDITED)
The financial statements as of September 30, 1998 and for the nine-month
periods ended September 30, 1997 and 1998 are unaudited. In the opinion of
management, these financial statements reflect all adjustments necessary for a
fair presentation of the financial statements for such periods. These
adjustments consist of normal, recurring items. The results of operation for the
nine-month period ended September 30, 1998 are not necessarily indicative of the
results of operations that may be expected for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Such estimates include the levels of valuation allowances for accounts
receivable and deferred taxes. Actual results could differ from those estimates
and such differences could be material.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less when purchased.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their respective estimated useful lives, generally
three years. Maintenance and repairs are charged to expense as incurred, and
improvements and betterments are capitalized. When assets are retired or
otherwise disposed of, the cost and accumulated depreciation and amortization
are removed from the accounts and any resulting gain or loss is reflected in the
statement of operations for the period realized.
F-32
<PAGE> 101
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are determined based on temporary
differences between the financial statement and tax bases of assets and
liabilities and net operating loss and credit carryforwards using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
POINTS REDEMPTION LIABILITY
Points redemption liability represent the estimated costs associated with
the accumulation of MyPoints points earned by MyPoints members in conjunction
with the Company's internal marketing activities. These MyPoints may be
converted by members into various third party goods and services. The Company is
liable for purchasing the goods and services redeemed by members.
REVENUE RECOGNITION
The Company earns revenues from the sale of MyPoints points to corporate
advertisers that use these points for internet-based promotional campaigns which
award members for certain actions desired by corporate advertisers. In
connection with the sale of the MyPoints points, the Company is responsible for
redeeming the points upon the member's request. The Company recognizes revenues
when the MyPoints points are redeemed by the MyPoints members.
TECHNOLOGY COSTS
Product development costs and enhancements to existing products are charged
to operations as incurred. Software development costs are required to be
capitalized when a product's technological feasibility has been established by
completion of a working model of the product and ending when a product is
available for general release to customers. To date, completion of a working
model of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any software development
costs since such costs have not been significant. Product development costs,
along with other technology related costs, are reported as technology costs in
the Company's statements of operations.
BUSINESS RISK AND CONCENTRATION OF CREDIT RISK
The Company has a limited operating history and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for internet products and services. These
risks include the failure to develop and extend the Company's online service
brands, the rejection of the Company's services by web consumers and/or
advertisers, the inability of the Company to maintain and increase the levels of
traffic on its online services, as well as other risks and uncertainties.
Failure to successfully address these risks may have a material adverse impact
on the Company's operations and financial position.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and accounts receivable. The Company deposits its cash with one major financial
institution and such deposits do not exceed insured amounts. The
F-33
<PAGE> 102
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. Under APB No. 25, compensation expense
is based on the difference, if any, on the date of the grant, between the fair
value of the Company's stock and the exercise price of options to purchase that
stock.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for year
ended December 31, 1998. The Company has determined that it does not have any
separately reportable business segments as of December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, Software for Internal Use, which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its financial
statements.
F-34
<PAGE> 103
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997
----
<S> <C>
Computer equipment.......................................... $321
Furniture and fixtures...................................... 7
Computer software........................................... 335
----
663
Accumulated depreciation and amortization................... (96)
----
$567
====
</TABLE>
NOTE 6 -- NOTES PAYABLE
During 1997, DMT provided funding to the Company of approximately
$4,056,000 through a non-interest bearing note payable. The Company recognized
imputed interest expense on the note payable based on the prime rate plus 1.0%
(9.5% as of December 31, 1997). The note payable and related accrued interest
were transferred to MNet as of March 31, 1998 in connection with its formation.
Upon the formation of MNet, $5,000,000 of the note payable balance then
outstanding and the related accrued interest of $229,550 were transferred to
MNet and converted by DMT to a capital interest in MNet (see Note 2).
The Company had notes payable to an officer of $60,000 as of December 31,
1997. Borrowings under the notes payable bore interest at 7.0% and were repaid
in April 1998.
Interest expense was $0 and $116,400 in 1996 and 1997, respectively.
NOTE 7 -- CAPITAL STRUCTURE
COMMON STOCK
Upon formation in June 1996, the Company was authorized to issue 1,000,000
shares of no par value common stock. The Company issued 1,000 shares of common
stock in connection with its initial capitalization. Pursuant to the unanimous
consent of the stockholders on June 17, 1997, the authorized shares of common
stock were increased to 6,000,000 and the Company declared a 2000-for-one stock
split effective July 1, 1997.
COMMON STOCK OPTIONS
On November 17, 1997, the Company adopted the MotivationNet, Inc. 1997
Incentive Stock Option Plan (the "Plan"). As of December 31, 1997, the Company
had reserved 200,000 shares of common stock for issuance under the Plan.
Effective August 12, 1998 the Board of Directors increased the common stock
reserved for the Plan from 200,000 shares to 650,000 shares. Pursuant to the
Plan provisions, grant prices of options issued under the Plan can be no less
than the fair market value of the Company's common stock as of the date of
grant, the options vest at a rate of no less than 20% per year and the term of
the options can be no more than seven years from the date of grant. During 1997,
the Company granted 140,100 shares under the Plan, with one-third of the
F-35
<PAGE> 104
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 which the options were granted. The unearned
compensation as of December 31, 1997 is reported as component of shareholders'
deficiency.
Following is a summary of incentive stock option activity for the year
ended December 31, 1997. There was no activity in the Plan prior to January 1,
1997.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE
SHARES PRICE
----------- --------
<S> <C> <C>
Outstanding as of December 31, 1996....................... -- --
Granted................................................. 140,100 $1.00
Exercised............................................... -- --
Canceled................................................ (15,000) 1.00
------- -----
Outstanding as of December 31, 1997....................... 125,100 $1.00
======= =====
Options vested as of December 31, 1997.................... -- --
======= =====
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
AT DECEMBER 31, 1997 AT DECEMBER 31, 1997
------------------------------------------ ---------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDINGS LIFE (YEARS) PRICE VESTED PRICE
-------------- ------------ ------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
$1.00 125,100 6.83 $1.00 -- --
------- ---- ----- -- --
</TABLE>
The weighted average fair value of options granted in 1997 was $0.73.
F-36
<PAGE> 105
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Had compensation cost for the Company's Plan been determined based on fair
value at the grant date consistent with the method prescribed by SFAS 123, the
impact on the Company's net loss would have been increased to the pro forma
amounts below (in thousands):
<TABLE>
<CAPTION>
1996 1997
----- -------
<S> <C> <C>
Net loss as reported.................................. $(212) $(4,079)
Net loss -- pro forma................................. -- $(4,087)
</TABLE>
The fair value of employee stock option grants has been estimated on the
date of grant using the minimum value model with the following weighted average
assumptions used for grants in 1997:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Risk-free interest rate..................................... 5.72%
Expected life............................................... 5 years
Dividends................................................... --
</TABLE>
NOTE 8 -- SAVINGS PLAN
In November 1997 the Company established the MotivationNet, Inc. 401-K Plan
(the "Savings Plan"), which covers substantially all employees. Under the
Savings Plan, employees are permitted to contribute up to 15.0% of their gross
compensation, subject to limitations of the Internal Revenue Code. The Company
does not make matching contributions to the Savings Plan.
NOTE 9 -- LEASES
The Company leases office space and equipment under noncancelable operating
leases with various expiration dates through 1999. Under the terms of office
space lease, the Company is responsible for certain real estate taxes and other
operating costs. The Company's rent expense was $16,000 and $46,000 in 1996 and
1997, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
DECEMBER 31, LEASES
------------ ---------
<S> <C>
1998........................................................ $65
1999........................................................ 24
---
Total minimum lease payments...................... $89
===
</TABLE>
NOTE 10 -- INCOME TAXES
As of December 31, 1997, the Company has net operating loss carryforwards
of approximately $161,000 for federal income tax reporting purposes. The net
operating loss carryforwards expire in 2011.
The difference between the income tax benefit at the federal statutory rate
and the Company's effective tax rate is due primarily to recognition of a full
valuation allowance to offset the net deferred tax assets.
F-37
<PAGE> 106
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The estimated tax effect of significant temporary differences and
carryforwards that give rise to deferred income tax assets as of December 31,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Net operating loss carryforwards............................ $ 64
Non-deducted research and experimentation costs............. 1,475
Accrued expenses............................................ 110
Deferred compensation....................................... 39
Non-deducted start-up costs................................. 20
-------
Gross deferred tax assets................................... 1,708
Valuation allowance......................................... (1,708)
-------
Net deferred tax asset...................................... $ --
=======
</TABLE>
The Company has recorded a valuation allowance against the net deferred tax
assets due the Company operating at a net loss since inception and due to
uncertainties surrounding their realization.
NOTE 11 -- CONTINGENCIES
The Company is the subject of various claims and actions in the ordinary
course of its business. All such matters are subject to uncertainties that are
not predictable with assurance. However, it is management's opinion that the
disposition of such matters will not have a material impact on the Company's
financial position, results of operations or cash flows.
NOTE 12 -- SUBSEQUENT EVENTS
On November 30, 1998, the shareholders of the Company reached an agreement
to sell the Company to MyPoints.com, Inc. (formerly Intellipost Corporation).
F-38
<PAGE> 107
[MYPOINTS LOGO]
<PAGE> 108
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.............................................
Nasdaq National Market Listing Fee.......................... 17,500.00
Printing and Engraving Expenses............................. 200,000.00
Legal Fees and Expenses.....................................
Accounting Fees and Expenses................................
Transfer Agent and Registrar Fees and Expenses.............. 25,000.00
Blue Sky Fees and Expenses.................................. 10,000.00
Miscellaneous Expenses......................................
-------------
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 shares of common stock to employees,
directors and consultants under our 1996 and 1999 stock plans at exercise
prices ranging from $0.05 to $88.50 per share. Of the shares
granted, remain outstanding, 599,425 shares of common stock have
II-1
<PAGE> 109
been purchased pursuant to exercises of stock options and 1,374,045 shares
have been canceled and returned to the 1996 and 1999 stock plans.
(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> 110
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
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1* Amended and Restated Investors Rights Agreement dated March
30, 1999
10.2* 1996 Stock Plan and forms of agreements thereunder
10.3* 1999 Stock Plan and forms of agreements thereunder
10.4* 1999 Employee Stock Purchase Plan
10.5* Form of Director and Executive Officer Indemnification
Agreement
10.6* Representative form of Stock Purchase Warrant
10.7* Lease between the registrant and Louis N. Haas dated
November 15, 1996 for office space located at 565 Commercial
Street, San Francisco, California, and addenda thereto
10.8* Lease dated March 18, 1999 between registrant and
TA/Western, L.L.C. for office space located at 1375 E.
Woodfield Road, Suite 520, Schaumburg, Illinois
10.9* Lease dated January 22, 1998 between MotivationNet, Inc. and
The Mutual Life Insurance Company of New York for office
space located at 1375 E. Woodfield Road, Suite 540,
Schaumburg, Illinois
10.10* Agreement and Plan of Merger dated November 30, 1998 among
the registrant, IPOST Acquisition Subsidiary, Inc. and
Enhanced Response Technologies, Inc.
10.11* Interest Purchase Agreement dated November 30, 1998 among
registrant, Direct Marketing Technology, Inc. and Brigar
Computer Services, Inc.
10.12* Asset Purchase Agreement dated November 30, 1998 between
registrant and Metromail Corporation
10.13* License Agreement dated November 30, 1998 between registrant
and Direct Marketing Technologies, Inc.
10.14* Services Agreement dated November 30, 1998 between
registrant and Direct Marketing Technologies, Inc.
10.15* Business Loan Agreement dated January 27, 1997 between
registrant and Silicon Valley Bank and related promissory
notes
10.16* Master Equipment Lease Agreement dated May 1, 1998 between
registrant and Phoenix Leasing Incorporated
+10.17* Patent License Agreement dated March 31, 1999 between
registrant and Netcentives, Inc.
10.18 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
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants
23.3 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney
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 No. 333-75523).
+ Confidential treatment has been granted for portions of this exhibit.
# To be filed by amendment.
O Incorporated by reference to the like-numbered exhibit to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
II-3
<PAGE> 111
(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> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
MyPoints.com has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Francisco, State of California, on the 19th day of January, 2000.
MYPOINTS.COM, INC.
By: /s/ STEVEN M. MARKOWITZ
------------------------------------
Steven M. Markowitz
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven M. Markowitz and Thomas Caldwell
and each of them, his attorneys-in-fact, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same Offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every Act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEVEN M. MARKOWITZ Chief Executive Officer and January 19, 2000
- ----------------------------------- Chairman of the Board (Principal
Steven M. Markowitz Executive Officer)
/s/ THOMAS CALDWELL Senior Vice President, Finance and January 19, 2000
- ----------------------------------- Chief Financial Officer (Principal
Thomas Caldwell Financial and Accounting Officer)
/s/ ROBERT C. HOYLER Director January 19, 2000
- -----------------------------------
Robert C. Hoyler
Director
- -----------------------------------
Howard L. Morgan
</TABLE>
II-5
<PAGE> 113
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS NEWKIRK Director January 19, 2000
- -----------------------------------
Thomas Newkirk
/s/ LAWRENCE E. PHILLIPS Director January 19, 2000
- -----------------------------------
Lawrence E. Phillips
/s/ MARIO M. ROSATI Director January 19, 2000
- -----------------------------------
Mario M. Rosati
/s/ LESTER WUNDERMAN Director January 19, 2000
- -----------------------------------
Lester Wunderman
</TABLE>
II-6
<PAGE> 114
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
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1* Amended and Restated Investors Rights Agreement dated March
30, 1999
10.2* 1996 Stock Plan and forms of agreements thereunder
10.3* 1999 Stock Plan and forms of agreements thereunder
10.4* 1999 Employee Stock Purchase Plan
10.5* Form of Director and Executive Officer Indemnification
Agreement
10.6* Representative form of Stock Purchase Warrant
10.7* Lease between the registrant and Louis N. Haas dated
November 15, 1996 for office space located at 565 Commercial
Street, San Francisco, California, and addenda thereto
10.8* Lease dated March 18, 1999 between registrant and
TA/Western, L.L.C. for office space located at 1375 E.
Woodfield Road, Suite 520, Schaumburg, Illinois
10.9* Lease dated January 22, 1998 between MotivationNet, Inc. and
The Mutual Life Insurance Company of New York for office
space located at 1375 E. Woodfield Road, Suite 540,
Schaumburg, Illinois
10.10* Agreement and Plan of Merger dated November 30, 1998 among
the registrant, IPOST Acquisition Subsidiary, Inc. and
Enhanced Response Technologies, Inc.
10.11* Interest Purchase Agreement dated November 30, 1998 among
registrant, Direct Marketing Technology, Inc. and Brigar
Computer Services, Inc.
10.12* Asset Purchase Agreement dated November 30, 1998 between
registrant and Metromail Corporation
10.13* License Agreement dated November 30, 1998 between registrant
and Direct Marketing Technologies, Inc.
10.14* Services Agreement dated November 30, 1998 between
registrant and Direct Marketing Technologies, Inc.
10.15* Business Loan Agreement dated January 27, 1997 between
registrant and Silicon Valley Bank and related promissory
notes
10.16* Master Equipment Lease Agreement dated May 1, 1998 between
registrant and Phoenix Leasing Incorporated
+10.17* Patent License Agreement dated March 31, 1999 between
registrant and Netcentives, Inc.
10.18 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
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants
23.3 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney
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.
# To be filed by amendment.
<PAGE> 115
O Incorporated by reference to the like-numbered exhibit to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
<PAGE> 1
EXHIBIT 5.1
January ____, 2000
MyPoints.com, Inc.
100 California Street
11th Floor
San Francisco, CA 94111
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed by
you with the Securities and Exchange Commission (the "Commission") on or about
January ____, 2000 (as such may be further amended or supplemented, the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of up to 4,600,000 shares of your Common
Stock, par value $0.001 per share (the "Shares"). The Shares, which include up
to 600,000 shares of Common Stock issuable pursuant to an over-allotment option
granted to the underwriters (the "Underwriters"), are to be sold to the
Underwriters as described in such Registration Statement for sale to the public.
As your counsel in connection with this transaction, we have examined the
proceedings proposed to be taken by you in connection with the sale of the
Shares.
Based on the foregoing, it is our opinion that, upon conclusion of the
proceedings being taken or that we, as your counsel, contemplate to be taken
prior to the issuance of the Shares and upon completion of the proceedings taken
in order to permit such transactions to be carried out in accordance with the
securities laws of various states where required, the Shares, when issued and
sold in the manner described in the Registration Statement, will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
which has been approved by us, as such may be further amended or supplemented,
or incorporated by reference in any Registration Statement relating to the
prospectus filed pursuant to Rule 462(b) of the Act.
Sincerely,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 10.18
OFFICE LEASE
100 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA
WHLNF REAL ESTATE LIMITED PARTNERSHIP
a Delaware limited partnership,
as Landlord,
and
MYPOINTS.COM, INC., a Delaware corporation,
as Tenant
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES................................1
ARTICLE 2 LEASE TERM..........................................................2
ARTICLE 3 BASE RENT...........................................................2
ARTICLE 4 ADDITIONAL RENT.....................................................2
ARTICLE 5 USE OF PREMISES.....................................................6
ARTICLE 6 SERVICES AND UTILITIES..............................................6
ARTICLE 7 REPAIRS.............................................................7
ARTICLE 8 ADDITIONS AND ALTERATIONS...........................................8
ARTICLE 9 COVENANT AGAINST LIENS..............................................8
ARTICLE 10 INDEMNIFICATION AND INSURANCE.......................................8
ARTICLE 11 DAMAGE AND DESTRUCTION.............................................10
ARTICLE 12 CONDEMNATION.......................................................11
ARTICLE 13 COVENANT OF QUIET ENJOYMENT........................................11
ARTICLE 14 ASSIGNMENT AND SUBLETTING..........................................11
ARTICLE 15 SURRENDER; OWNERSHIP AND REMOVAL OF TRADE FIXTURES.................13
ARTICLE 16 HOLDING OVER.......................................................13
ARTICLE 17 ESTOPPEL CERTIFICATES..............................................14
ARTICLE 18 SUBORDINATION......................................................14
ARTICLE 19 TENANTS DEFAULTS; LANDLORD'S REMEDIES..............................14
ARTICLE 20 [INTENTIONALLY DELETED]............................................16
ARTICLE 21 COMPLIANCE WITH LAW................................................16
ARTICLE 22 ENTRY BY LANDLORD..................................................16
ARTICLE 23 MISCELLANEOUS PROVISIONS...........................................16
EXHIBITS
A OUTLINE
B TENANT WORK LETTER
C AMENDMENT TO LEASE
D RULES AND REGULATIONS
E FORM OF TENANTS ESTOPPEL CERTIFICATE
F ASBESTOS NOTIFICATION
G TENANT CERTIFICATE AND SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
H INITIAL FIRST OFFER SPACE
EXTENSION OPTION RIDER
LETTER OF CREDIT RIDER
</TABLE>
(i)
<PAGE> 3
100 CALIFORNIA STREET
SUMMARY OF BASIC LEASE INFORMATION
This Summary of Basic Lease Information ("Summary") is hereby incorporated
into and made a part of the attached Office Lease. Each reference in the Office
Lease to any term of this Summary shall have the meaning as set forth in this
Summary for such term. In the event of a conflict between the terms of this
Summary and the Office Lease, the terms of the Office Lease shall prevail. Any
capitalized terms used herein and not otherwise defined herein shall have the
meaning as set forth in the Office Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE
(REFERENCES ARE TO THE OFFICE LEASE) DESCRIPTION
<S> <C>
1. Date: November 16, 1999.
2. Landlord: WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
3. Address of Landlord's Agent (Section 23.19): Legacy Partners Commercial, Inc.
101 Lincoln Centre Drive, 4th Floor
Foster City, California 94404
Attn: Portfolio Vice President
with a copy to:
Legacy Partners Commercial, Inc.
100 California Street, Suite 770
San Francisco, California 94111
Attn: Property Manager
4. Tenant: MYPOINTS.COM, INC., a Delaware corporation.
5. Address of Tenant (Section 23.19): MyPoints.com, Inc.
565 Commercial Street, 4th Floor
San Francisco, California 94111
Attention: Tom Caldwell, CFO
(Prior to Lease Commencement Date)
and
Mypoints.com
100 California Street, Suite 1200
San Francisco, California 94111
Attention: Chaz Berman
(After Lease Commencement Date)
6. Premises (Article 1): Approximately 38,386 rentable square feet of space which is the
entirety of the space located on the eleventh (11th) and twelfth
(12th) floors of the Building, as designated on Exhibit A attached
hereto. The eleventh floor space consists of approximately 19,193
rentable square feet and is sometimes referred to herein as the
"ELEVENTH FLOOR SPACE." The twelfth floor space consists of
approximately 19,193 rentable square feet of space and is
sometimes referred to herein as the "TWELFTH FLOOR SPACE."
7. Term (Article 2):
7.1 Lease Term: Seven (7) years.
7.2 Lease Commencement Date: The earlier to occur of (i) the date upon which Tenant first
commences to conduct business in any portion of the Premises other
than, to the extent the Temporary Space Agreement (as defined
below) is in full force and effect, the portion of the Premises
described as the Temporary Premises in the Temporary Space
Agreement, or (ii) that date which is ninety (90) days after
Landlord tenders possession of the Twelfth Floor Space to Tenant.
Landlord estimates that it will tender possession of the Twelfth
Floor Space to Tenant on January 3, 2000. As used herein, the
"Temporary Space Agreement" is that agreement by and between
Landlord and Tenant for a portion of the Eleventh Floor Space
which shall be executed concurrently with this Lease.
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
7.3 Eleventh Floor Start Date: The earlier to occur of (i) the date upon which Tenant first
commences to conduct business in any portion of the Eleventh Floor
Space other than, to the extent such Temporary Space Agreement is
in full force and effect, the portion of the Eleventh Floor Space
described as the Temporary Premises in that certain Temporary
Space Agreement by and between Landlord and Tenant, or (ii) that
date which is ninety (90) days after Landlord tenders possession
of the Eleventh Floor Space to Tenant, Landlord estimates that it
will tender possession of the Eleventh Floor Space to Tenant on
September 15, 2000.
7.4 Lease Expiration Date: The last day of the month in which the seventh anniversary of the
Lease Commencement Date occurs.
7.5 Lease Amendment: Landlord and Tenant shall confirm the Lease Commencement Date, the
Eleventh Floor Start Date and the Lease Expiration Date in an
Amendment to Lease (Exhibit C) to be executed pursuant to Article
2 of the Office Lease.
8. Base Rent (Article 3): During the first (1st) Lease Year of the initial Lease Term, the
Base Rent for the Premises shall be calculated separately for each
of the Twelfth Floor Space and the Eleventh Floor Space, as
follows:
(i) the Annual Base Rent payable for the Twelfth Floor Space
shall equal $834,895.00 (i.e., $43.50 per rentable square
foot of the Twelfth Floor Space), and shall be payable in
equal monthly installments of $69,574.63 from the Lease
Commencement Date through the end of the first (1st) year of
the initial Lease Term (such period is the First Lease Year);
and
(ii) the Annual Base Rent payable for the Eleventh Floor Space
shall equal $834,895.00 (i.e., $43.50 per rentable square
foot of the Eleventh Floor Space), and shall be payable in
equal monthly installments of $69,574.63 from the Eleventh
Floor Start Date through the end of the first (1st) year of
the initial Lease Term (such period is a portion of the First
Lease Year).
During the second (2nd) and each succeeding Lease Year of the
initial Lease Term, the Base Rent payable for the Premises
shall be calculated for all of the Premises (i.e., the
Twelfth Floor Space and the Eleventh Floor Space) in the
aggregate as follows:
</TABLE>
<TABLE>
<CAPTION>
Lease Year
(Beginning with Monthly Installment Annual Rental Rate per
Second Lease Year) Annual Base Rent of Base Rent Rentable Square Foot
------------------ ---------------- ------------------- ----------------------
<S> <C> <C> <C>
2 $1,708,177.00 $142,348.08 $44.50
3 $1,746,563.00 $145,546.91 $45.50
4 $1,784,949.00 $148,745.75 $46.50
5 $1,823,335.00 $151,944.58 $47.50
6 $1,861,721.00 $155,143.41 $48.50
7 $1,900,107.00 $158,342.25 $49.50
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
9.1 Base Year: Calendar year 2000; provided, however, that in the event that
Landlord shall deliver the Eleventh Floor Space to Tenant after
October 1, 2000, for purposes of calculating Tenant's Share of
Direct Expenses for the Eleventh Floor Space, the Base Year shall
be calendar year 2001.
9.2 Tenant's Share of Direct Expenses: Until the Eleventh Floor Start Date, Tenant's Share shall equal
7.03% (19,193 rentable square feet within the Twelfth Floor
Space/273,084 rentable square feet within the Building). Upon the
Eleventh Floor Start Date, Tenant's Share shall be increased by
7.03% to 14.06% (38,386 rentable square feet within the
Premises/273,084 rentable square feet within the Building.)
10. Brokers (Section 23.25): The CAC Group and Rosen & Reynolds
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
11. Letter of Credit (Letter of Credit Rider): $1,933,694.70, subject to reduction as set forth in the Letter of
Credit Rider.
12. Right of First Offer (Section 1.4): Tenant has rights of first offer to lease space located on the
seventh (7th) floor of the Building, as more particularly
described in Section 1.4 of the Lease.
13. Option to Extend (Extension Option Rider): Tenant has one (1) five (5) year option to extend the Lease Term.
</TABLE>
-iv-
<PAGE> 6
100 CALIFORNIA STREET
OFFICE LEASE
This Office Lease, which includes the preceding Summary attached hereto
and incorporated herein by this reference (the Office Lease and Summary to be
known sometimes collectively hereafter as the "Lease"), dated as of the date
set forth in Section 1 of the Summary, is made by and between WHLNF REAL ESTATE
LIMITED PARTNERSHIP, a Delaware limited partnership ("LANDLORD") and
MYPOINTS.COM, INC. a Delaware corporation, ("TENANT").
ARTICLE 1
REAL PROPERTY, BUILDING AND PREMISES
1.1 Real Property, Building and Premises. Upon and subject to the terms,
covenants and conditions hereinafter set forth in this Lease, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the premises set forth
in Section 6 of the Summary (the "PREMISES"), which Premises are part of the
building (the "BUILDING") located at 100 California Street, San Francisco,
California. The outline of the floor plan of the Premises is set forth in
Exhibit A attached hereto. The Building, any outside plaza areas, land and
other improvements surrounding the Building which are designated from time to
time by Landlord as common areas appurtenant to or servicing the Building, and
the land upon which any of the foregoing are situated, are herein sometimes
collectively referred to as the "REAL PROPERTY." Tenant is hereby granted the
right to the nonexclusive use of the common corridors and hallways, stairwells,
elevators, restrooms and other public or common areas located on the Real
Property; provided, however, that (i) the manner in which such public and
common areas are maintained and operated shall be at the sole discretion of
landlord and the use thereof shall be subject to such rules, regulations and
restrictions as Landlord may make from time to time, and (ii) Tenant shall have
no right to use any portion of the Building or of the Real Property for parking
for Tenant or Tenant's employees, visitors and/or invitees. Landlord reserves
the right to make alterations or additions to or to change the location of
elements of the Real Property and the common areas thereof.
1.2 Condition of Premises. Except as expressly set forth in this Lease
and in the Tenant Work Letter attached hereto as Exhibit B, Landlord shall not
be obligated to provide or pay for any improvement, remodeling or refurbishment
work or services related to the improvement, remodeling or refurbishment of the
Premises, and Tenant shall accept the Twelfth Floor Space in its "As Is"
condition on the Lease Commencement Date and the Eleventh Floor Space in its "As
Is" condition on the Eleventh Floor Start Date.
1.3 Rentable Square Feet. The parties hereby stipulate that the Premises
contain the rentable square feet set forth in Section 6 of the Summary, and such
square footage amount is not subject to adjustment or remeasurement by Landlord
or Tenant. Accordingly, there shall be no adjustments in the Base Rent or other
amounts set forth in this Lease which are determined based upon rentable square
feet of the Premises.
1.4 Right of First Offer. During the first two (2) years of the initial
Lease Term, Tenant shall have the one-time right of first offer to lease that
certain space containing 9,800 rentable square feet of space and located on the
seventh (7th) floor of the Building as further described on Exhibit 11 attached
hereto (the "INITIAL FIRST OFFER SPACE"), which becomes available for lease as
provided hereinbelow as determined by Landlord. As of the date of this Lease,
landlord estimates that the Initial First Offer Space will be available for
lease by Tenant on or about September 1, 2001. In addition, in the event Tenant
has exercised its right of first offer with respect to the Initial First Offer
Space, during the period which commences on the date Tenant exercises its right
of first offer with respect to the Initial First Offer Space and continuing
until the last day of the third (3rd) year of the initial Lease Term (the
"Additional First Offer Period") Tenant shall have the right of first offer to
lease any space (other than the Initial First Offer Space) located on the
seventh (7th) floor of the Building (the "ADDITIONAL FIRST OFFER SPACE"), which
becomes available for lease as provided hereinbelow during the Additional First
Offer Period as determined by Landlord. The Initial First Offer Space and the
Additional First Offer Space are collectively referred to herein as the "FIRST
OFFER SPACE." For purposes hereof, the First Offer Space shall become available
for lease following the expiration or earlier termination of the current
tenant's lease therefor (including renewals whether or not such renewal is
pursuant to an express written provision in such lease and regardless of whether
any such renewal is consummated pursuant to a new lease or lease amendment), and
after the tenant thereunder has vacated such space. Notwithstanding anything
herein to the contrary, Tenant's right of first offer set forth herein for the
Additional First Offer Space shall be subject and subordinate to all expansion,
first offer and similar rights currently set forth in any lease for space in the
Building which has been executed as of the date of execution of this Lease
(collectively, the "SUPERIOR RIGHTS").
1.4.1 Term of First Offer. Landlord shall give Tenant written notice
(the "FIRST OFFER NOTICE") that the First Offer Space will or has become
available for lease by Tenant as provided above (as such availability is
determined by Landlord) pursuant to the terms of Tenant's right of first offer,
as set forth in this Section 1.4, provided that no holder of Superior Rights
desires to lease all or any portion of such space; provided, however, that with
respect to the Initial First Offer Space, Landlord shall deliver such First
Offer Notice eight (8) months prior to the date Landlord anticipates that the
Initial First Offer Space will become available for lease by Tenant; provided
further, with respect to the Additional First Offer Space, Landlord shall only
be required to deliver such First Offer Notice during the Additional First Offer
Period. Any such Landlord's First Offer Notice delivered by Landlord in
accordance with the provisions of Section 1.4 above shall set forth the terms
upon which Landlord would lease the First Offer Space to Tenant, including,
without limitation (i) the anticipated date upon which the First Offer Space
will be available for Lease by Tenant and the commencement date therefor, (ii) a
schedule of construction of tenant improvements for the First Offer Space, if
any, (iii) the Base Rent payable for the First Offer Space, which shall be equal
to the Fair Market Rental Rate for the First Offer Space (as defined in this
Section 1.4.1 below), and (iv) the term of the lease for such space which shall
in all events be coterminous with the Lease Term for the original Premises. As
used herein the "FAIR MARKET RENTAL RATE" payable by Tenant for the First Offer
Space (the "FIRST OFFER RENT") shall be equal to the Fair Market Rental Rate for
the First Offer Space, as defined in the Extension Option Rider attached hereto.
Notwithstanding anything herein to the contrary, Landlord shall have no
obligation to abate asbestos in the Initial First Offer Space or the Additional
First Offer Space except that Landlord shall perform such "spot abatement" as is
necessary for Landlord to comply with applicable law.
<PAGE> 7
1.4.2 Procedure for Acceptance. On or before the date which
is ten (10) days after Tenant's receipt of Landlord's First Offer Notice
(the "ELECTION DATE"), Tenant shall deliver written notice to Landlord
("TENANT'S ELECTION NOTICE") pursuant to which Tenant shall have the one-time
right to elect either to: (i) lease the entire (but not less than the entire)
First Offer Space described in the First Offer Notice upon the terms set forth
in the First Offer Notice; or (ii) refuse to lease such First Offer Space
identified in the First Offer Notice. If Tenant does not respond in writing to
Landlord's First Offer Notice by the Election Date, Tenant shall be deemed to
have elected not to lease the First Offer Space. If Tenant elects or is deemed
to have elected not to lease the applicable First Offer Space identified in a
First Offer Notice, then Tenant's right of first offer with respect to such
First Offer Space, shall terminate and be of no further force or effect and
Landlord shall thereafter have the right to lease all or any portion of such
First Offer Space to anyone to whom Landlord desires on any terms Landlord
desires. Concurrent with Tenant's delivery of Tenant's Election Notice
exercising such right of first offer, Tenant may object in writing to
Landlord's determination of the Fair Market Rental Rate set forth in Landlord's
First Offer Notice, in which case the Fair Market Rental Rate shall be
determined in accordance with the appraisal procedures set forth in Section 4
of the Extension Option Rider. If Tenant does not timely object in writing to
Landlord's determination of the Fair Market Rental Rate, then Tenant shall be
deemed to have accepted such determination and the appraisal procedures in
Section 4 of the Extension Option Rider shall not apply.
1.4.3 Amendment to Lease. If Tenant leases any First Offer
Space pursuant to this Section 1.4, Landlord and Tenant shall promptly execute
an amendment to this Lease covering the First Offer Space and the Lease terms
thereof. Notwithstanding anything to the contrary contained herein, Tenant must
elect to exercise its right of first offer provided herein, if at all, with
respect to all of the space offered by Landlord to Tenant in Landlord's First
Offer Notice, and Tenant may not elect to lease only a portion thereof.
1.4.4 Suspension of Right of First Offer. Notwithstanding
anything in the foregoing to the contrary, at Landlord's option, and in addition
to all of Landlord's remedies under this Lease, at law or in equity, the right
of first offer herein above granted to Tenant shall not be deemed to be properly
exercised if, as of the date Tenant exercises its right of first offer or on the
scheduled commencement date for the First Offer Space, Tenant is in default
under this Lease. In addition, Tenant's right of first offer to lease the First
Offer Space is personal to the original Tenant executing this Lease and any
Affiliate (as such term is defined in Section 14.7 below) to which Tenant's
entire interest in this Lease has been assigned, any may not be otherwise
assigned or exercised, voluntarily or involuntarily, by or to, any person or
entity other than the original Tenant or Affiliate-assignee, and shall only be
available to and exercisable by the Tenant when the original Tenant or such
Affiliate-assignee is in actual and physical possession of the entire Premises.
ARTICLE 2
LEASE TERM
The terms and provisions of this Lease shall be effective as of the date
of this Lease except for the provisions of this Lease relating to the payment of
Rent. The term of this Lease (the "LEASE TERM") shall be as set forth in Section
7.1 of the Summary and shall commence on the date (the "LEASE COMMENCEMENT
DATE") set forth in Section 7.2 of the Summary (subject, however, to the terms
of the Tenant Work Letter), and shall terminate on the date (the "LEASE
EXPIRATION DATE") set forth in Section 7.4 of the Summary, unless this Lease is
sooner terminated as hereinafter provided. Notwithstanding the foregoing to the
contrary, the Lease Term with respect to the Eleventh Floor Space shall not
commence until the Eleventh Floor Start Date, and Tenant's obligation to pay
Rent with respect to the Eleventh Floor Space shall not commence until the
Eleventh Floor Start Date; provided, however, that the Lease Term for the
Twelfth Floor Space shall be conterminous with the Lease Term for the Eleventh
Floor Space. For purposes of this Lease, the term "LEASE YEAR" shall mean each
consecutive twelve (12) month period during the Lease Term, provided that the
last Lease Year shall end on the Lease Expiration Date. At any time during the
Lease Term, Landlord may deliver to Tenant an Amendment to Lease in the form as
set forth in Exhibit C, attached hereto, which notice Tenant shall execute and
return to Landlord within five (5) days of receipt thereof.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord or Landlord's
agent at the management office of the Building, or at such other place as
Landlord may from time to time designate in writing, in currency or a check for
currency which, at the time of payment, is legal tender for private or public
debts in the United States of America, base rent ("BASE RENT") as set forth in
Section 8 of the Summary, payable in equal monthly installments as set forth in
Section 8 of the Summary in advance on or before the first day of each and every
month during the Lease Term (commencing as of the Lease Commencement Date with
respect to the Twelfth Floor Space and commencing as of the Eleventh Floor Start
Date with respect to the Eleventh Floor Space), without any setoff or deduction
whatsoever. The Base Rent for the first full month after the Eleventh Floor
Start Date shall be paid at the time of Tenant's execution of this Lease. If any
rental payment date (including the Lease Commencement Date) falls on a day of
the month other than the first day of such month or if any rental payment is for
a period which is shorter than one month, then the rental for any such
fractional month shall be a proportionate amount of a full calendar month's
rental based on the proportion that the number of days in such fractional month
bears to the number of days in the calendar month during which such fractional
month occurs. All other payments or adjustments required to be made under the
terms of this Lease that require proration on a time basis shall be prorated on
the same basis.
ARTICLE 4
ADDITIONAL RENT
4.1 Additional Rent. In addition to paying the Base Rent specified
in Article 3 of this Lease, Tenant shall pay as additional rent "Tenant's
Share" of the annual "Direct Expenses," as those terms are defined in Sections
4.2.8 and 4.2.3 of this Lease, respectively, which are in excess of the amount
of Direct Expenses applicable to the "Base Year," as that term is defined in
Section 4.2.1 of this Lease. Such additional rent, together with any and all
other amounts payable by Tenant to Landlord pursuant
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to the terms of this Lease (including, without limitation, pursuant to Article
6), shall be hereinafter collectively referred to as the "Additional Rent." The
Base Rent and Additional Rent are herein collectively referred to as the "Rent."
All amounts due under this Article 4 as Additional Rent shall be payable for the
same periods and in the same manner, time and place as the Base Rent. Without
limitation on other obligations of Tenant which shall survive the expiration of
the Lease Term, the obligations of Tenant to pay the Additional Rent provided
for in this Article 4 shall survive the expiration of the Lease Term.
4.2 Definitions. As used in this Article 4, the following terms shall have
the meanings hereinafter set forth:
4.2.1 "BASE YEAR" shall mean the year set forth in Section 9.1 of
the Summary.
4.2.2 "CALENDAR YEAR" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.3 "DIRECT EXPENSES" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.4 "EXPENSE YEAR" shall mean each Calendar Year, provided that
Landlord, upon notice to Tenant, may change the Expense Year from time to time
to any other twelve (12) consecutive-month period, and, in the event of any such
change, Tenant's Share of Direct Expenses shall be equitably adjusted for any
Expense Year involved in any such change.
4.2.5 "OPERATING EXPENSES" shall mean all expenses, costs and
amounts of every kind and nature which Landlord shall pay during any Expense
Year because of or in connection with the ownership, management, maintenance,
repair, replacement, restoration or operation of the Building and Real Property,
including, without limitation, any amounts paid for: (i) the cost of supplying
all utilities, the cost of operating, maintaining, repairing, renovating and
managing the utility systems, mechanical systems, sanitary and storm drainage
systems, any elevator systems and all other "Systems and Equipment" (as defined
in Section 4.2.6 of this Lease) and the cost of supplies and equipment and
maintenance and service contracts in connection therewith; (ii) the cost of
licenses, certificates, permits and inspections, and the cost of contesting the
validity or applicability of any governmental enactments which may affect
Operating Expenses; (iii) the cost of insurance carried by Landlord, in such
amounts as Landlord may reasonably determine or as may be required by any
mortgages or the lessor of any underlying or ground lease affecting the Real
Property and/or the Building; (iv) the cost of landscaping, relamping, supplies,
tools, equipment and materials, and all fees, charges and other costs (including
consulting fees, legal fees and accounting fees) incurred in connection with the
management, operation, repair and maintenance of the Building Real Property; (v)
any equipment rental agreements or management agreements (including the cost of
any management fee and the fair rental value of any office space provided
thereunder); (vi) wages, salaries and other compensation and benefits of all
persons engaged in the operation, management, maintenance or security of the
Building and Real Property, and employer's Social Security taxes, unemployment
taxes or insurance, and any other taxes which may be levied on such wages,
salaries, compensation and benefits; (vii) payments under any easement, license,
operating agreement, declaration, restrictive covenant, underlying or ground
lease (excluding rent), or instrument pertaining to the sharing of costs by the
Building or Real Property: (viii) the cost of janitorial service, alarm and
security service, window cleaning, trash removal, replacement of wall and floor
coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other
common or public areas or facilities, maintenance and replacement of curbs and
walkways, repair to roofs and re-roofing; (ix) amortization (including interest
on the unamortized cost) of the cost of acquiring or the rental expense of
personal property used in the maintenance, operation and repair of the Building
and Real Property; and (x) the cost of any capital improvements or other costs
(I) which are intended as a labor-saving device or to effect other economies in
the operation or maintenance of the Building and Real Property, (II) made to the
Building or Real Property after the Lease Commencement Date that are required
under any governmental law or regulation, or (III) which are reasonably
determined by Landlord to be in the best interests of the Building and/or the
Real Property; provided, however, that if any such cost described in (I), (II)
or (III) above, is a capital expenditure, such cost shall be amortized
(including interest on the unamortized cost) over its useful life as Landlord
shall reasonably determine. If Landlord is not furnishing any particular work or
service (the cost of which, if performed by Landlord, would be included in
Operating Expenses) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which would reasonably have been incurred during such period by
Landlord if it had at its own expense furnished such work or service to such
tenant. If the Building is not fully occupied during all or a portion of any
Expense Year (including the Base Year), Landlord shall make an appropriate
adjustment to the variable components of Operating Expenses for such year or
applicable portion thereof, employing sound accounting and management
principles, to determine the amount of Operating Expenses that would have been
paid had the Building been fully occupied; and the amount so determined shall be
deemed to have been the amount of Operating Expenses for such year, or
applicable portion thereof. Landlord shall have the right, from time to time, to
equitably allocate some or all of the Operating Expenses among different tenants
of the Building (the "COST POOLS"). Such Cost Pools may include, without
limitation, the office space tenants and retail space tenants of the Building.
Notwithstanding anything to the contrary set forth in this Article 4, when
calculating Direct Expenses for the Base Year, Operating Expenses shall exclude
market-wide labor-rate increases due to extraordinary circumstances, including,
but not limited to, boycotts and strikes, and utility rate increases due to
extraordinary circumstances including, but not limited to, conservation
surcharges, boycotts, embargoes or other shortages, and costs relating to
capital improvements.
Notwithstanding the foregoing, Operating Expenses shall not, however,
include: (A) costs of leasing commissions, attorney's fees and other costs and
expenses incurred in connection with negotiations or disputes with present or
prospective tenants or other occupants of the Building; (B) costs (including
permit, license and inspection costs) incurred in renovating or otherwise
improving, decorating or redecorating rentable space for other tenants or vacant
rentable space; (C) costs incurred due to the violation by Landlord of the terms
and conditions of any lease of space in the Building; (D) costs of overhead or
profit increment paid to Landlord or to subsidiaries or affiliates of Landlord
for services in or in connection with the Building to the extent the same
exceeds the costs of overhead and profit increment included in the costs of such
services which could be obtained from third parties on a competitive basis; (E)
except as otherwise specifically provided in this Section 4.2.5, costs of
interest on debt or amortization on any mortgages, and rent payable under any
ground lease of the Real Property; (F) the wages and benefits of any employee
who does not devote substantially all of his or her employed time to the
Building unless such wages and benefits are prorated to reflect time spent on
operating and managing the Building vis-a-vis time spent on matters unrelated to
operating and managing the Building; provided that in no event shall Operating
Expenses for purposes of this Lease include wages and/or
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benefits attributable to personnel above the level of Portfolio Vice President,
Building manager or Building engineer; and (G) costs arising from the presence
of Hazardous Materials in or about the Building or the Real Property
(including, without limitation, Hazardous Materials in the ground water or soil)
to the extent such Hazardous Materials are (i) in existence as of the Lease
Commencement Date and in violation of applicable laws, in effect as of the Lease
Commencement Date, or (ii) introduced after the Lease Commencement Date in
violation of applicable Laws in effect as of the date of introduction.
Landlord hereby agrees that the cost of any new type or increased amount
of insurance coverage which is obtained by Landlord during any Expense Year
after the Base Year (but is not obtained during the Base Year) shall be added to
the Base Year Operating Expenses (but at the rate which would have been in
effect during the Base Year or the rate in effect during such subsequent Expense
Year, whichever is lower) prior to the calculation of Tenant's Share of
Operating Expense for such Expense Year in which such insurance is initially
obtained or increased.
4.2.6 "Systems and Equipment" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life safety systems or equipment, or any other
mechanical, electrical, electronic, computer or other systems or equipment which
serve the Building in whole or in part.
4.2.7 "Tax Expenses" shall mean all federal, state, county, or
local governmental or municipal taxes, fees, assessments, charges or other
impositions of every kind and nature, whether general, special, ordinary or
extraordinary, (including, without limitation, real estate taxes, general and
special assessments, transit assessments, fees and taxes, child care subsidies,
fees and/or assessments, job training subsidies, fees and/or assessments, open
space fees and/or assessments, housing subsidies and/or housing fund fees or
assessments, public art fees and/or assessments, leasehold taxes or taxes based
upon the receipt of rent, including gross receipts or sales taxes applicable to
the receipt of rent, personal property taxes imposed upon the fixtures,
machinery, equipment, apparatus, systems and equipment, appurtenances, furniture
and other personal property used in connection with the Real Property), which
Landlord shall pay during any Expense Year because of or in connection with the
ownership, leasing and operation of the Real Property or Landlord's interest
herein. For purposes of this Lease. Tax Expenses shall be calculated as if the
tenant improvements in the Building were fully constructed and the Real
Property, the Building, and all tenant improvements in the Building were fully
assessed for real estate tax purposes.
4.2.7.1 Tax Expenses shall include, without limitation:
(i) Any tax on Landlord's rent, right to rent
or other income from the Real Property or as against Landlord's business of
leasing any of the Real Property;
(ii) Any assessment, tax, fee, levy or charge
in addition to, or in substitution, partially or totally, of any assessment,
tax, fee, levy or charge previously included within the definition of real
property tax, it being acknowledged by Tenant and Landlord that Proposition 13
was adopted by the voters of the State of California in the June 1978 election
("Proposition 13") and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, refuse removal and for other governmental
services formerly provided without charge to property owners or occupants. It is
the intention of Tenant and Landlord that all such new and increased
assessments, taxes, fees, levies, and charges and all similar assessments,
taxes, fees, levies and charges be included within the definition of Tax
Expenses for purposes of this Lease;
(iii) Any assessment, tax, fee, levy, or charge
allocable to or measured by the area of the Premises or the rent payable
hereunder, including, without limitation, any gross income tax upon or with
respect to the possession, leasing, operating, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises, or any portion
thereof;
(iv) Any assessment, tax, fee, levy or charge,
upon this transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises; and
(v) Any reasonable expenses incurred by
Landlord in attempting to protest, reduce or minimize Tax Expenses.
4.2.7.2 In no event shall Tax Expenses for any Expense
Year be less than the component of Tax Expenses comprising a portion of the Base
Year.
4.2.7.3 Not withstanding anything to the contrary
contained in this Section 4.2.7, there shall be excluded from Tax Expenses (i)
all excess profits taxes, franchise taxes, gift taxes, capital stock taxes,
inheritance and succession taxes, estate taxes, federal and state net income
taxes, and other taxes to the extent applicable to Landlord's net income (as
opposed to rents, receipts or income attributable to operations at the Building
or Real Property), (ii) any items included as Operating Expenses, and (iii) any
items paid by Tenant under Section 4.4 of this Lease.
4.2.8 "Tenant's Share" shall mean the percentage set forth in
Section 9.2 of the Summary. Tenant's Share was calculated by multiplying the
number of rentable square feet of the Premises by 100 and dividing the product
by the total rentable square feet in the Building. In the event either the
rentable square feet of the Premises and/or the total rentable square feet of
the Building is changed, Tenant's Share shall be appropriately adjusted, and, as
tot he Expense Year in which such change occurs, Tenant's Share for such year
shall be determined on the basis of the number of days during such Expense Year
that each such Tenant's Share was in effect.
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4.3 Calculation and Payment of Additional Rent.
4.3.1 Calculation of Excess. If for any Expense Year ending or
commencing within the Lease Term, Tenant's Share of Direct Expenses for such
Expense Year exceeds Tenant's Share of Direct Expenses for the Base Year, then
Tenant shall pay to Landlord, in the manner set forth in Section 4.3.2 below,
and as Additional Rent, an amount equal to the excess (the "EXCESS"); provided,
however, that in connection with calculating Tenant's Share of Direct Expenses
for the Eleventh Floor Space only, in the event that pursuant to Section 9.2
of the Summary calendar year 2000 is used as the Base Year to calculate
Tenant's Share of Direct Expenses for the Eleventh Floor Space, Tenant shall
have no obligation to pay the Excess for the period commencing on the Eleventh
Floor Start Date and ending on that date which is twelve (12) months thereafter.
4.3.2 Statement of Actual Direct Expenses and Payment by Tenant.
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of each Expense Year, a statement (the "STATEMENT") which
shall state the Direct Expenses incurred or accrued for such preceding Expense
Year, and which shall indicate the amount, if any, of any Excess. Upon receipt
of the Statement for each Expense Year ending during the Lease Term, if an
Excess is present, Tenant shall pay, with its next installment of Base Rent
due, the full amount of the Excess for such Expense Year, less the amounts, if
any, paid during such Expense Year as "Estimated Excess," as that term is
defined in Section 4.3.3 of this Lease. In the event the Statement indicates
that the Excess for such Expense Year is less than the total Estimated Excess
payments made by Tenant for such Expense Year. Landlord shall refund such
overpayment to Tenant within thirty (30) days after delivery of such Statement
(or at Landlord's option, such overpayment shall be credited against the Rent
next due and payable under this Lease). The failure of Landlord to timely
furnish the Statement for any Expense Year shall not prejudice Landlord from
enforcing its rights under this Article 4. Even though the Lease Term has
expired and Tenant has vacated the Premises, when the final determination is
made of Tenant's Share of the Direct Expenses for the Expense Year in which
this Lease terminates, if an Excess is present, Tenant shall immediately pay to
Landlord an amount as calculated pursuant to the provisions of Section 4.3.1 of
this Lease. The provisions of this Section 4.3.2 shall survive the expiration
or earlier termination of the Lease Term.
4.3.3 Statement of Estimated Direct Expenses. In addition, Landlord
shall endeavor to give Tenant a yearly expense estimate statement (the
"ESTIMATE STATEMENT") which shall set forth Landlord's reasonable estimate (the
"ESTIMATE") of what the total amount of Direct Expenses for the then-current
Expense Year shall be and the estimated Excess (the "ESTIMATED EXCESS") as
calculated by comparing Tenant's Share of Direct Expenses, which shall be based
upon the Estimate, to Tenant's Share of Direct Expenses for the Base Year. The
failure of Landlord to timely furnish the Estimate Statement for any Expense
Year shall not preclude Landlord from enforcing its rights to collect any
Estimated Excess under this Article 4. If pursuant to the Estimate Statement an
Estimated Excess is calculated for the then-current Expense Year, Tenant shall
pay, with its next installment of Base Rent due, a fraction of the Estimated
Excess for the then-current Expense Year (reduced by any amounts paid pursuant
to the last sentence of this Section 4.3.3). Such fraction shall have as its
numerator the number of months which have elapsed in such current Expense Year
to the month of such payment, both months inclusive, and shall have twelve (12)
as its denominator. Until a new Estimate Statement is furnished, Tenant shall
pay monthly, with the monthly Base Rent installments, an amount equal to
one-twelfth (1/12) of the total Estimated Excess set forth in the previous
Estimate Statement delivered by Landlord to Tenant.
4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible.
Tenant shall reimburse Landlord upon demand for any and all taxes or
assessments required to be paid by Landlord (except to the extent included in
Tax Expenses by Landlord), excluding state, local and federal personal or
corporate income taxes measured by the net income of Landlord from all sources
and estate and inheritance taxes, whether or not now customary or within the
contemplation of the parties hereto, when:
4.4.1 Said taxes are measured by or reasonably attributable to the
cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the
cost or value of such leasehold improvements exceeds the cost or value of a
building standard build-out as determined by Landlord regardless of whether
title to such improvements shall be vested in Tenant or Landlord;
4.4.2 Said taxes are assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy by Tenant of the Premises or any portion of the Real Property;
or
4.4.3 Said taxes are assessed upon this transaction or any document
to which Tenant is a party creating or transferring an interest or an estate in
the Premises.
4.5 Late Charges. If any installment of Rent or any other sum due from
Tenant shall not be received by Landlord or Landlord's designee within five (5)
days after notice that the same is past due, then Tenant shall pay to Landlord a
late charge equal to five percent (5%) of the amount due plus any attorneys'
fees incurred by Landlord by reason of Tenant's failure to pay Rent and/or other
charges when due hereunder. The late charge shall be deemed Additional Rent and
the right to require it shall be in addition to all of Landlord's other rights
and remedies hereunder, at law and/or in equity and shall not be construed as
liquidated damages or as limiting Landlord's remedies in any matter. In addition
to the late charge described above, any Rent or other amounts owing hereunder
which are not paid by the date they are due shall thereafter bear interest until
paid at a rate (the "INTEREST RATE") equal to the lesser of (i) the "Prime Rate"
or "Reference Rate" announced from time to time by the Bank of America (or such
reasonable comparable national banking institution as selected by Landlord in
the event Bank of America ceases to exist or publish a Prime Rate or Reference
Rate), plus four percent (4%), or (ii) the highest rate permitted by applicable
law.
4.6 Audit Rights. In the event Tenant disputes the amount of the Direct
Expenses set forth in the Statement for the particular Expense Year delivered by
Landlord to Tenant pursuant to Section 4.3.2 above, Tenant shall have the right,
at Tenant's cost, after reasonable notice to Landlord, to have Tenant's
authorized employees inspect, at Landlord's office in San Francisco County
during normal business hours, Landlord's books, records and supporting documents
concerning the Direct Expenses set forth in such Statement; provided, however,
Tenant shall have no right to conduct such inspection, have an audit performed
by the Accountant as described below, or object to or otherwise dispute the
amount of the Direct Expenses set forth in any such Statement, unless Tenant
notifies Landlord of such objection and dispute, completes such inspection, and
has the Accountant commence and complete such audit within one (1) year
immediately following Landlord's delivery of the particular Statement in
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question (the "REVIEW PERIOD") (which Review Period shall be reduced to six (6)
months with respect to the Statement applicable to the last Expense Year during
the Lease Term); provided, further, that notwithstanding any such timely
objection, dispute, inspection, and/or audit, and as a condition precedent to
Tenant's exercise of its right of objection, dispute, inspection, and/or audit
as set forth in this Section 4.6. Tenant shall not be permitted to withhold
payment of, and Tenant shall timely pay to Landlord, the full amounts as
required by the provisions of this Article 4 in accordance with such Statement.
However, such payment may be made under protest pending the outcome of any audit
which may be performed by the Accountant as described below. In connection with
any such inspection by Tenant, Landlord and Tenant shall reasonably cooperate
with each other so that such inspection can be performed pursuant to a mutually
acceptable schedule, in an expeditious manner and without undue interference
with Landlord's operation and management of the Real Property. If after such
inspection and/or request for documentation, Tenant still disputes the amount of
the Direct Expenses set forth in the Statement, Tenant shall have the right,
within the Review Period, to cause an independent certified public accountant
(which is not paid on a commission or contingency basis) mutually approved by
Landlord and Tenant (the "ACCOUNTANT") to complete an audit of Landlord's books
and records to determine the proper amount of the Direct Expenses incurred and
amounts payable by Tenant for the Expense Year which is the subject of such
Statement. Such audit by the Accountant shall be final and binding upon Landlord
and Tenant. If Landlord and Tenant cannot mutually agree as to the identity of
the Accountant within thirty (30) days after Tenant notifies Landlord that
Tenant desires an audit to be performed, then the Accountant shall be of the
"BIG 5" accounting firms (which is not paid on a commission or contingency
basis), as selected by Tenant and reasonably approved by Landlord. If such audit
reveals that Landlord has over-charged Tenant, then within thirty (30) days
after the results of such audit are made available to Landlord, Landlord shall
reimburse to Tenant the amount of such over-charge. If the audit reveals that
the Tenant was under-charged, then within thirty (30) days after the results of
such audit are made available to Tenant, Tenant shall reimburse to Landlord the
amount of such under-charge. Tenant agrees to pay the cost of such audit unless
it is subsequently determined that Landlord's original Statement which was the
subject of such audit was in error to Tenant's disadvantage by ten percent (10%)
or more of the total Direct Expenses which was the subject of such audit. The
payment by Tenant of any amounts pursuant to this Article 4 shall not preclude
Tenant from questioning, during the Review Period, the correctness of the
particular Statement in question provided by Landlord, but the failure of Tenant
to object thereto, conduct and complete its inspection and have the Accountant
conduct the audit as described above prior to the expiration of the Review
Period for such Statement shall be conclusively deemed Tenant's approval of the
Statement in question and the amount of Direct Expenses shown thereon.
ARTICLE 5
USE OF PREMISES
Tenant shall use the Premises solely for general office purposes
consistent with the character of the Building as a first-class office building,
and Tenant shall not use or permit the Premises to be used for any other purpose
or purposes whatsoever. Tenant further covenants and agrees that it shall not
use, or suffer or permit any person or persons to use, the Premises or any part
thereof for any use or purpose contrary to the provisions of Exhibit D, attached
hereto, or in violation of the laws of the United States of America, the state
in which the Building is located, or the ordinances, regulations or requirements
of the local municipal or county governing body or other lawful authorities
having jurisdiction over the Building. Tenant shall comply with all recorded
covenants, conditions, and restrictions, and the provisions of all ground or
underlying leases, now or hereafter affecting the Real Property. Subject to the
terms and conditions of this Lease including, without limitation, the provisions
of Exhibit D, Tenant shall have access to the Premises at all times. Tenant
shall not use or allow another person or entity to use any part of the Premises
for the storage, use, treatment, manufacture or sale of "Hazardous Material," as
that term is defined below. As used herein, the term "HAZARDOUS MATERIAL" means
any hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority, the state in which the Building
is located or the United States Government.
ARTICLE 6
SERVICES AND UTILITIES
6.1 Standard Tenant Services. Landlord shall provide the following
services on all days during the Lease Term, unless otherwise stated below.
6.1.1 Subject to reasonable changes implemented by Landlord and to
all governmental rules, regulations and guidelines applicable thereto, Landlord
shall provide heating and air conditioning when necessary for normal comfort for
normal office use in the Premises, from Monday through Friday, during the period
from 7:00 a.m. to 6:00 p.m., except for the date of observation of New Year's
Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, Christmas Day and other locally or nationally recognized holidays
(collectively, the "HOLIDAYS").
6.1.2 Landlord shall provide adequate electrical wiring and
facilities and power for normal general office use as determined by Landlord.
Tenant shall bear the cost of replacement of non-Building standard lamps,
starters and ballasts for lighting fixtures within the Premises.
6.1.3 Landlord shall provide city water from the regular Building
outlets for drinking, lavatory and toilet purposes.
6.1.4 Landlord shall provide janitorial services five (5) days per
week, except the date of observation of the Holidays, in and about the Premises
and window washing services in a manner consistent with other comparable
buildings in the vicinity of the Building.
6.1.5 Landlord shall provide nonexclusive automatic passenger
elevator service at all times.
6.1.6 Landlord shall provide a level of security services for the
Building which is comparable to the level of security services provided by
owners of first class high rise office buildings in the North of Market
Financial District of San Francisco, California. Notwithstanding Landlord's
agreement to provide such security services, Landlord shall in no event be
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<PAGE> 12
liable for any claims, losses or damages in connection with the provision of,
or failure to provide any such services, or the manner in which such services
are provided.
6.2 Overstandard Tenant Use. Tenant shall not, without Landlord's prior
written consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Landlord pursuant to the terms of
Section 6.1 of this Lease. If Tenant uses water or heat or air conditioning in
excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, or
if Tenant's consumption of electricity shall exceed 4.72 watts (including
overhead lighting, but excluding the consumption of electricity used for the
heating and air conditioning supplied by Landlord pursuant to Section 6.1.1
above) per usable square foot of the Premises, calculated on an annualized
basis for the hours described in Section 6.1.1 above, Tenant shall pay to
Landlord, within ten (10) days after billing, the cost of such excess
consumption, the cost of the installation, operation, and maintenance of
equipment which is installed in order to supply such excess consumption, and
the cost of the increased wear and tear on existing equipment caused by such
excess consumption; and Landlord may install devices to separately meter any
increased use and in such event Tenant shall pay the increased cost directly to
Landlord, within ten (10) days after demand, including the cost of such
additional metering devices. If Tenant desires to use heat, ventilation or air
conditioning during hours other than those for which Landlord is obligated to
supply such utilities pursuant to the terms of Section 6.1 of this Lease, (i)
Tenant shall give Landlord such prior notice, as Landlord shall from time to
time establish as appropriate, of Tenant's desired use, (ii) Landlord shall
supply such after-hours heating, ventilation or air conditioning to Tenant at a
charge to Tenant equal to Landlord's "actual cost" of such after-hours heating,
ventilation or air conditioning (which "actual cost" shall not include any
profit to Landlord but may include reasonable overhead, administration and
depreciation charges, and (iii) Tenant shall pay such cost within ten (10) days
after billing.
6.3 Interruption of Use. Tenant agrees that Landlord shall not be
liable for damages, by abatement of Rent or otherwise, for failure to furnish
or delay in furnishing any service (including telephone and telecommunication
services), or for any diminution in the quality or quantity thereof, when such
failure or delay or diminution is occasioned, in whole or in part, by repairs,
replacements, or improvements, by any strike, lockout or other labor trouble,
by inability to secure electricity, gas, water, or other fuel at the Building
after reasonable effort to do so, by an accident or casualty whatsoever, by act
or default of Tenant or other parties, or by any other cause beyond Landlord's
reasonable control; and such failures or delays or diminution shall never be
deemed to constitute an eviction or disturbance of Tenant's use and possession
of the Premises or relieve Tenant from paying Rent or performing any of its
obligations under this Lease. Furthermore, Landlord shall not be liable under
any circumstances for a loss of, or injury to, property or for injury to, or
interference with, Tenant's business, including, without limitation, loss of
profits, however occurring, through or in connection with or incidental to a
failure to furnish any of the services or utilities as set forth in this
Article 6.
6.4 Additional Services. Landlord shall also have the exclusive right,
but not the obligation, to provide any additional services which may be
required by Tenant, including, without limitation, locksmithing, non-Building
standard lamp replacement, additional janitorial service, and additional
repairs and maintenance, provided that Tenant shall pay to Landlord upon
billing, the sum of all costs to Landlord of such additional services plus an
administration fee. Charges for any utilities or service for which Tenant is
required to pay from time to time hereunder, shall be deemed Additional Rent
hereunder and shall be billed on a monthly basis.
ARTICLE 7
REPAIRS
7.1 Tenant's Repairs. Subject to Landlord's repair obligations in
Sections 7.2 and 11.1 below, Tenant shall, at Tenant's own expense, keep the
Premises, including all improvements, fixtures and furnishings therein, in good
order, repair and condition at all times during the Lease Term, which repair
obligations shall include, without limitation, the obligation to promptly and
adequately repair all damage to the Premises and replace or repair all damaged
or broken fixtures and appurtenances; provided however, that, at Landlord's
option, or if Tenant fails to make such repairs, Landlord may, but need not,
make such repairs and replacements, and Tenant shall pay Landlord the cost
thereof, including a percentage of the cost thereof (to be uniformly
established for the Building) sufficient to reimburse Landlord for all
overhead, general conditions, fees and other costs or expenses arising from
Landlord's involvement with such repairs and replacements forthwith upon being
billed for same.
7.2 Landlord's Repairs. Anything contained in Section 7.1 above to the
contrary notwithstanding, and subject to Articles 11 and 12 of this Lease,
Landlord shall repair and maintain the structural portions of the Building
(whether such structural portions are within or outside the Premises), which
includes (i) the Building's roof, exterior walls, foundations, elevators and
exterior glass, and (ii) the basic plumbing, heating, ventilating, air
conditioning and electrical systems installed or furnished by Landlord (but not
including any non-base building facilities installed by or on behalf of
Tenant); provided, however, if such maintenance and repairs are caused in part
or in whole by the act, neglect, fault of or omission of any duty by Tenant,
its agents, servants, employees or invitees. Tenant shall pay to Landlord as
additional rent, the reasonable cost of such maintenance and repairs. Landlord
shall not be liable for any failure to make any such repairs, or to perform any
maintenance unless such failure shall persist for an unreasonable time after
written notice of the need of such repairs or maintenance is given to Landlord
by Tenant. There shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations or improvements in or to any portion of the
Building or the Premises or in or to fixtures appurtenances and equipment
therein. Tenant hereby waives and releases its right to make repairs at
Landlord's expense under Sections 1941 and 1942 of the California Civil Code,
or under any similar law, statute, or ordinance now or hereafter in effect.
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<PAGE> 13
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 Landlord's Consent to Alterations. Tenant may not make any
improvements, alterations, additions or changes to the Premises (collectively,
the "Alterations") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
twenty (20) days prior to the commencement thereof, and which consent shall not
be unreasonably withheld by Landlord; provided, however, Landlord may withhold
its consent in its sole and absolute discretion with respect to any Alterations
which may affect the structural components of the Building or the Systems and
Equipment. Tenant shall pay for all overhead, general conditions, fees and other
costs and expenses of the Alterations, and shall pay to Landlord a Landlord
supervision fee of fifteen percent (15%) of the cost of the Alterations. The
construction of the initial improvements to the Premises (including the Eleventh
Floor Space) shall be governed by the terms of the Tenant Work Letter and not
the terms of this Article 8.
8.2 Manner of Construction. Landlord may impose, as a condition of its
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Landlord in its reasonable discretion may deem desirable,
including, but not limited to, the requirement that Tenant utilize for such
purposes only contractors, materials, mechanics and materialmen approved by
Landlord; provided, however, Landlord may impose such requirements as Landlord
may determine, in its sole and absolute discretion, with respect to any work
affecting the structural components of the Building or Systems and Equipment
(including designating specific contractors to perform such work). Tenant shall
construct such Alterations and perform such repairs in conformance with any and
all applicable rules and regulations of any federal, state, county or municipal
code or ordinance and pursuant to a valid building permit, issued by the city in
which the Building is located, and in conformance with Landlord's construction
rules and regulations. Landlord's approval of the plans, specifications and
working drawings for Tenant's Alterations shall create no responsibility or
liability on the part of Landlord for their completeness, design sufficiency, or
compliance with all laws, rules and regulations of governmental agencies or
authorities. All work with respect to any Alterations must be done in a good and
workmanlike manner and diligently prosecuted to completion to the end that the
Premises shall at all times be a complete unit except during the period of work.
In performing the work of any such Alterations, Tenant shall have the work
performed in such manner as not to obstruct access to the Building or the common
areas for any other tenant of the Building, and as not to obstruct the business
of Landlord or other tenants in the Building, or interfere with the labor force
working in the Building. If Tenant makes any Alterations, Tenant agrees to carry
"Builder's All Risk" insurance in an amount approved by Landlord covering the
construction of such Alterations, and such other insurance as Landlord may
require, it being understood and agreed that all of such Alterations shall be
insured by Tenant pursuant to Article 10 of this Lease immediately upon
completion thereof. In addition, Landlord may, in its discretion, require Tenant
to obtain a lien and completion bond or some alternate form of security
satisfactory to Landlord in an amount sufficient to ensure the lien-free
completion of such Alterations and naming Landlord as a co-obligee. Upon
completion of any Alterations, Tenant shall (i) cause a Notice of Completion to
be recorded in the office of the Recorder of the county in which the Building is
located in accordance with Section 3093 of the Civil Code of the State of
California or any successor statute, (ii) deliver to the Building management
office a reproducible copy of the "as built" drawings of the Alterations, and
(iii) deliver to Landlord evidence of payment, contractors' affidavits and full
and final waivers of all liens for labor, services or materials.
8.3 Landlord's Property. Notwithstanding the requirement set forth in
Section 10.3 below that Tenant carry the insurance described in Section 10.3.2
below, all Alterations, improvements and/or fixtures which may be installed or
placed in or about the Premises, and all signs installed in, on or about the
Premises, from time to time, shall be the sole cost of Tenant and shall be and
become the property of Landlord. Furthermore, Tenant shall remove any
non-Building standard Tenant Improvements, other improvement or Alteration upon
the expiration or early termination of the Lease Term, and repair any damage to
the Premises and Building caused by such removal; provided, however, in no event
shall Tenant be required to remove any Building-standard Tenant Improvements,
other improvements or Alterations installed in or about the Premises. If Tenant
fails to complete such removal and/or to repair any damage caused by the removal
of any Alterations, Landlord may do so and may charge the cost thereof to
Tenant.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or encumbrance
of any kind whatsoever, whether created by act of Tenant, operation of law or
otherwise, to attach to or be placed upon the Real Property, Building or
Premises, and any and all liens and encumbrances created by Tenant shall attach
to Tenant's interest only. Landlord shall have the right at all times to post
and keep posted on the Premises any notice which it deems necessary for
protection from such liens. Tenant covenants and agrees not to suffer or permit
any lien of mechanics or materialmen or others to be placed against the Real
Property, the Building or the Premises with respect to work or services claimed
to have been performed for or materials claimed to have been furnished to Tenant
or the Premises, and, in case of any such lien attaching or notice of any lien,
Tenant covenants and agrees to cause it to be immediately released and removed
of record. Notwithstanding anything to the contrary set forth in this Lease, if
any such lien is not released and removed within twenty (20) days after Landlord
delivers to Tenant notice of such lien, Landlord, at its sole option, may
immediately take all action necessary to release and remove such lien, without
any duty to investigate the validity thereof, and all sums, costs and expenses,
including reasonable attorneys' fees and costs, incurred by Landlord in
connection with such lien shall be deemed Additional Rent under this Lease and
shall immediately be due and payable by Tenant.
ARTICLE 10
INDEMNIFICATION AND INSURANCE
10.1 Indemnification and Waiver. Tenant hereby assumes all risk of damage
to property and injury to persons, in, on, or about the Premises from any cause
whatsoever and agrees that Landlord, and its partners and subpartners, and their
respective officers, agents, property managers, servants, employees, and
independent contractors (collectively, "LANDLORD PARTIES") shall not
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<PAGE> 14
be liable for, and are hereby released from any responsibility for any damage to
property or injury to persons or resulting from the loss of use thereof, which
damage or injury is sustained by Tenant or by other persons claiming through
Tenant; provided, however, that the foregoing assumption of risk shall not apply
to any damage or injury (i) to the extent resulting from Landlord's gross
negligence or willful misconduct and (ii) not insured or required to be insured
by Tenant under this Lease. Tenant shall indemnify, defend, protect, and hold
harmless the Landlord Parties from any and all loss, cost, damage, expense and
liability (including without limitation court costs and reasonable attorneys'
fees) incurred in connection with or arising from any cause in, on or about the
Premises (including, without limitation, Tenant's installation, placement and
removal of Alterations, improvements, fixtures and/or equipment in, on or about
the Premises), and any acts, omissions or negligence of Tenant or of any person
claiming by, through or under Tenant, or of the contractors, agents, servants,
employees, licensees or invitees of Tenant or any such person, in, on or about
the Premises. Building and Real Property; provided, however, that the terms of
the foregoing indemnity shall not apply to the gross negligence or willful
misconduct of Landlord Parties which is not insured or required to be insured by
Tenant under this Lease. The provisions of this Section 10.1 shall survive the
expiration or sooner termination of this Lease.
10.2 Landlord's Insurance. Landlord shall carry commercial general
liability insurance with respect to the Building and Real Property during the
Lease Term, and shall further insure the Building (except, at Landlord's option,
with respect to items required to be insured by Tenant pursuant to Section
10.3.2 of this Lease) during the Lease Term against loss or damage due to fire
and other casualties covered within the classification of fire and extended
coverage, vandalism coverage and malicious mischief, sprinkler leakage, water
damage and special extended coverage. Such coverage shall be in such amounts,
from such companies, and on such other terms and conditions, as Landlord may
from time to time reasonably determine. Additionally, at the option of Landlord,
such insurance coverage may include the risks of earthquakes and/or flood damage
and additional hazards, a rental loss endorsement and one or more loss payee
endorsements in favor of the holders of any mortgages or deeds of trust
encumbering the interest of Landlord in the Building or the ground or underlying
lessors of the Building, or any portion thereof. Tenant shall, at Tenant's
expense, comply as to the Premises with all insurance company requirements
pertaining to the use of the Premises. If Tenant's conduct or use of the
Premises causes any increase in the premium for such insurance policies, then
Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's
expense, shall comply with all rules, orders, regulations or requirements of the
American Insurance Association (formerly the National Board of Fire
Underwriters) and with any similar body.
10.3 Tenant's Insurance. Tenant shall maintain the following coverages in
the following amounts.
10.3.1 Commercial General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage arising out
of Tenant's operations, assumed liabilities or use of the Premises, including a
Broad Form Commercial General Liability endorsement covering the insuring
provisions of this Lease and the performance by Tenant of the indemnity
agreements set forth in Section 10.1 of this Lease, for limits of liability not
less than:
<TABLE>
<CAPTION>
<S> <C>
BODILY INJURY AND
PROPERTY DAMAGE LIABILITY $3,000,000 EACH OCCURRENCE
$3,000,000 ANNUAL AGGREGATE
PERSONAL INJURY LIABILITY $3,000,000 EACH OCCURRENCE
$3,000,000 ANNUAL AGGREGATE
0% INSURED'S PARTICIPATION
</TABLE>
10.3.2 Physical damage Insurance covering (i) all office
furniture, trade fixtures, office equipment, merchandise and all other items of
Tenant's property on the Premises installed by, for, or at the expense of
Tenant, (ii) the Tenant Improvements, including any Tenant Improvements which
Landlord permits to be installed above the ceiling of the Premises or below the
floor of the Premises, and (iii) all other improvements, alterations and
additions to the Premises, including any improvements, alterations or additions
installed at Tenant's request above the ceiling of the Premises or below the
floor of the Premises. Such insurance shall be written on an "all risks" of
physical loss or damage basis, for the full replacement cost value new without
deduction for depreciation of the covered items and in amounts that meet any
co-insurance clauses of the policies of insurance and shall include a vandalism
and malicious mischief endorsement, sprinkler leakage coverage and earthquake
sprinkler leakage coverage.
10.3.3 Form of Policies. The minimum limits of policies of
insurance required of Tenant under this Lease shall in no event limit the
liability of Tenant under this Lease. Such insurance shall (i) name Landlord,
and any other party it so specifies, as an additional insured; (ii) specifically
cover the liability assumed by Tenant under this Lease, including, but not
limited to, Tenant's obligations under Section 10.1 of this Lease; (iii) be
issued by an insurance company having a rating of not less than A-X in Best's
Insurance Guide or which is otherwise acceptable to Landlord and licensed to do
business in the state in which the Building is located; (iv) be primary
insurance as to all claims thereunder and provide that any insurance carried by
Landlord is excess and is non-contributing with any insurance requirement of
Tenant; (v) provide that said insurance shall not be canceled or coverage
changed unless thirty (30) days' prior written notice shall have been given to
Landlord and any mortgagee or ground or underlying lessor of Landlord; and (vi)
contain a cross-liability endorsement or severability of interest clause
acceptable to Landlord. Tenant shall deliver said policy or policies or
certificates thereof to Landlord on or before the Lease Commencement Date and at
least thirty (30) days before the expiration dates thereof. If Tenant shall fail
to procure such insurance, or to deliver such policies or certificate, within
such time periods, Landlord may, at its option, in addition to all of its other
rights and remedies under this Lease, and without regard to any notice and cure
periods set forth in Section 19.1, procure such policies for the account of
Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within
ten (10) days after delivery of bills therefor.
10.4 Subrogation. Landlord and Tenant agree to have their respective
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be. Landlord and Tenant hereby waive any right that either may have against
the other on account of any loss or damage to their respective property to the
extent such loss or damage is insurable under policies of insurance for fire and
all risk coverage, theft, public liability, or other similar insurance.
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<PAGE> 15
10.5 Additional Insurance Obligations. Tenant shall carry and maintain
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of insurance required to be carried by Tenant pursuant to this Article
10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord.
ARTICLE II
DAMAGE AND DESTRUCTION
11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any common areas of the Building serving or
providing access to the Premises shall be damaged by fire or other casualty,
Landlord shall promptly and diligently, subject to reasonable delays for
insurance adjustment or other matters beyond Landlord's reasonable control, and
subject to all other terms of this Article II, restore the Base, Shell, and
Core of the Premises and such common areas. Such restoration shall be to
substantially the same condition of the Base, Shell, and Core of the Premises
and common areas prior to the casualty, except for modifications required by
zoning and building codes and other laws or by the holder of a mortgage on the
Building, or the lessor of a ground or underlying lease with respect to the
Real Property and/or the Building, or any other modifications to the common
areas deemed desirable by Landlord, provided access to the Premises and any
common restrooms serving the Premises shall not be materially impaired.
Notwithstanding any other provision of this Lease, upon the occurrence of any
damage to the Premises, Tenant shall assign to Landlord (or to any party
designated by Landlord) all insurance proceeds payable to Tenant under Tenant's
insurance required under Section 10.3 of this Lease, and Landlord shall repair
any injury or damage to the tenant improvements and alterations installed in
the Premises and shall return such tenant improvements and alterations to their
original condition; provided that if the cost of such repair by Landlord
exceeds the amount of insurance proceeds received by Landlord from Tenant's
insurance carrier, as assigned by Tenant, the cost of such repairs shall be
paid by Tenant to Landlord prior to Landlord's repair of the damage. In
connection with such repairs and replacements, Tenant shall, prior to the
commencement of construction, submit to Landlord, for Landlord's review and
approval, all plans, specifications and working drawings relating thereto, and
Landlord shall select the contractors to perform such improvement work.
Landlord shall not be liable for any inconvenience or annoyance to Tenant or
its visitors, or injury to Tenant's business resulting in any way from such
damage or the repair thereof; provided however, that if such fire or other
casualty shall have damaged the Premises or common areas necessary to Tenant's
occupancy, and if such damage is not the result of the negligence or willful
misconduct of Tenant or Tenant's employees, contractors, licensees, or
invitees, Landlord shall allow Tenant a proportionate abatement of Base Rent
and Tenant's Share of Direct Expenses to the extent Landlord is reimbursed from
the proceeds of rental interruption insurance purchased by Landlord as part of
Operating Expenses, during the time and to the extent the Premises are unfit
for occupancy for the purposes permitted under this Lease, and not occupied by
Tenant as a result thereof.
11.2 Termination Rights. Within sixty (60) days after Landlord becomes
aware of such damage, Landlord shall notify Tenant in writing ("LANDLORD'S
DAMAGE NOTICE") of the estimated time, in Landlord's reasonable judgment,
required to substantially complete the repairs of such damage (the "ESTIMATED
REPAIR PERIOD"). Notwithstanding the terms of Section 11.1 above, Landlord may
elect not to rebuild and/or restore the Premises and/or Building and instead
terminate this Lease by notifying Tenant in writing of such termination within
sixty (60) days after the date of damage, such notice to include a termination
date giving Tenant ninety (90) days to vacate the Premises, but Landlord may so
elect only if the Building shall be damaged by fire or other casualty or cause,
whether or not the Premises are affected, and one or more of the following
conditions is present: (i) repairs cannot, in Landlord's opinion, as set forth
in Landlord's Damage Notice, reasonably be completed within one hundred eighty
(180) days of the date of damage (when such repairs are made without the payment
of overtime or other premiums); or (ii) the damage is not fully covered, except
for deductible amounts, by Landlord's insurance policies obtained or required to
be obtained pursuant to Section 10.2 above: provided, however, that (A) if
Landlord does not elect to terminate this Lease pursuant to Landlord's
termination right as provided above, (B) the damage constitutes a Tenant Damage
Event (as defined below), and (C) the repair of such damage cannot, in the
reasonable opinion of Landlord, as set forth in Landlord's Damage Notice, be
completed within one hundred eighty (180) days after the date of the damage,
then Tenant may elect to terminate this Lease by delivering written notice
thereof to Landlord within twenty (20) days after Tenant's receipt of Landlord's
Damage Notice, which termination shall be effective as of the date of such
termination notice thereof to Landlord. As used herein, a "TENANT DAMAGE EVENT"
shall mean damage to all or any part of the Premises or any common areas of the
Building providing access to the Premises by fire or other casualty, which
damage is not the result of the negligence or willful misconduct of Tenant or
any of Tenant's employees, agents, contractors or licensees, and which damage
substantially interferes with Tenant's use of or access to the Premises and
would entitle Tenant to an abatement of Rent pursuant to Section 11.1 above. In
addition, in the event of a Tenant Damage Event, and if neither Landlord nor
Tenant has elected to terminate this Lease as provided hereinabove, but Landlord
fails to substantially complete the repair and restoration of such tenant Damage
Event within the Estimated Repair Period plus sixty (60) days, plus the number
of days of delay, if any, attributable to events of "Force Majeure," as that
term is defined in Section 25.13 hereof, plus the number of days of delay, if
any, as are attributable to the acts or omissions of Tenant, then Tenant shall
have an additional right to terminate this Lease by delivering written
termination notice to Landlord within fifteen (15) days after the expiration of
such period, which termination shall be effective as of the date of such
termination notice. Further, in the event that the Premises or the Building is
destroyed or damaged to any substantial extent during the last twelve (12)
months of the Lease Term and Tenant has not exercised its option to extend the
Lease Term pursuant to the Extension Option Rider attached hereto, then
notwithstanding anything contained in this Article 12, Landlord shall have the
option to terminate this Lease, and to the extent such destruction or damage
constitutes a Tenant Damage Event and the repair of same is reasonably expected
by Landlord to require more than sixty (60) days to complete. Tenant shall have
the option to terminate this Lease, by giving written termination notice to the
other party of the exercises of such option within thirty (30) days after the
date of such damage or destruction. If either Landlord or Tenant exercises any
of its options to terminate this Lease as provided hereinabove, (1) this Lease
shall cease and terminate as of the date of such termination notice, (2) Tenant
shall pay the Base Rent and Additional Rent, properly apportioned up to such
date of termination, and (3) both parties hereto shall thereafter be freed and
discharged of all further obligations hereunder, except as provided for in
provisions of this Lease which by their terms survive the expiration or earlier
termination of the Lease Term.
11.3 Waiver of Statutory Provisions. The provisions of this Lease,
including this Article II, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any
part of the Premises,
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<PAGE> 16
the Building or any other portion of the Real Property, and any statute or
regulation of the state in which the Building is located, including, without
limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with
respect to any rights or obligations concerning damage or destruction in the
absence of an express agreement between the parties, and any other statute or
regulation, now or hereafter in effect, shall have no application to this Lease
or any damage or destruction to all or any part of the Premises, the Building
or any other portion of the Real Property.
ARTICLE 12
CONDEMNATION
12.1 Permanent Taking. If the whole or any part of the Premises or Building
shall be taken by power of eminent domain or condemned by any competent
authority for any public or quasi-public use or purpose, or if any adjacent
property or street shall be so taken or condemned, or reconfigured or vacated by
such authority in such manner as to require the use, reconstruction or
remodeling of any part of the Premises or Building, or if Landlord shall grant a
deed or other instrument in lieu of such taking by eminent domain or
condemnation. Landlord shall have the option to terminate this Lease upon ninety
(90) days' notice, provided such notice is given no later than one hundred
eighty (180) days after the date of such taking, condemnation, reconfiguration,
vacation, deed or other instrument. If more than twenty-five percent (25%) of
the rentable square feet of the Premises is taken, or if access to the Premises
is substantially impaired, Tenant shall have the option to terminate this Lease
upon ninety (90) days' notice, provided such notice is given no later than one
hundred eighty (180) days after the date of such taking. Landlord shall be
entitled to receive the entire award or payment in connection therewith, except
that Tenant shall have the right to file any separate claim available to Tenant
for any taking of Tenant's personal property and fixtures belonging to Tenant
and removable by Tenant upon expiration of the Lease Term pursuant to the terms
of this Lease, and for moving expenses, so long as such claim does not diminish
the award available to Landlord, its ground lessor with respect to the Real
Property or its mortgage, and such claim is payable separately to Tenant. All
Rent shall be apportioned as of the date of such termination, or the date of
such taking, whichever shall first occur. If any part of the Premises shall be
taken, and this Lease shall not be so terminated, the Rent shall be
proportionately abated. Tenant hereby waives any and all rights it might
otherwise have pursuant to Section 1265.130 of The California Code of Civil
Procedure.
12.2 Temporary Taking. Notwithstanding anything to the contrary contained
in this Article 12, in the event of a temporary taking of all or any portion of
the Premises for a period of one hundred and eighty (180) days or less, then
this Lease shall not terminate but the Base Rent and the Additional Rent shall
be abated for the period of such taking in proportion to the ratio that the
amount of rentable square feet of the Premises taken bears to the total rentable
square feet of the Premises. Landlord shall be entitled to receive the award
made in connection with any such temporary taking.
ARTICLE 13
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, shall,
during the Lease Term, peaceably and quietly have, hold and enjoy the Premises
subject to the terms, covenants, conditions, provisions and agreements hereof
without interference by any persons lawfully claiming by or through Landlord.
The foregoing covenant is in lieu of any other covenant express or implied.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 Transfers. Tenant shall not, without the prior written consent of
Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to
attach to, or otherwise transfer, this Lease or any interest hereunder, permit
any assignment or other such foregoing transfer of this Lease or any interest
hereunder by operation of law, sublet the Premises or any part thereof, or
permit the use of the Premises by any persons other than Tenant and its
employees (all of the foregoing are hereinafter sometimes referred to
collectively as "Transfers" and any person to whom any Transfer is made or
sought to be made is hereinafter sometimes referred to as a "TRANSFEREE"). If
Tenant shall desire Landlord's consent to any Transfer, Tenant shall notify
Landlord in writing, which notice (the "TRANSFER NOTICE") shall include (i) the
proposed effective date of the Transfer, which shall not be less than fifteen
(15) business days nor more than one hundred eighty (180) days after the date of
delivery of the Transfer Notice, (ii) a description of the portion of the
Premises to be transferred (the "SUBJECT SPACE"), (iii) all of the terms of the
proposed Transfer, the name and address of the proposed Transferee, and a copy
of all existing and/or proposed documentation pertaining to the proposed
Transfer, including all existing operative documents to be executed to evidence
such Transfer or the agreements incidental or related to such Transfer, (iv)
current financial statements of the proposed Transferee certified by an officer,
partner or owner thereof, and (v) such other information as Landlord may
reasonably require. Any Transfer made without Landlord's prior written consent
shall at Landlord's option, be null, void and of no effect, and shall, at
Landlord's option, constitute a default by Tenant under this Lease. Whether or
not Landlord shall grant consent, Tenant shall pay Landlord's reasonable legal
fees incurred by Landlord, within thirty (30) days after written request by
Landlord.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold its
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice and Landlord shall respond to Tenant's
request for consent to the Transfer within fifteen (15) business days after
Landlord receives the Transfer Notice. The parties hereby agree that it shall be
reasonable under this Lease and under any applicable law for Landlord to
withhold consent to any proposed Transfer where one or more of the following
apply, without limitation as to other reasonable grounds for withholding
consent:
14.2.1 The Transferee is of a character or reputation or engaged in
a business which is not consistent with the quality of the Building;
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14.2.2 The Transferee intends to use the Subject Space for
purposes which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or
instrumentality thereof;
14.2.4 The Transfer will result in more than a reasonable and safe
number of occupants per floor within the Subject Space;
14.2.5 The Transferee is not a party of reasonable financial worth
and/or financial stability;
14.2.6 The proposed assignee or subtenant is engaged in a
business, and the Premises, or the relevant part thereof, will be used in a
manner that will violate any restrictive or exclusive covenant as to use
contained in any other lease of space in the Building or the Real Property;
14.2.7 The terms of the proposed Transfer will allow the
Transferee to exercise a right of renewal, right of expansion, right of first
offer, or other similar right held by Tenant (or will allow the Transferee to
occupy space leased by Tenant pursuant to any such right); or
14.2.8 Either the proposed Transferee, or any person or entity
which directly or indirectly, controls, is controlled by, or is under common
control with, the proposed Transferee, (i) occupies space in the Building at the
time of the request for consent, and Landlord has space in the Building
available for lease to such party of comparable size as the proposed Subject
Space, or (ii) is negotiating with Landlord to lease space in the Building at
such time, and Landlord has space in the Building available for lease to such
party of comparable size as the proposed Subject Space.
If Landlord consents to any Transfer pursuant to the terms of this Section
14.2 (and does not exercise any recapture rights Landlord may have under
Section 14.4 of this Lease), Tenant may within six (6) months after Landlord's
consent, but not later than the expiration of said six-month period, enter into
such Transfer of the Premises or portion thereof, upon substantially the same
terms and conditions as are set forth in the Transfer Notice furnished by
Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if
there are any changes in the terms and conditions from those specified in the
Transfer Notice (i) such that Landlord would initially have been entitled to
refuse its consent to such Transfer under this Section 14.2, or (ii) which
would cause the proposed Transfer to be materially more favorable to the
Transferee than the terms set forth in Tenant's original Transfer Notice,
Tenant shall again submit the Transfer to Landlord for it approval and other
action under this Article 14 (including Landlord's right of recapture, if any,
under Section 14.4 of this Lease).
14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition
thereto which the parties hereby agree is reasonable, Tenant shall pay to
Landlord sixty percent (60%) of any "Transfer Premium," as that term is defined
in this Section 14.3, received by Tenant from such Transferee. "TRANSFER
PREMIUM" shall mean all rent, additional rent or other consideration payable by
such Transferee in excess of the Rent and Additional Rent payable by Tenant
under this Lease on a per rentable square foot basis if less than all of the
Premises is transferred, after deducting the reasonable expenses incurred by
Tenant for (i) any changes, alterations and improvements to the Premises in
connection with the Transfer, and (ii) any attorneys' fees and brokerage
commissions in connection with the Transfer (collectively, the "SUBLEASING
COSTS"). "Transfer Premium" shall also include, but not be limited to, key
money and bonus money paid by Transferee to Tenant in connection with such
Transfer, and any payment in excess of fair market value for services rendered
by Tenant to Transferee or for assets, fixtures, inventory, equipment, or
furniture transferred by Tenant to Transferee in connection with such Transfer.
14.4 Landlord's Option as to Subject Space. Notwithstanding
anything to the contrary contained in this Article 14, Landlord shall have the
option, by giving written notice to Tenant within thirty (30) days after receipt
of any Transfer Notice, to recapture the Subject Space. Such recapture notice
shall cancel and terminate this Lease with respect to the Subject Space as of
the date stated in the Transfer Notice as the effective date of the proposed
Transfer until the last day of the term of the Transfer as set forth in the
Transfer Notice. If this Lease shall be canceled with respect to less than the
entire Premises, the Rent reserved herein shall be prorated on the basis of the
number of rentable square feet retained by Tenant in proportion to the number of
rentable square feet contained in the Premises, and this Lease as so amended
shall continue thereafter in full force and effect, and upon request of either
party, the parties shall execute written confirmation of the same. If Landlord
declines, or fails to elect in a timely manner to recapture the Subject Space
under this Section 14.4, then, provided Landlord has consented to the proposed,
Transfer, Tenant shall be entitled to proceed to transfer the Subject Space to
the proposed Transferee, subject to provisions of the last paragraph of Section
14.2 of this Lease. Notwithstanding the foregoing provision, in the event that
Landlord receives from Tenant a Transfer Notice prior to that date which is two
(2) years after the Eleventh Floor Start Date relating to a sublease of the
entirety of the Eleventh Floor Space for a term which is eighteen (18) months or
less and requires the proposed subtenant to pay base rent for the Eleventh
Floor at a rate equal to the Fair Market Rental Rate (as such term is defined
in the Extension Option Rider) for the Eleventh Floor Space, Landlord shall not
have the option to recapture such space and instead Landlord shall only have the
option to reject or consent to the proposed Transfer. In the event Landlord
consents to such Transfer, notwithstanding the provisions of Section 14.3 above,
Tenant shall pay to Landlord 100% of any Transfer Premium obtained by Tenant in
connection with such Transfer.
14.5. Effect of Transfer. If Landlord consents to a Transfer, (i)
the terms and conditions of this Lease shall in no way be deemed to have been
waived or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, and (iv) no Transfer relating to this Lease or agreement entered into
with respect thereto, whether with or without Landlord's consent, shall relieve
Tenant or any guarantor of the Lease from liability under this Lease. Landlord
or its authorized representatives shall have the right at all reasonable times
to audit the books, records and papers of Tenant relating to any Transfer, and
shall have the right to make copies thereof. If the Transfer Premium respecting
any Transfer shall be found understated, Tenant shall, within thirty (30) days
after demand, pay the deficiency and Landlord's costs of such audit.
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14.6 Additional Transfers. Subject to Section 14.7 below, for purposes of
this Lease, the term "Transfer" shall also include (i) if Tenant is a
partnership, the withdrawal or change, voluntary, involuntary or by operation of
law, of fifty percent (50%) or more of the partners, or transfer of twenty-five
percent or more of partnership interests, within a twelve (12)-month period, or
the dissolution of the partnership without immediate reconstitution thereof, and
(ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly
held and not traded through an exchange or over the counter), (A) the
dissolution, merger, consolidation or other reorganization of Tenant, (B) the
sale or other transfer or more than an aggregate of fifty percent (50%) of the
voting shares of Tenant (other than to immediate family members by reason of
gift or death), within a twelve (12) month period, or (C) the sale, mortgages,
hypothecation or pledge of more than an aggregate of fifty percent (50%) of the
value of the unencumbered assets of Tenant within a twelve (12) month period.
14.7 Affiliated Companies/Restructuring of Business Organization. The
assignment or subletting by Tenant of all or any portion of this Lease or the
Premises to (i) a parent or subsidiary of Tenant, or (ii) any person or entity
which controls, is controlled by or under common control with Tenant, or (iii)
any entity which purchases all or substantially all of the assets of Tenant, or
(iv) any entity into which Tenant is merged or consolidated (all such persons or
entities described in (i), (ii), (iii) and (iv) being sometimes hereinafter
referred to as "AFFILIATES") shall not be deemed a Transfer under this Article
14, provided that:
14.7.1 any such Affiliate was not formed as a subterfuge to avoid
the obligations of this Article 14;
14.7.2 Tenant gives Landlord prior notice of any such assignment or
sublease to an Affiliate;
14.7.3 the successor of Tenant and Tenant have as of the effective
date of any such assignment or sublease a tangible net worth, in the aggregate,
computed in accordance with generally accepted accounting principles (but
excluding goodwill as an asset), which is sufficient to meet the obligations of
Tenant under this Lease;
14.7.4 any such assignment or sublease shall be subject to all of
the terms and provisions of this Lease, and such assignee or sublessee shall
assume, in a written document reasonably satisfactory to Landlord and delivered
to Landlord upon or prior to the effective date of such assignment or sublease,
all the obligations of Tenant under this Lease; and
14.7.5 Tenant and any guarantor shall remain fully liable for all
obligations to be performed by Tenant under this Lease.
ARTICLE 15
SURRENDER; OWNERSHIP
AND REMOVAL OF TRADE FIXTURES
15.1 Surrender of Premises. No act or thing done by Landlord or any agent
or employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in a writing signed by Landlord. The delivery of keys
to the Premises to Landlord or any agent or employee of Landlord shall not
constitute a surrender of the Premises or effect a termination of this Lease,
whether or not the keys are thereafter retained by Landlord, and notwithstanding
such delivery Tenant shall be entitled to the return of such keys at any
reasonable time upon request until this Lease shall have been properly
terminated. The voluntary or other surrender of this Lease by Tenant, whether
accepted by Landlord or not, or a mutual termination hereof, shall not work a
merger, and at the option of Landlord shall operate as an assignment to Landlord
of all subleases or subtenancies affecting the Premises.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the Lease
Term, or upon any earlier termination of this Lease, Tenant shall, subject to
the provisions of this Article 15, quit and surrender possession of the Premises
to Landlord in as good order and condition as when Tenant took possession and as
thereafter improved by Landlord and/or Tenant, reasonable wear and tear and
repairs which are specifically made the responsibility of Landlord hereunder
excepted. Upon such expiration or termination, Tenant shall, without expense to
Landlord, remove or cause to be removed from the Premises all debris and
rubbish, and such items of furniture, equipment, free-standing cabinet work, and
other articles of personal property owned by Tenant or installed or placed by
Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case Base Rent shall be payable at a monthly
rate equal to two hundred percent (200%) of the greater of (i) the Base Rent
applicable during the last rental period of the Lease Term under this Lease or
(ii) the fair market rental rate for the Premises as of the commencement of such
holdover period; provided, however, if Tenant holds over after the expiration of
the Lease Term hereof for a period of one (1) month or less with the prior
written consent of Landlord, Base Rent for such period shall be payable at a
monthly rate equal to one hundred fifty percent (150%) of the Base Rent
applicable during the last rental period of the Lease Term under this Lease.
Such month-to-month tenancy shall be subject to every other term, covenant and
agreement contained herein. Landlord hereby expressly reserves the right to
require Tenant to surrender possession of the Premises to Landlord as provided
in the Lease upon the expiration or other termination of this Lease. The
provisions of this Article 16 shall not be deemed to limit or constitute a
waiver of any other rights or remedies of Landlord provided herein or at law. If
Tenant fails to surrender the Premises upon the termination or expiration of
this Lease, in addition to any other liabilities to Landlord accruing therefrom,
Tenant shall protect, defend, indemnify and hold Landlord harmless from all
loss, costs (including reasonable attorneys' fees) and liability resulting from
such failure, including, without limiting the generality of the foregoing, any
claims made by any succeeding tenant founded upon such failure to surrender, and
any lost profits to Landlord resulting therefrom.
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ARTICLE 17
ESTOPPEL CERTIFICATES
Within ten (10) days following a request in writing by Landlord, Tenant
shall execute and deliver to Landlord an estoppel certificate, which as
submitted by Landlord, shall be substantially in the form of Exhibit E, attached
hereto, (or such other form as may be reasonably required by any prospective
mortgagee or purchaser of the Project, or any portion thereof), indicating
therein any exceptions thereto that may exist at that time, and shall also
contain any other information reasonably requested by Landlord or Landlord's
mortgagee or prospective mortgagee. Tenant shall execute and deliver whatever
other instruments may be reasonably required for such purposes. Failure of
Tenant to timely execute and deliver such estoppel certificate or other
instruments shall constitute an acceptance of the Premises and an acknowledgment
by Tenant that statements included in the estoppel certificate are true and
correct, without exception.
ARTICLE 18
SUBORDINATION
18.1 Subordination. This Lease is subject and subordinate to all present
and future ground or underlying leases of the Real Property and to the lien of
any mortgages or trust deeds, now or hereafter in force against the Real
Property and the Building, if any, and to all renewals, extensions,
modifications, consolidations and replacements thereof, and to all advances made
or hereafter to be made upon the security of such mortgages or trust deeds,
unless the holders of such mortgages or trust deeds, or the lessors under such
ground lease or underlying leases, require in writing that this Lease be
superior hereto. Tenant covenants and agrees in the event any proceedings are
brought for the foreclosure of any such mortgage, or if any ground or underlying
lease is terminated, to attorn, without any deductions or set-offs whatsoever,
to the purchaser upon any such foreclosure sale, or to the lessor of such ground
or underlying lease, as the case may be, if so requested to do so by such
purchaser or lessor and/or if required to do so pursuant to any subordination,
non-disturbance and attornment agreement executed pursuant to Section 18.2
below, and to recognize such purchaser or lessor as the lessor under this Lease.
Tenant shall, within five (5) days of request by Landlord, execute such further
instruments or assurances as Landlord may reasonably deem necessary to evidence
or confirm the subordination or superiority of this Lease to any such mortgages,
trust deeds, ground leases or underlying leases. Tenant hereby irrevocably
authorizes Landlord to execute and deliver in the name of Tenant any such
instrument or instruments if Tenant fails to do so, provided that such
authorization shall in no way relieve Tenant from the obligation of executing
such instruments of subordination or superiority. Tenant waives the provisions
of any current or future statute, rule or law which may give or purport to give
Tenant any right or election to terminate or otherwise adversely affect this
Lease and the obligations of the Tenant hereunder in the event of any
foreclosure proceeding or sale.
18.2 Existing Agreement. Tenant hereby acknowledges that as of the date on
which Landlord and Tenant execute this Lease there is a deed of trust
encumbering, and in force against, the Real Property in favor of General
Electric Capital Corporation, a New York corporation (the "Current Lender").
Simultaneously with Tenant's execution of this Lease, Tenant shall sign,
notarize and deliver a subordination, non-disturbance and attornment agreement
substantially in the form of Exhibit G attached hereto. If Landlord at any time
during the Lease Term causes the Real Property to be encumbered by a new deed of
trust or mortgage pursuant to which the beneficiary of such deed of trust or
mortgage is a party or entity other than the Current Lender, and/or if any party
which acquires, or otherwise succeeds to, Landlord's interest in the Real
Property (including without limitation, any ground lease) encumbers or places a
lien against the Real Property with a mortgage, deed of trust or similar
security instrument and the beneficiary thereof requires this Lease to be
subordinated to such encumbrance or lien, Landlord or the successor of Landlord
will use commercially reasonable efforts to provide to Tenant a subordination,
non-disturbance and attornment agreement in form reasonably acceptable to
Landlord or such successor of Landlord, the subject beneficiary and Tenant;
provided, however, that a condition precedent to the subordination of this Lease
to any future ground or underlying lease or to the lien of any future mortgage
or deed of trust is that Landlord shall obtain for the benefit of Tenant a
commercially reasonable subordination, non-disturbance and attornment agreement
from the lessor or lender of such future instrument. If said subordination,
non-disturbance and attornment agreement is required and agreed upon by the
aforesaid parties, Landlord or the successor of Landlord, the subject
beneficiary and Tenant shall cause any such subordination, non-disturbance and
attornment agreement to be executed, acknowledged and recorded concurrently
with, or as soon as practicable after, the execution and recordation of any such
lien, deed of trust or mortgage. In addition to the foregoing, if Landlord
enters into a ground lease with regard to the Real Property and such ground
lessee requires this Lease to be subordinated to such ground lease, the ground
lessee and ground lessor will use commercially reasonable efforts to provide to
Tenant a subordination, non-disturbance and attornment agreement in form
reasonably acceptable to such ground lessee, ground lessor, any beneficiary of
ground lessee and to Tenant.
ARTICLE 19
TENANT'S DEFAULTS; LANDLORD'S REMEDIES
19.1 Events of Default by Tenant. All covenants and agreements to be kept
or performed by Tenant under this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any reduction of Rent. The occurrence
of any of the following shall constitute a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due, where such
failure continues for five (5) calendar days after written notice thereof by
Landlord to Tenant; provided, however, that any such notice shall be in lieu
of, and not in addition to, any notice required under Section 1161 et seq. of
the California Code of Civil Procedure; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided however, that any such notice shall
be in lieu of, and not in addition to, any notice required under California
Code of Civil Procedure Section 1161 or any similar or successor law; and
provided further that if the nature of such default is
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such that the same cannot reasonably be cured within a thirty (30)-day period,
Tenant shall not be deemed to be in default if it diligently commences such
cure within such period and thereafter diligently proceeds to rectify and cure
said default as soon as possible; or
19.1.3 Abandonment of the Premises by Tenant. Abandonment is
herein defined to include, but is not limited to, any absence by Tenant from
the Premises for three (3) business days or longer while in monetary default
under this Lease.
19.2 Landlord's Remedies Upon Default. Upon the occurrence of any such
default by Tenant, Landlord shall have, in addition to any other remedies
available to Landlord at law or in equity, the option to pursue any one or more
of the following remedies, each and all of which shall be cumulative and
nonexclusive, without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or rearranges in rent, enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be occupying
the Premises, or any part thereof, without being liable for prosecution or any
claim or damages therefor; and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid
rent which has been carried at the time of such termination; plus
(ii) The worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that tenant proves could
have been reasonably avoided; plus
(iii) The worth at the time of award of the amount by
which the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, specifically including but not
limited to, brokerage commissions and advertising expenses incurred, expenses
of remodeling the Premises or any portion thereof for a new tenant, whether for
the same or a different use, and any special concessions made to obtain a new
tenant; and
(v) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
by applicable law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms
of this lease, whether to Landlord or to others. As used in Paragraphs
19.2.1(i) and (ii), above, the "worth at the time of award" shall be computed
by allowing interest at the Interest Rate set forth in Section 4.5 of this
Lease. As used in Paragraph 19.2.1(iii) above, the "worth at the time of award"
shall be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
19.2.2 Landlord shall have the remedy described in California
Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's
breach and abandonment and recover rent as it becomes due, if lessee has the
right to sublet or assign, subject only to reasonable limitations).
Accordingly, if Landlord does not elect to terminate this Lease on account of
any default by Tenant, Landlord may, from time to time, without terminating
this Lease, enforce all of its rights and remedies under this Lease, including
the right to recover all rent as it becomes due.
19.2.3 Landlord may, but shall not be obligated to, make any such
payment or perform or otherwise cure any such obligation, provision, covenant
or condition on Tenant's part to be observed or performed (and may enter the
Premises for such purposes). In the event of Tenant's failure to perform any of
its obligations or covenants under this Lease, and such failure to perform
poses a material risk of injury or harm to persons or damage to or loss of
property, then Landlord shall have the right to cure or otherwise perform such
covenant or obligation at any time after such failure to perform by Tenant,
whether or not any such notice or cure period set forth in Section 19.1 above
has expired. Any such actions undertaken by Landlord pursuant to the foregoing
provisions of this Section 19.2.3 shall not be deemed a waiver of Landlord's
rights and remedies as a result of Tenant's failure to perform and shall not
release Tenant from any of its obligations under this Lease.
19.3 Payment by Tenant. Tenant shall pay to Landlord, within fifteen (15)
days after delivery by Landlord to Tenant of statements therefor; (i) sums
equal to expenditures reasonably made and obligations incurred by Landlord in
connection with Landlord's performance or cure of any of Tenant's obligations
pursuant to the provisions of Section 19.2.3 above; and (ii) sums equal to all
expenditures made and obligations incurred by Landlord in collecting or
attempting to collect the Rent or reasonably in enforcing or attempting to
enforce any rights of Landlord under this Lease or pursuant to law, including,
without limitation, all reasonable legal fees and other amounts so expended.
Tenant's obligations under this Section 19.3 shall survive the expiration or
sooner termination of the Lease Term.
19.4 Sublessees of Tenant. Whether or not Landlord elects to terminate this
Lease on account of any default by Tenant, as set forth in this Article 19,
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
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19.5 Waiver of Default. No waiver by either party to this Lease of any
violation or breach by the other party to this Lease of any of the terms,
provisions and covenants herein contained shall be deemed or construed to
constitute a waiver of any other or later violation or breach by the other
party of the same or any other of the terms, provisions, and covenants herein
contained. Forbearance by either party to this Lease in enforcement of one or
more of the remedies herein provided upon a default by the other party shall
not be deemed or construed to constitute a waiver of such default. The
acceptance of any Rent hereunder by Landlord following the occurrence of any
default, whether or not known to Landlord, shall not be deemed a waiver of any
such default, except only a default in the payment of the Rent so accepted.
19.6 Efforts to Relet. For the purposes of this Article 19, Tenant's right
to possession shall not be deemed to have been terminated by efforts of
Landlord to relet the Premises, by its acts of maintenance or preservation with
respect to the Premises, or by appointment of a receiver to protect Landlord's
interests hereunder. The foregoing enumeration is not exhaustive, but merely
illustrative of acts which may be performed by Landlord without terminating
Tenant's right to possession.
ARTICLE 20
[INTENTIONALLY DELETED]
ARTICLE 21
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply with all such governmental measures, other than the making of
structural changes or changes to the Building's life safety system (collectively
the "EXCLUDED CHANGES"); provided, however, to the extent such Excluded Changes
are required due to Tenant's alterations to or manner of use of the Premises,
Landlord, at Tenant's sole cost and expense, shall comply with such governmental
measures. In addition, Tenant shall fully comply with all present or future
programs intended to manage parking, transportation or traffic in and around the
Building, and in connection therewith, Tenant shall take responsible action for
the transportation planning and management of all employees located at the
Premises by working directly with Landlord, any governmental transportation
management organization or any other transportation-related committees or
entities. The judgment of any court of competent jurisdiction or the admission
of Tenant in any judicial action, regardless of whether Landlord is a party
thereto, that Tenant has violated any of said governmental measures, shall be
conclusive of that fact as between Landlord and Tenant.
ARTICLE 22
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable
notice to Tenant to enter the Premises to (i) inspect them; (ii) show the
premises to prospective purchasers, mortgagees or tenants, or to the ground or
underlying lessors; (iii) post notices of nonresponsibility; or (iv) alter,
improve or repair the Premises or the Building if necessary to comply with
current building codes or other applicable laws, or for structural alterations,
repairs or improvements to the Building, or as Landlord may otherwise
reasonably desire or deem necessary. Notwithstanding anything to the contrary
contained in this Article 22, Landlord may enter the Premises at any time,
without notice to Tenant, to perform janitorial or other services required of
Landlord pursuant to this Lease. Any such entries shall be without the
abatement of Rent and shall include the right to take such reasonable steps as
required to accomplish the stated purposes. Tenant hereby waives any claims for
damages or for any injuries or inconvenience to or interference with Tenant's
business, lost profits, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby. For each of the above
purposes, Landlord shall at all times have a key with which to unlock all the
doors in the Premises, excluding Tenant's vaults, safes and special security
areas designated in advance by Tenant. In an emergency, Landlord shall have the
right to use any means that Landlord may deem proper to open the doors in and
to the Premises. Any entry into the Premises in the manner hereinbefore
described shall not be deemed to be a forcible or unlawful entry into, or a
detainer of, the Premises, or an actual or constructive eviction of Tenant from
any portion of the Premises.
ARTICLE 23
MISCELLANEOUS PROVISIONS
23.1 Terms; Captions. The necessary grammatical changes required to make
the provisions hereof apply either to corporations or partnerships or
individuals, men or women, as the case may require, shall in all cases be
assumed as though in each case fully expressed. The captions of Articles and
Sections are for convenience only and shall not be deemed to limit, construe,
affect or alter the meaning of such Articles and Sections.
23.2 Binding Effect. Each of the provisions of this Lease shall extend to
and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Article 14 of this Lease.
23.3 No Waiver. No waiver of any provision of this Lease shall be implied
by any failure of a party to enforce any remedy on account of the violation of
such provision, even if such violation shall continue or be repeated
subsequently, any waiver by a party of any provision of this Lease may only be
in writing, and no express waiver shall affect any provision other than the one
specified in such waiver and that one only for the time and in the manner
specifically stated. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term
or of Tenant's right of possession hereunder or after the giving of any notice
shall reinstate, continue or extend the Lease Term or affect any notice given
Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit or after
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final judgment for possession of the Premises, Landlord may receive and collect
any Rent due, and the payment of said Rent shall not waive or affect said
notice, suit or judgment.
23.4 Modification of Lease. Should any current or prospective mortgagee or
ground lessor for the Building require a modification or modifications of this
Lease, which modification or modifications will not cause an increased cost or
expense to Tenant or in any other way materially and adversely change the
rights and obligations of Tenant hereunder, then and in such event, Tenant
agrees that this Lease may be so modified and agrees to execute whatever
documents are required therefor and deliver the same to Landlord within ten
(10) days following the request therefor. Should Landlord or any such current
or prospective mortgagee or ground lessor require execution of a short form of
Lease for recording, containing, among other customary provisions, the names of
the parties, a description of the Premises and the Lease Term, Tenant agrees to
execute such short form of Lease and to deliver the same to Landlord within ten
(10) days following the request therefor.
23.5 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
has the right to transfer all or any portion of its interest in the Real
Property and Building and in this Lease, and Tenant agrees that in the event of
any such transfer, Landlord shall automatically be released from all liability
under this Lease arising after the effective date of such transfer to the
extent such transferee assumes in writing Landlord's obligations hereunder
arising after the date of transfer, and Tenant agrees to look solely to such
transferee for the performance of Landlord's obligations hereunder arising
after the date of transfer. The liability of any transferee of Landlord shall
be limited to the interest of such transferee in the Real Property and Building
and such transferee shall be without personal liability under this Lease, and
Tenant hereby expressly waives and releases such personal liability on behalf
of itself and all persons claiming by, through or under Tenant. Tenant further
acknowledges that Landlord may assign its interest in this Lease to a mortgage
lender as additional security and agrees that such an assignment shall not
release Landlord from its obligations hereunder and that Tenant shall continue
to look to Landlord for the performance of its obligations hereunder.
23.6 Prohibition Against Recording. Except as provided in Section 23.4 of
this Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting through,
under or on behalf of Tenant, and the recording thereof in violation of this
provision shall make this Lease null and void at Landlord's election.
23.7 Landlord's Title; Air Rights. Landlord's title is and always shall
be paramount to the title of Tenant. Nothing herein contained shall empower
Tenant to do any act which can, shall or may encumber the title of Landlord. No
rights to any view or to light or air over any property, whether belonging to
Landlord or any other person, are granted to Tenant by this Lease.
23.8 Tenant's Signs.
23.8.1 Landlord shall provide space on the Building directory in
the ground floor lobby of the Building for a listing identifying Tenant's name
and suite number. Such signage shall use Building standard materials and
lettering. Landlord shall pay for the initial cost of such signage, and Tenant
shall pay for the cost to make any changes thereto.
23.8.2 Tenant shall be entitled, at its sole cost and expense, to
identification signage on each of the floors of the Building on which the
Premises are located. The location, quality, design, style, lighting and size of
such sign shall be consistent with the Landlord's Building standard signage
program and shall be subject to Landlord's prior written approval, in its
reasonable discretion. Upon the expiration or earlier termination of this Lease,
Tenant shall be responsible, at its sole cost and expense, for the removal of
such signage and the repair of all damage to the Building caused by such
removal. Except for such identification sign, Tenant may not install any signs
on the exterior or roof of the Building or the common areas of the Building or
the Real Property. Any signs, window coverings, or blinds (even if the same are
located behind the Landlord approved window coverings for the Building), or
other items visible from the exterior of the Premises or Building are subject to
the prior approval of Landlord, in its sole and absolute discretion.
23.9 Relationship of Parties. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
23.10 Application of Payments. Landlord shall have the right to apply
payments received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant hereunder,
in such order and amounts as Landlord, in its sold discretion, may elect.
23.11 Time of Essence. Time is of the essence of this Lease and each of
its provisions.
23.12 Partial Invalidity. If any term, provision or condition contained
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is invalid
or unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
23.13 No Warranty. In executing and delivering this Lease, Tenant has not
relied on any representation, including, but not limited to, any representation
whatsoever as to the amount of any item comprising Additional Rent or the
amount of the Additional Rent in the aggregate or that Landlord is furnishing
the same services to other tenants, at all, on the same level or on the same
basis, or any warranty or any statement of Landlord which is not set forth
herein or in one or more of the Exhibits attached hereto.
23.14 Landlord Exculpation. It is expressly understood and agreed that
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord and the Landlord
Parties hereunder (including any successor landlord) and any recourse by Tenant
against Landlord or the Landlord Parties shall be limited solely and
exclusively to an amount which is equal to the interest of Landlord in the
Building, and neither Landlord, nor any of the Landlord
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Parties shall have any personal liability therefor, and Tenant hereby expressly
waives and releases such personal liability on behalf of itself and all persons
claiming by, through or under Tenant.
23.15 Entire Agreement. It is understood and acknowledged that there are
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease and
any side letter or separate agreement executed by Landlord and Tenant in
connection with this Lease and dated of even date herewith contain all of the
terms, covenants, conditions, warranties and agreements of the parties relating
in any manner to the rental, use and occupancy of the Premises, shall be
considered to be the only agreement between the parties hereto and their
representatives and agents, and none of the terms, covenants, conditions or
provisions of this Lease can be modified, deleted or added to except in writing
signed by the parties hereto. All negotiations and oral agreements acceptable
to both parties have been merged into and are included herein. There are no
other representations or warranties between the parties, and all reliance with
respect to representations is based totally upon the representations and
agreements contained in this Lease.
23.16 Right to Lease. Landlord reserves the absolute right to effect such
other tenancies in the Building as Landlord in the exercise of its sole
business judgment shall determine to best promote the interests of the
Building. Tenant does not rely on the fact, nor does Landlord represent, that
any specific tenant or type or number of tenants shall, during the Lease Term,
occupy any space in the Building.
23.17 Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, the "Force Majeure"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
23.18 Waiver of Redemption by Tenant. Tenant hereby waives for Tenant and
for all those claiming under Tenant all right now or hereafter existing to
redeem by order or judgment of any court or by any legal process or writ,
Tenant's right of occupancy of the Premises after any termination of this Lease.
23.19 Notices. All notices, demands, statements of communications
(collectively, "NOTICES") given or required to be given by either party to the
other hereunder shall be in writing, shall be sent by (a) United States
certified or registered mail, postage prepaid, return receipt requested
("MAIL"), (b) overnight mail or courier service ("OVERNIGHT COURIER"), or (c)
delivered personally (i) to Tenant at the appropriate address set forth in
Section 5 of the Summary, or to such other place as Tenant may from time to
time designate in a Notice to Landlord; or (ii) to Landlord at the addresses of
Landlord's agent set forth in Section 3 of the Summary, or to such other firm
or to such other place as Landlord may from time to time designate in a Notice
to Tenant. Any Notice will be deemed given (A) two (2) business days after the
date it is deposited in the Mail as provided in this Section 23.19, (B) one (1)
business day after it is deposited with an Overnight Courier, or (C) upon the
date personal delivery is made. If Tenant is notified of the identity and
address of Landlord's mortgagee or ground or underlying lessor, Tenant shall
give to such mortgagee or ground or underlying lessor written notice of any
default by Landlord under the terms of this Lease by registered or certified
mail, and such mortgagee or ground or underlying lessor shall be given a
reasonable opportunity to cure such default prior to Tenant's exercising any
remedy available to Tenant.
23.20 Joint and Several. If there is more than one Tenant, the
obligations imposed upon Tenant under this Lease shall be joint and several.
23.21 Authority. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in the state in which the Building is located and that Tenant has full
right and authority to execute and deliver this Lease and that each person
signing on behalf of Tenant is authorized to do so.
23.22 Jury Trial; Attorney's Fees. IF EITHER PARTY COMMENCES LITIGATION
AGAINST THE OTHER FOR THE SPECIFIC PERFORMANCE OF THIS LEASE, FOR DAMAGES FOR
THE BREACH HEREOF OR OTHERWISE FOR ENFORCEMENT OF ANY REMEDY HEREUNDER, THE
PARTIES HERETO AGREE TO AND HEREBY DO WAIVE ANY RIGHT TO A TRIAL BY JURY. In
the event of any such commencement of litigation, the prevailing party shall be
entitled to recover from the other party such costs and reasonable attorneys'
fees as may have been incurred, including any and all costs incurred in
enforcing, perfecting and executing such judgment.
23.23 Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the state in which the Building is located.
23.24 Submission of Lease. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
23.25 Brokers. Landlord and Tenant hereby warrant to each other that they
have had no dealings with any real estate broker or agent in connection with
the negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 11 of the Summary (the "BROKERS"), and that they know of
no other real estate broker or agent who is entitled to a commission in
connection with this Lease. Each party agrees to indemnify and defend the other
party against and hold the other party harmless from any and all claims,
demands, losses, liabilities, lawsuits, judgments, and costs and expenses
(including without limitation reasonable attorneys' fees) with respect to any
leasing commission or equivalent compensation alleged to be
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owing on account of the indemnifying party's dealings with any real estate
broker or agent other than the Brokers. Landlord shall pay Brokers the
commission due in connection with this lease transaction pursuant to a separate
agreement.
23.26 Independent Covenants. This Lease shall be construed as though
the covenants herein between Landlord and Tenant are independent and not
dependent and Tenant hereby expressly waives the benefit of any statue to the
contrary and agrees that if Landlord fails to perform its obligations set forth
herein, Tenant shall not be entitled to make any repairs or perform any acts
hereunder at Landlord's expense or to any setoff of the Rent or other amounts
owing hereunder against Landlord, provided, however, that the foregoing shall in
no way impair the right of Tenant to commence a separate action against
Landlord for any violation by Landlord of the provisions hereof so long as
notice is first given to Landlord and any holder of a mortgage or deed of trust
covering the Building, Real Property or any portion thereof, of whose address
Tenant has theretofore been notified, and an opportunity is granted to Landlord
and such holder to correct such violations as provided above.
23.27 Building Name and Signage. Landlord shall have the right at
any time to change the name of the Building and to install, affix and maintain
any and all signs on the exterior and on the interior of the Building as
Landlord may, in Landlord's sole discretion, desire. Tenant shall not use the
name of the Building or use pictures or illustrations of the Building in
advertising or other publicity, without the prior written consent of Landlord.
23.28 Building Directory. Tenant shall be entitled to one (1) line on
the Building directory to display Tenant's name and location in the Building.
23.29 [INTENTIONALLY DELETED]
23.30 Landlord Renovations. It is specifically understood and agreed
that Landlord has no obligation and has made no promises to alter, remodel,
improve, renovate, repair or decorate the Premises, Building, Real Property, or
any part thereof and that no representations or warranties respecting the
condition of the Premises, the Building or the Real Property have been made by
Landlord to Tenant, except as specifically set forth in this Lease. However,
Tenant acknowledges that Landlord may from time to time, at Landlord's sole
option, renovate, improve, alter, or modify (collectively, the "RENOVATIONS")
the Building, Premises, and/or Real Property, common areas, systems and
equipment, roof, and structural portions of the same, which Renovations may
include, without limitation, (i) modifying the common areas and tenant spaces to
comply with applicable laws and regulations, including regulations relating to
the physically disabled, seismic conditions, and building safety and security,
and (ii) installing new carpeting, lighting, and wall coverings in the Building
common areas, and in connection with such Renovations, Landlord may, among other
things, erect scaffolding or other necessary structures in the Building, limit
or eliminate access to portions of the Real Property, including portions of the
common areas, or perform work in the Building, which work may create noise,
dust or leave debris in the Building. Tenant hereby agrees that such Renovations
and Landlord's actions in connection with such Renovations shall in no way
constitute a constructive eviction of Tenant nor entitle Tenant to any abatement
of Rent. Landlord shall have no responsibility or for any reason be liable to
Tenant for any direct or indirect injury to or interference with Tenant's
business arising from the Renovations, nor shall Tenant be entitled to any
compensation or damages from Landlord for loss of the use of the whole or any
part of the Premises or of Tenant's personal property or improvements resulting
from the Renovations or Landlord's actions in connection with such Renovations,
or for any inconvenience or annoyance occasioned by such Renovations or
Landlord's actions in connection with such Renovations.
23.31 [INTENTIONALLY DELETED]
23.32 Asbestos Disclosure. Landlord has advised Tenant that there is
asbestos-containing material ("ACM") in the Building. Attached hereto as Exhibit
F is a disclosure statement regarding ACM in the Building. Tenant acknowledges
that such notice complies with the requirements of Section 25915 of the
California Health and Safety Code.
23.33 Landlord's Default. Landlord shall not be in default under this
Lease unless Landlord fails to perform the obligations required of Landlord
hereunder within the time period set forth in this Lease, or if no time period
provided, then within thirty (30) days after written notice by Tenant to
Landlord in writing specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such thirty
(30) day period and thereafter diligently prosecutes the same to completion.
Tenant shall have no rights as a result of any default by Landlord until Tenant
gives thirty (30) days' written notice to any person who has a recorded interest
pertaining to the Building, specifying the nature of the default. Such person
shall then have the right to cure such default, and Landlord shall not be deemed
in default if such person cures such default within thirty (30) days after
receipt of written notice of the default, or within such longer period of time
as may reasonably be necessary to cure the default. If Landlord or such person
does not cure the default, Tenant may exercise such rights or remedies as shall
be provided or permitted by law to recover any damages proximately caused by
such default; provided, however, Tenant agrees that in no event shall Tenant be
allowed to recover from Landlord consequential damages as a result of any
Landlord default.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and the date first above written.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Legacy Partners Commercial, Inc., a Texas
corporation, as manager and agent for Landlord
By: /s/ [Signature Illegible]
-------------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
"Tenant":
MYPOINTS.COM, INC., a Delaware corporation
By: /s/ CHAZ BERMAN EVP
-----------------------------------------------
Name: Chaz Berman
-----------------------------------------
Its: Executive Vice President
-----------------------------------------
By: /s/ THOMAS P. CALDWELL
-----------------------------------------------
Name: Thomas P. Caldwell
-----------------------------------------
Its: SVP/CFO
-----------------------------------------
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<PAGE> 26
EXHIBIT A
OUTLINE OF FLOOR PLAN OF PREMISES
EXHIBIT A
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<PAGE> 27
EXHIBIT B
TENANT WORK LETTER
This Tenant Work Letter ("WORK LETTER") shall set forth the terms and
conditions relating to the construction of the Premises. All references in this
Work Letter to "the Lease" shall mean the relevant portions of the Lease to
which this Work Letter is attached as Exhibit B. It is the intent of the
parties that the Premises may be designed and constructed in separate phases
for each of the Twelve Floor Space and the Eleventh Floor Space, but for
convenience purposes, all references to the "Premises" in this Tenant Work
Letter shall mean all such spaces, in the aggregate, unless otherwise expressly
provided.
SECTION 1
GENERAL CONSTRUCTION OF THE LEASED PREMISES
Landlord shall deliver, and Tenant shall accept, the base, shell, and core
(i) of the Premises and (ii) of the floors of the Building on which the
Premises is located (collectively, the "BASE, SHELL, AND CORE") in its current
as-is condition existing as of the date of the Lease. In addition, Landlord
shall construct the items described below in this Section 1 (such items shall
collectively be referred to as "LANDLORD'S WORK"). Except for Landlord's Work
and the Tenant Improvement Allowance described in this Work Letter, Landlord
shall not be obligated to make or pay for any alterations or improvements to
the Premises or the Building.
1.1 New HVAC interior loop added on an unoccupied basis without
distribution. Tenant shall be responsible for distribution. Landlord shall
cause such work to be substantially completed in the Twelfth Floor Space on or
before January 3, 2000, and Landlord shall cause such work to be substantially
completed in the Eleventh Floor Space on or before September 15, 2000.
1.2 Restrooms in the Premises shall be remodeled with Building standard
finishes and shall comply with Code (as such term is defined in Section 2.2.5
below).
1.3 Building standard ceiling installed in elevator lobbies of the
Eleventh Floor Space and the Twelfth Floor Space.
1.4 A new sprinkler loop will be installed if not currently in place;
Tenant shall be responsible for head distribution. Landlord shall cause such
work to be substantially completed in the Twelfth Floor Space on or before
January 15, 2000, and Landlord shall cause such work to be substantially
completed in the Eleventh Floor Space on or before October 1, 2000.
1.5 Asbestos containing materials ("ACM") abated in areas of Premises
accessible by Tenant. Landlord shall cause such work to be substantially
completed in the Twelfth Floor Space on or before January 3, 2000, and Landlord
shall cause such work to be substantially completed in the Eleventh Floor Space
on or before September 15, 2000. Landlord shall abate the ACM in the Twelfth
Floor Space and the Eleventh Floor Space substantially in the same manner
Landlord is abating the ACM in the fourth (4th) floor of the Building as of the
date of this Lease.
1.6 New finishes in elevator cabs. Landlord shall cause such work to be
substantially completed on or before January 3, 2000.
1.7 Except as otherwise expressly set forth in this Section 1, the
Premises shall be in "shell" condition.
Except as otherwise expressly provided above, Landlord shall not be
obligated to complete Landlord's Work until, with respect to the Twelfth Floor
Space, the Lease Commencement Date, and with respect to the Eleventh Floor
Space, the Eleventh Floor Start Date; provided, however, that Landlord and
Tenant shall each use commercially reasonable efforts during Tenant's
construction of the Tenant Improvements and Landlord's completion of Landlord's
Work to (i) minimize interference by such party's work with the other party's
work under this Tenant Work Letter, and (ii) coordinate and follow the schedule
for the construction of Landlord's Work and the construction of the Tenant
Improvements so as to minimize delays in such work. Such efforts shall include,
without limitation, incorporating provisions in contracts with contractors and
subcontractors which require the parties' contractors and subcontractors to
cooperate with the other party's contractors and subcontractors and require the
parties' contractors and subcontractors to comply with Landlord's construction
coordination procedure manual, but shall not require either party to incur
material extra expense or delay.
SECTION 2
TENANT IMPROVEMENTS
2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time
tenant improvement allowance (the "TENANT IMPROVEMENT ALLOWANCE") in the amount
of up to, but not exceeding $35.00 per rentable square foot of the Premises, in
the aggregate for the entire Premises, for the costs relating to the initial
design and construction of Tenant's improvements which will be permanently
affixed to the Premises (the "TENANT IMPROVEMENTS"). Except as otherwise
expressly set forth in Section 1 above, in no event shall Landlord be obligated
to make disbursements pursuant to this Work Letter in a total amount which
exceeds the Tenant Improvement Allowance. Tenant shall be entitled to no credit
for any unused portion of the Tenant Improvement Allowance.
EXHIBIT B
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<PAGE> 28
2.2 Disbursement of the Tenant Improvement Allowance.
2.2.1 Tenant Improvement Allowance Items. Except as otherwise
set forth in this Work Letter, the Tenant Improvement Allowance shall be
disbursed by Landlord only for the following items and costs (collectively the
"Tenant Improvement Allowance Items"):
2.2.1.1 Payment of the fees of the "Architect" and the
"Engineers," as those terms are defined in Section 3.1 of this Work Letter (but
only that amount which is equal to $2.50 per rentable square foot of the
Premises may be deducted form the Tenant Improvement Allowance), and payment of
the fees incurred by, Landlord in connection with Landlord's architect's review
of the "Construction Drawings," as that term is defined in Section 3.1 of this
Work Letter;
2.2.1.2 The payment of plan check, permit and license
fees relating to construction of the Tenant Improvements;
2.2.1.3 The actual cost of construction of the Tenant
Improvements, including, without limitation, testing and inspection costs,
freight elevator usage, hoisting and trash removal costs, and contractors' fees
and general conditions;
2.2.1.4 The cost of any changes in Landlord's Work when
such changes are required by the Construction Drawings (including if such
changes are due to the fact that such work is prepared on an unoccupied basis),
such cost to include all direct architectural and/or engineering fees and
expenses incurred in connection therewith;
2.2.1.5 The cost of any changes to the Construction
Drawings or Tenant Improvements required by applicable laws and building codes
(collectively, "Code");
2.2.1.6 Sales and use taxes;
2.2.1.7 The "Coordination Fee," as that term is defined
in Section 4.2.2.2 of this Work Letter; and
2.2.1.8 All other actual costs to be expended by
Landlord in connection with the construction of the Tenant Improvements.
2.2.2 Disbursement of Tenant Improvement Allowance. During the
construction of the Tenant Improvements, Landlord shall make monthly
disbursements of the Tenant Improvement Allowance for Tenant Improvement
Allowance Items for the benefit of Tenant and shall authorize the release of
monies for the benefit of Tenant as follows.
2.2.2.1 Monthly Disbursements. On or before the first
(1st) day of each calendar month during the construction of the Tenant
Improvements (or such other date as Landlord may designate), Tenant shall
deliver to Landlord: (i) a request for payment of the "Contractor," as that term
is defined in Section 4.1 of this Work Letter, approved by Tenant, in a form to
be provided by Landlord, showing the schedule, by trade, of percentage of
completion of the Tenant Improvements in the Premises, detailing the portion of
the work completed and the portion not completed, and demonstrating that the
relationship between the cost of the work completed and the cost of the work to
be completed complies with the terms of the "Construction Budget," as that term
is defined in Section 4.2.1 of this Work Letter; (ii) invoices from all of
"Tenant's Agents," as that term is defined in Section 4.1.2 below, for labor
rendered and materials delivered to the Premises; (iii) executed mechanic's lien
releases from all of Tenant's Agents which shall comply with the appropriate
provisions, as reasonably determined by Landlord, of applicable California law;
and (iv) all other information reasonably requested by Landlord. Tenant's
request for payment shall be deemed Tenant's acceptance and approval of the work
furnished and/or the materials supplied as set forth in Tenant's payment
request. On or before the first (1st) day of the following calendar month,
Landlord shall deliver a check to Tenant made jointly payable to Contractor and
Tenant in payment of the lesser of: (A) the amounts so requested by Tenant, as
set forth in this Section 2.2.2.1, above, less a ten percent (10%) retention
(the aggregate amount of such retentions to be known as the "Final Retention"),
and (B) the balance of any remaining available portion of the Tenant Improvement
Allowance (not including the Final Retention), provided that Landlord does not
dispute any request for payment based on non-compliance of any work with the
"Approved Working Drawings", as that term is defined in Section 3.4 below, or
due to any substandard work, or for any other reason. Landlord's payment of such
amounts shall not be deemed Landlord's approval or acceptance of the work
furnished or materials supplied as set forth in Tenant's payment request.
2.2.2.2 Final Retention. Subject to the provisions of
this Work Letter, a check for the Final Retention payable jointly to Tenant and
Contractor shall be delivered by Landlord to Tenant following the completion of
construction of the Premises, provided that (i) Tenant delivers to Landlord
properly executed mechanics lien releases in compliance with applicable
California law and (ii) Landlord has determined that no substandard work exists
which adversely affects the mechanical, electrical, plumbing, heating,
ventilating and air conditioning, life-safety or other systems of the Building,
the curtain wall of the Building, the structure or exterior appearance of the
Building, or any other tenant's use of such other tenant's leased premises in
the Building.
2.2.2.3 Other Terms. Landlord shall only be obligated to
make disbursements from the Tenant Improvement Allowance to the extent costs are
incurred by Tenant for Tenant Improvement Allowance Items.
2.3 Standard Tenant Improvement Package. Landlord has established
specifications (the "Specifications") for the Building standard components to be
used in the construction of the Tenant Improvements in the Premises, a copy of
which Specifications are attached to this Exhibit B as Schedule 1. Unless
otherwise agreed to by Landlord in writing, the Tenant Improvements shall comply
with the Specifications. Landlord may make changes to the Specifications from
time to time.
EXHIBIT B
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<PAGE> 29
SECTION 3
CONSTRUCTION DRAWINGS
3.1 Selection of Architect/Construction Drawings. Tenant shall
retain Patri Merker Architects (the "ARCHITECT") to prepare the "Construction
Drawings," as that term is defined in this Section 3.1. Tenant shall retain the
engineering consultants designated by Landlord (the "ENGINEERS") to prepare all
plans and engineering working drawings relating to the structural, mechanical,
electrical, plumbing, HVAC, lifesafety, and sprinkler work in the Premises,
which work is not part of Landlord's Work; provided, however, that Tenant shall
retain Glumae to prepare all plans and engineering working drawings relating to
the mechanical, electrical and plumbing work in the Premises (which work is not
part of Landlord's Work) and Tenant shall retain URS Greiner to prepare all
plans and engineering working drawings relating to the structural work in the
Premises (which work is not part of Landlord's work). The plans and drawings to
be prepared by Architect and the Engineers hereunder shall be known collectively
as the "CONSTRUCTION DRAWINGS." All Construction Drawings shall comply with the
drawing format and specifications reasonably determined by Landlord, and shall
be subject to Landlord's approval. Tenant and Architect shall verify, in the
field, the dimensions and conditions as shown on the relevant portions of the
base building plans, and Tenant and Architect shall be solely responsible for
the same, and Landlord shall have no responsibility in connection therewith.
Landlord's review of the Construction Drawings as set forth in this Section 3,
shall be for its sole purpose and shall not imply Landlord's review of the same,
or obligate Landlord to review the same, for quality, design, Code compliance or
other like matters. Accordingly, notwithstanding that any Construction Drawings
are reviewed by Landlord or its space planner, architect, engineers, and
consultants, and notwithstanding any advice or assistance which may be rendered
to Tenant by Landlord or Landlord's space planner, architect, engineers, and
consultants, Landlord shall have no liability whatsoever in connection therewith
and shall not be responsible for any omissions or errors contained in the
Construction Drawings, and Tenant's waiver and indemnity set forth in Article 10
of the Lease shall specifically apply to the Construction Drawings.
3.2 Final Space Plan. Tenant shall supply Landlord with four
(4) copies signed by Tenant of its final space plan for the Premises before any
architectural working drawings or engineering drawings have been commenced. The
final space plan (the "Final Space Plan") shall include a layout and
designation of all offices, rooms and other partitioning, their intended use,
and equipment to be contained therein. Landlord may request clarification or
more specific drawings for special use items not included in the Final Space
Plan. Landlord shall advise Tenant within five (5) business days after
Landlord's receipt of the Final Space Plan for the Premises if the same is
unsatisfactory or incomplete in any respect. If Tenant is so advised, Tenant
shall promptly cause the Final Space Plan to be revised to correct any
deficiencies or other matters Landlord may reasonably require.
3.3 Final Working Drawings. After the Final Space Plan has been
approved by Landlord, Tenant shall supply the Engineers with a complete listing
of standard and non-standard equipment and specifications, including, without
limitation, ??? calculations, electrical requirements and special electrical
receptacle requirements for the Premises, to enable the Engineers and the
Architect to complete the "Final Working Drawings" (as that term is defined
below) in the manner as set forth below. Upon the approval of the Final Space
Plan by Landlord and Tenant, Tenant shall promptly cause the Architect and the
Engineers to complete the architectural, structural, mechanical, electrical and
plumbing working drawings in a form which is complete to allow subcontractors
to bid on the work and to obtain all applicable permits (collectively, the
"FINAL WORKING DRAWINGS") and shall submit the same to Landlord for Landlord's
approval. Tenant shall supply Landlord with four (4) copies signed by Tenant of
such Final Working Drawings. Landlord shall advise Tenant within five (5)
business days after Landlord's receipt of the Final Working Drawings for the
Premises if the same is unsatisfactory or incomplete in any respect. If Tenant
is so advised, Tenant shall immediately revise the Final Working Drawings in
accordance with such review and any disapproval of Landlord in connection
therewith. In addition, Landlord shall advise Tenant as soon as reasonably
possible after (but in no event later than five (5) business days after)
Landlord's receipt of the Final Working Drawings for the Premises if Landlord
will require Tenant to remove any of the Tenant Improvements set forth in the
Final Working Drawings upon the expiration or earlier termination of the Lease
Term.
3.4 Approved Working Drawings. The Final Working Drawings shall
be approved by Landlord (the "APPROVED WORKING DRAWINGS") prior to the
commencement of construction of the Premises by Tenant. After approval by
Landlord of the Final Working Drawings, Tenant may submit the same to the
appropriate governmental authorities for all applicable building permits.
Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be
responsible for obtaining any building permit or certificate of occupancy for
the Premises and that obtaining the same shall be Tenant's responsibility;
provided, however, that Landlord shall cooperate with Tenant in executing
permit applications and performing other ministerial acts reasonably necessary
to enable Tenant to obtain any such permit or certificate of occupancy. No
changes, modifications or alterations in the Approved Working Drawings may be
made without the prior written consent of Landlord, which consent may not be
unreasonably withheld.
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 Tenant's Selection of Contractor,
4.1.1 Tenant's Agents. The general contractor (the
"CONTRACTOR"), all subcontractors, laborers, materialmen, and suppliers used by
Tenant (such subcontractors, laborers, materialmen, and suppliers, and the
Contractor to be known collectively as "TENANT AGENTS") must be approved in
writing by Landlord, which approval shall not be unreasonably withheld or
delayed; provided that, in any event, the Contractor shall competitively bid the
subcontractor work to various subcontractors approved by Landlord, subject to
Landlord's right to require the Contractor to use the Engineers (as such term
is defined in Section 3.1 above) for the structural, mechanical, electrical,
plumbing, HVAC, lifesafety and sprinkler work in the Premises without
competitive bidding. If requested by Landlord, Tenant's Agents shall all be
union labor in compliance with the master labor agreements existing between
trade unions and the local chapter of the Associated General Contractors of
America.
EXHIBIT B
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<PAGE> 30
4.2 Construction of Tenant Improvements by Tenant's Agents.
4.2.1 Construction Contract; Cost Budget. Prior to Tenant's
execution of the construction contract and general conditions with the
Contractor (the "CONTRACT"), Tenant shall submit the Contract to Landlord for
its approval, which approval shall not be unreasonably withheld or delayed.
Prior to the commencement of the construction of the Tenant Improvements, and
after Tenant has accepted all bids for the Tenant Improvements, Tenant shall
provide Landlord with a detailed breakdown, by trade, of the final costs to be
incurred or which have been incurred in connection with the design and
construction of the Tenant Improvements to be performed by or at the direction
of Tenant or the Contractor (which costs form a basis for the amount of the
Contract, if any (the "FINAL COSTS"). Within five (5) business days of the
receipt of the Final Costs by Landlord, Landlord shall deliver to Tenant a
construction budget (the "CONSTRUCTION BUDGET"), the amount of which
Construction Budget shall be equal to (i) the Final Costs plus (ii) the other
costs of design and construction of the Premises as determined by Landlord (to
the extent not already included in the Final Costs), which costs shall include,
but not be limited to, the cost of any Standard Improvement Package items to be
used by Tenant, the costs of the Architect and Engineers fees, and the
Coordination Fee. Prior to the commencement of construction of the Tenant
Improvements, Tenant shall supply Landlord with cash in an amount (the
"OVER-ALLOWANCE AMOUNT") equal to the difference between the amount of the
Construction Budget and the amount of the Tenant Improvement Allowance (less any
portion thereof already disbursed by Landlord, or in the process of being
disbursed by Landlord, on or before the commencement of construction of the
Tenant Improvements). The Over-Allowance Amount shall be disbursed by Landlord
prior to the disbursement of any of the then remaining portion of the Tenant
Improvement Allowance, and such disbursement shall be pursuant to the same
procedure as the Tenant Improvement Allowance. In the event that, after the
Construction Budget has been delivered by Landlord to Tenant, the costs
relating to the design and construction of the Tenant Improvements shall change,
any additional costs necessary to such design and construction in excess of the
Construction Budget, shall be paid by Tenant to Landlord immediately as an
addition to the Over-Allowance Amount and, in any event, prior to the
commencement of the construction of such changes, or, at Landlord's option,
Tenant shall make payments for such additional costs out of its own funds, but
Tenant shall continue to provide Landlord with the documents described in
Section 2.2.2.1 (i), (ii), (iii) and (iv) of this Work Letter, above, for
Landlord's approval, prior to Tenant paying such costs.
4.2.2 Tenant's Agents.
4.2.2.1 Landlord's General Conditions for Tenant's Agents
and Tenant Improvement Work. Tenant's and Tenant's Agent's construction of the
Tenant Improvements shall comply with the following: (i) the Tenant
Improvements shall be constructed in strict accordance with the Approved
Working Drawings; (ii) Tenant and Tenant's Agents shall not, in any way,
interfere with, obstruct, or delay, the work of Landlord's base building
contractor and subcontractors with respect to the Base, Shell and Core or any
other work in the Building; (iii) Tenant's Agents shall submit schedules of all
work relating to the Tenant's Improvements to Contractor and Contractor shall,
within five (5) business days of receipt thereof, inform Tenant's Agents of any
changes which are necessary thereto, and Tenant's Agents shall adhere to such
corrected schedule; and (iv) Tenant shall abide by all rules made by Landlord's
Building contractor or Landlord's Building manager with respect to the use of
freight, loading dock and service elevators, storage of materials, coordination
of work with the contractors of other tenants, and any other matter in
connection with this Work Letter, including, without limitation, the
construction of the Tenant Improvements.
4.2.2.2 Coordination Fee. Tenant shall pay a logistical
coordination fee (the "COORDINATION FEE") to Landlord in an amount equal to
$1.00 per rentable square foot of the Premises, and any other amounts expended
by Landlord in connection with the design and construction of the Tenant
Improvements, which Coordination Fee shall be for services relating to the
coordination of the construction of the Tenant Improvements.
4.2.2.3 Indemnity. Tenant's indemnity of Landlord as set
forth in Article 10 of the Lease shall also apply with respect to any and all
costs, losses, damages, injuries and liabilities related in any way to any act
or omission of Tenant or Tenant's Agents, or anyone directly or indirectly
employed by any of them, or in connection with Tenant's non-payment of any
amount arising out of the Tenant Improvements and/or Tenant's disapproval of
all or any portion of any request for payment. Such indemnity by Tenant, as set
forth in Article 10 of the Lease, shall also apply with respect to any and all
costs, losses, damages, injuries and liabilities related in any way to
Landlord's performance of any ministerial acts reasonably necessary (i) to
permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to
obtain any building permit or certificate of occupancy for the Premises.
4.2.2.4 Insurance Requirements.
4.2.2.4.1 General Coverages. All of Tenant's
Agents shall carry worker's compensation insurance covering all of their
respective employees, and shall also carry public liability insurance,
including property damage, all with limits, in form with requirements for
Tenant as set forth in Article 10 of the Lease.
4.2.2.4.2 Special Coverages. Tenant shall carry
"Builder's All Risk" insurance in an amount approved by Landlord covering the
construction of the Tenant Improvements, and such other insurance as Landlord
may require, it being understood and agreed that the Tenant Improvements shall
be insured by Tenant pursuant to Article 10 of the Lease immediately upon
completion thereof. Such insurance shall be in amounts and shall include such
extended coverage endorsements as may be reasonably required by Landlord, and
in form with requirements for Tenant as set forth in Article 10 of the Lease.
4.2.2.4.3 General Terms. Certificates for all
insurance carried pursuant to this Section 4.2.2.4 shall be delivered to
Landlord before the commencement of construction of the Tenant Improvements and
before the Contractor's equipment is moved onto the site. All such policies of
insurance must contain a provision that the company writing said policy will
give Landlord thirty (30) days prior written notice of any cancellation or
lapse of the effective date or any reduction in the amounts of such insurance.
In the event that the Tenant Improvements are damaged by any cause during the
course of the construction thereof, Tenant shall immediately repair the same at
Tenant's sole cost and expense. All policies carried under this Section 4.2.2.4
shall insure Landlord and Tenant, as their interests may appear, as well as
Contractor and Tenant's Agents, and shall name as additional insureds
Landlord's property manager,
EXHIBIT B
-4-
<PAGE> 31
and all mortgagees and ground lessors of the Building. All insurance,
except Workers' Compensation, maintained by Tenant's Agents shall preclude
subrogation claims by the insurer against anyone insured thereunder. Such
insurance shall provide that it is primary insurance as respects the owner
and that any other insurance maintained by owner is excess and
noncontributing with the insurance required hereunder. The requirements
for the foregoing insurance shall not derogate from the provisions for
indemnification of Landlord by Tenant under Section 4.2.2.3 of this Work
Letter.
4.2.3 Governmental Compliance. The Tenant Improvements shall
comply in all respects with the following: (i) the Code and other state,
federal, city or quasi-governmental laws, codes, ordinances and regulations, as
each may apply according to the rulings of the controlling public official,
agent or other person; (ii) applicable standards of the American Insurance
Association (formerly, the National Board of Fire Underwriters) and the
National Electrical Code; and (iii) building material manufacturer's
specifications.
4.2.4 Inspection by Landlord. Landlord shall have the right to
inspect the Tenant Improvements at all times, provided however, that Landlord's
failure to inspect the Tenant Improvements shall in no event constitute a waiver
of any of Landlord's rights hereunder nor shall Landlord's inspection of the
Tenant Improvements constitute Landlord's approval of the same. Should Landlord
disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant
in writing of such disapproval and shall specify the items disapproved. Any
defects or deviations in, and/or disapproval by Landlord of, the Tenant
Improvements shall be rectified by Tenant at no expense to Landlord, provided
however, that in the event Landlord determines that a defect or deviation exists
or disapproves of any matter in connection with any portion of the Tenant
Improvements and such defect, deviation or matter might adversely affect the
mechanical, electrical, plumbing, heating, ventilating and air conditioning or
life-safety systems of the Building, the structure or exterior appearance of the
Building or any other tenant's use of such other tenant's leased premises,
Landlord may, take such action as Landlord deems necessary, at Tenant's expense
and without incurring any liability on Landlord's part, to correct any such
defect, deviation and/or matter, including, without limitation, causing the
cessation of performance of the construction of the Tenant Improvements until
such time as the defect, deviation and/or matter is corrected to Landlord's
satisfaction. Notwithstanding anything herein to the contrary, Landlord shall
inspect the Tenant Improvements at least once a week during the construction of
the Tenant Improvements.
4.2.5 Meetings. Commencing upon the execution of the Lease,
Tenant shall hold weekly meetings at a reasonable time, with the Architect and
the Contractor regarding the progress of the preparation of Construction
Drawings and the construction of the Tenant Improvements, which meetings shall
be held at a location designated by Landlord, and Landlord and/or agents shall
receive prior notice of, and shall have the right to attend, all such meetings,
and, upon Landlord's request, certain of Tenant's Agents shall attend such
meetings. In addition, minutes shall be taken at all such meetings, a copy of
which minutes shall be promptly delivered to Landlord. One such meeting each
month shall include the review of Contractor's current request for payment.
4.3 Notice of Completion; Copy of "As Built" Plans. Within twenty
(20) days after completion of construction of the Tenant Improvements, Tenant
shall cause a Notice of Completion to be recorded in the office of the Recorder
of the County in which the Building is located and shall furnish a copy thereof
to Landlord upon such recordation. If Tenant fails to do so, Landlord may
execute and file the same on behalf of Tenant as Tenant's agent for such
purpose, at Tenant's sole cost and expense. At the conclusion of construction,
(i) Tenant shall cause the Architect and Contractor (A) to update the Approved
Working Drawings as necessary to reflect all changes made to the Approved
Working Drawings during the course of construction, (B) to certify to the best
of their knowledge that the "record-set" of as-built drawings are true and
correct, which certification shall survive the expiration or termination of the
Lease, and (C) to deliver to Landlord two (2) sets of sepias of such as-built
drawings within ninety (90) days following issuance of a certificate of
occupancy for the Premises, and (ii) Tenant shall deliver to Landlord a copy of
all warranties, guaranties, and operating manuals and information relating to
the improvements, equipment, and systems in the Premises.
4.4 Coordination by Tenant's Agents with Landlord. Upon Tenant's
delivery of the Contract to Landlord under Section 4.2.1 of this Work Letter,
Tenant shall furnish Landlord with a schedule setting forth the projected date
of the completion of the Tenant Improvements and showing the critical time
deadlines for each phase, item or trade relating to the construction of the
Tenant Improvements.
SECTION 5
MISCELLANEOUS
5.1 Tenant's Representative. Tenant has designated ______________
[TENANT TO PROVIDE] as its sole representative with respect to the matters set
forth in this Work Letter, who shall have full authority and responsibility to
act on behalf of the Tenant as required in this Work Letter.
5.2 Landlord's Representative. Landlord has designated Jeff
Lambret as its sole representative with respect to the matters set forth in
this Work Letter, who, until further notice to Tenant, shall have full
authority and responsibility to act on behalf of the Landlord as required in
this Work Letter.
5.3 Time of the Essence in This Work Letter. Unless otherwise
indicated, all references herein to a "number of days" shall mean and refer to
calendar days. If any item requiring approval is timely disapproved by
Landlord, the procedure for preparation of the document and approval thereof
shall be repeated until the document is approved by Landlord.
5.4 Tenant's Lease Default. Notwithstanding any provision to the
contrary contained in the Lease, if an event of default by Tenant of this Work
Letter or Section 19.1 of the Lease has occurred at any time on or before the
Substantial Completion of the Premises, then (i) in addition to all other
rights and remedies granted to Landlord pursuant to the Lease, Landlord shall
have the right to withhold payment of all or any portion of the Tenant
Improvement Allowance and/or Landlord may cause Contractor to cease the
construction of the Premises (in which case, Tenant shall be responsible for
any delay in the Substantial Completion of the Premises caused by such work
stoppage), and (ii) all other obligations of Landlord under the terms
EXHIBIT B
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<PAGE> 32
of this Work Letter shall be forgiven until such time as such default is cured
pursuant to the terms of the Lease (in which case, Tenant shall be responsible
for any delay in the Substantial Completion of the Premises caused by such
inaction by Landlord).
EXHIBIT B
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<PAGE> 33
SCHEDULE 1 TO EXHIBIT B
BUILDING STANDARDS FOR 100 CALIFORNIA STREET
18 June 1998 Revised
20 May 1998
Building Standards
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<CAPTION>
<S> <C>
DRYWALL PARTITIONS
Non-Demising Partition Building standard interior partition to consist of 25-gauge, 2 1/2" metal studs, 24" on center
with one layer 5/8" gypsum board each side. All partitions to be hung, ceiling secured to meet
current code, taped and prepared for standard paint finish.
Demising Partitions Building standard full-height (slab to slab) 1 hour partition to consist of 20-gauge, 2 1/2"
metal studs, 16" on center with one layer 5/8" gypsum board each side with batt insulation. All
such partitions are to be secured to meet current code, taped and prepared for standard paint
finish.
DOOR ASSEMBLY
Door Interior door assembly to be wood veneer solid core doors, 3 feet wide by full height (9 feet).
White maple clear finish.
Frame A.C.I. or equal grade aluminum with white powder coated or clear anodized finish.
Hardware Schlage "L-9000", finish satin chrome, Lever handle latchset. Two pair butt hinges. Floor stop
and silencer. Corbin lock cylinder.
CEILING SYSTEM
Grid System Donn Fineline suspended throughout the premises. Tile located center of column along East and
West side. Grid centered along North and South side.
Tiles Armstrong Cirrus, 2' x 2' mineral fiber acoustical lay in tiles
ELECTRICAL/LIGHTING
Recessed Fluorescent Lithonia Paramax Parabolic Troffer fixture to be 2 x 4 with silver specular reflector lenses.
2PM3N 2'x4' (3) T-8, SP-35 lamps, 3" deep 18 cell parabolume lens to be installed in building
standard acoustic tile.
Recessed Fluorescent Lithonia Paramax Parabolic Troffer fixture to be 2 x 2 with silver specular reflector lenses.
#2PM3N 2'x2' (3)T-8, SP-35 lamps, 3" deep 18 cell parabolume lens to be installed in building
standard acoustic tile.
Downlights Fluorescent downlight to be "Prescolite #PBX-TO-94S, Clear specular alzak reflector, (2) F13
DTT/27K HPF, 3500K lamp high power factor ballast with double twin tube, 35 watts, 277 volts
Wall Washer Fluorescent wall washer to be "Prescolite 3PBX-TW-94S, Clear specular alzak reflector, (2) F13
DTT/27K/HPF lamp, 35 watts, 277 volts
Wall Switches Switching to be dual toggle switch to meet Title 24 Requirements, controlling building standard
fixtures.
Motion Sensors Leviton #6775-I
Wall Telecommunication Outlets Telephone/data outlet to be Junction box mounted at standard height (18" on center mounted
vertically) in drywall partition with mud ring and pull string. Lucent, M14A-246
Wall Duplex Outlet Duplex power receptacle mounted at standard height (18" on center mounted vertically) in drywall
partition with normal circuiting from core low voltage panel. Leviton, 5252-I, 15 Amp; Leviton,
5362-I, 20 amp.
Floor Duplex Outlet Floor mounted duplex power receptacle located above cellular (2-cell) floor system. Floor cells
run approximately 4'-0' on center. Running north and south. Walker, 513AL
Floor Telephone/Data Outlet Floor mounted telephone/data outlet located above cellular (2-cell) floor system. Floor cells
run approximately 4'0" on center. Running north and south. Walker, 501
</TABLE>
SCHEDULE 1 TO
EXHIBIT B
-1-
<PAGE> 34
FINISHES
<TABLE>
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<S> <C>
Paint Building standard paint to consist of two coats
of eggshell stipple acrylic latex selected from
ICI paints or equal.
Base Building standard base 4" high, "Burke"
resilient rubber.
Vinyl Tile Building standard vinyl composite tile:
"Armstrong" - Execelon, 12" x 12", 1/8" gauge
Exterior Window Treatment Building standard brushed aluminum Levellors.
</TABLE>
SCHEDULE 1 TO
EXHIBIT B
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<PAGE> 35
EXHIBIT C
AMENDMENT TO LEASE
This AMENDMENT TO LEASE ("Amendment") is made and entered into effective
as of _______________, 19 __, by and between WHLNF REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord"), and MYPOINTS.COM,
INC., a Delaware corporation ("Tenant").
R E C I T A L S :
- - - - - - - -
A. Landlord and Tenant entered into that certain Office Lease dated as
of November __, 1999 (the "Lease") pursuant to which Landlord leased to Tenant
and Tenant leased from Landlord certain "Premises", as described in the Lease,
known as Suite 1200 of the Building located at 100 California Street, San
Francisco, California 94111.
B. Except as otherwise set forth herein, all capitalized terms used
in this Amendment shall have the same meaning five such terms in the Lease.
C. Landlord and Tenant desire to amend the Lease to confirm the
commencement and expiration dates of the term, as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Confirmation of Dates. The parties hereby confirm that (a) the Lease
Term for the Lease commenced as of _____________ (the "Lease Commencement
Date"), (b) the Eleventh Floor Start Date is ____________, (c) the Lease Term is
seven (7) years ending on ______________ (unless sooner terminated or extended
as provided in the Lease) and (d) in accordance with the Lease, Rent commenced
to accrue on ____________________.
2. No Further Modification. Except as set forth in this Amendment, all
of the terms and provisions of the Lease shall remain unmodified and in full
force and effect.
IN WITNESS WHEREOF, this Amendment to Lease has been executed as of the
day and year first above written.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Legacy Partners Commercial, Inc., as manager
and agent for Landlord
By:
-----------------------------------
Name:
-----------------------------
Its:
-----------------------------
"Tenant":
MYPOINTS.COM,INC., a Delaware corporation
By:
-----------------------------------
Name:
-----------------------------
Its:
-----------------------------
By:
-----------------------------------
Name:
-----------------------------
Its:
-----------------------------
EXHIBIT C
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<PAGE> 36
EXHIBIT D
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Building.
1. Tenant shall not alter any lock or install any new or additional
locks or bolts on any doors or windows of the Premises without obtaining
Landlord's prior written consent. Tenant shall bear the cost of any lock changes
or repairs required by Tenant. Two keys will be furnished by Landlord for the
Premises, and any additional keys required by Tenant must be obtained from
Landlord at a reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at
all times except for normal ingress and egress to the Premises, unless
electrical hold backs have been installed.
3. Landlord reserves the right to close and keep locked all entrance
and exit doors of the Building during such hours as are customary for comparable
buildings in the vicinity of the Building. Tenant, its employees and agents must
be sure that the doors to the Building are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time when it is so locked, or any time when it is
considered to be after normal business hours for the Building, may be required
to sign the Building register when so doing. Access to the Building may be
refused unless the person seeking access has proper identification or has a
previously arranged pass for access to the Building. The Landlord and his agents
shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of invasion,
mob, riot, public excitement, or other commotion, Landlord reserves the right to
prevent access to the Building during the continuance of same by any means it
deems appropriate for the safety and protection of life and property.
4. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy property brought into the Building. Safes
and other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property in any case. All damage done to any part of the Building, its contents,
occupants or visitors by moving or maintaining any such safe or other property
shall be the sole responsibility of Tenant and any expense of said damage or
injury shall be borne by Tenant.
5. No furniture, freight, packages, supplies, equipment or
merchandise will be brought into or removed from the Building or carried up or
down in the elevators, except upon prior notice to Landlord, and in such manner,
in such specific elevator, and between such hours as shall be designated by
Landlord. Tenant shall provide Landlord with not less than 24 hours prior
notice of the need to utilize an elevator for any such purpose, so as to provide
Landlord with a reasonable period to schedule such use and to install such
padding or take such other actions or prescribe such procedures as are
appropriate to protect against damage to the elevators or other parts of the
Building.
6. Landlord shall have the right to control and operate the public
portions of the Building, the public facilities, the heating and air
conditioning, and any other facilities furnished for the common use of tenants,
in such manner as is customary for comparable buildings in the vicinity of the
Building.
7. The requirements of Tenant will be attended to only upon
application at the management office of the Building or at such office location
designated by Landlord. Employees of Landlord shall not perform any work or do
anything outside their regular duties unless under special instructions from
Landlord.
8. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate with Landlord or Landlord's agents to prevent same.
9. The toilet rooms, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed, and
no foreign substance of any kind whatsoever shall be thrown therein. The expense
of any breakage, stoppage of damage resulting from the violation of the rule
shall be borne by the tenant who, or whose employees or agents, shall have
caused it.
10. Tenant shall not overload the floor of the Premises, no mark,
drive nails or screws, or drill into the partitions, woodwork or plaster or in
any way deface the Premises or any part thereof without Landlord's consent first
had and obtained.
11. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines of any description other
than fractional horsepower office machines shall be installed, maintained or
operated upon the Premises without the written consent of Landlord.
12. Tenant shall not use any method of heating or air conditioning
other than that which may be supplied by Landlord, without the prior written
consent of Landlord.
13. Tenant shall not use or keep in or on the Premises or the Building
any kerosene, gasoline or other inflammable or combustible fluid or material.
Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas
or substance in or on the Premises, or permit or allow the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors, or vibrations, or interfere
in any way with other Tenants or those having business therein.
EXHIBIT D
-1-
<PAGE> 37
14. Tenant shall not bring into or keep within the Building or the
Premises any animals, birds, bicycles or other vehicles.
15. No cooking shall be done or permitted by any tenant on the Premises,
nor shall the Premises be used for the storage of merchandise, for lodging or
for any improper, objectionable or immoral purposes. Notwithstanding the
foregoing, Underwriters' laboratory-approved equipment and microwave ovens may
be used in the Premises for heating food and brewing coffee, tea, hot chocolate
and similar beverages, provided that such use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations, and does not cause odors which are objectionable to Landlord and
other Tenants.
16. Landlord will approve where and how telephone and telegraph wires
are to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
17. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of these Rules and Regulations.
18. Tenant, its employees and agents shall not loiter in the entrances
or corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or
elevators, and shall use the same only as a means of ingress and egress for the
Premises.
19. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to ensure the most effective operation
of the Building's heating and air conditioning system, and shall refrain from
attempting to adjust any controls.
20. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in the city
in which the Building is located without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be made
only through entry-ways and elevators provided for such purposes at such times
as Landlord shall designate.
21. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
22. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed, when the Premises are not
occupied.
23. No awnings or other projection shall be attached to the outside
walls of the Building without the prior written consent of Landlord. No
curtains, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises without the prior written
consent of Landlord. The sashes, sash doors, skylights, windows, and doors that
reflect or admit light and air into the halls, passageways or other public
places in the Building shall not be covered or obstructed by Tenant, nor shall
any bottles, parcels or other articles be placed on the windowsills. All
electrical ceiling fixtures hung in offices or spaces along the perimeter of the
Building must be fluorescent and/or of a quality, type, design and bulb color
approved by Landlord.
24. The washing and/or detailing of or, the installation of windshields,
radios, telephones in or general work on, automobiles shall not be allowed on
the Real Property.
25. Food vendors shall be allowed in the Building upon receipt of a
written request from the Tenant. The food vendor shall service only the tenants
that have a written request on file in the Building's management office. Under
no circumstance shall the food vendor display their products in a public or
common area including corridors and elevator lobbies. Any failure to comply with
this rule shall result in immediate permanent withdrawal of the vendor from the
Building.
26. Tenant must comply with requests by the Landlord concerning the
informing of their employees of items of importance to the Landlord.
27. Tenant shall comply with any non-smoking ordinance adopted by any
applicable governmental authority.
28. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in favor
of any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules or Regulations against any or all tenants of the Building.
Landlord reserves the right at any time to change or rescind any one or more of
these Rules and Regulations, or to make such other and further reasonable Rules
and Regulations as in Landlord's judgment may from time to time be necessary for
the management, safety, care and cleanliness of the Premises and Building, and
for the preservation of good order therein, as well as for the convenience of
other occupants and tenants therein. Landlord shall not be responsible to Tenant
or to any other person for the nonobservance of the Rules and Regulations by
another tenant or other person. Tenant shall be deemed to have read these Rules
and Regulations and to have agreed to abide by them as a condition of its
occupancy of the Premises.
<PAGE> 38
EXHIBIT E
FORM OF TENANT'S ESTOPPEL CERTIFICATE
The undersigned, as Tenant under that certain Office Lease (the "LEASE")
made and entered into as of _______________, 19__ and between _________________,
a ____________________ as Landlord, and the undersigned as Tenant, for the
Premises on the ________ floor(s) of the Building located at 100 California
Street, San Francisco, California hereby certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in Exhibit
A represent the entire agreement between the parties as to the Premises.
2. The undersigned has commenced occupancy of the Premises described in
the Lease, currently occupies the Premises, and the Lease Term commenced on
_________.
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
4. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
5. Tenant shall not materially modify the documents contained in Exhibit
A or prepay any amounts owing under the Lease to Landlord in excess of thirty
(30) days without the prior written consent of Landlord's mortgagee.
6. Base Rent became payable on ______________.
7. The Lease Term expires on _____________.
8. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and Landlord is not in
default thereunder.
9. No rental has been paid in advance and no security has been deposited
with Landlord except as provided in the Lease.
10. As of the date hereof, there are no existing defenses or offsets that
the undersigned has, which preclude enforcement of the Lease by Landlord.
11. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through _________________. The current monthly installment of Base Rent is
$____________.
12. The undersigned acknowledges that this Estoppel certificate may be
delivered to Landlord's prospective mortgagee, or a prospective purchaser, and
acknowledges that it recognizes that if same is done, said mortgagee,
prospective mortgagee, or prospective purchaser will be relying upon the
statements contained herein in making the loan or acquiring the property of
which the Premises are a part, and in accepting an assignment of the Lease as
collateral security, and that receipt by it of this certificate is a condition
of making of the loan or acquisition of such property.
13. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business in the
sate in which the Building is located and that Tenant has full right and
authority to execute and deliver this Estoppel Certificate and that each person
signing on behalf of Tenant is authorized to do so.
Executed at ____________________ on the _____ day of ___________, 19__.
"Tenant":
----------------------------------------------------
a
---------------------------------------------------
By:
-----------------------------------------------
Name:
-----------------------------------------
Its:
-----------------------------------------
By:
-----------------------------------------------
Name:
-----------------------------------------
Its:
-----------------------------------------
EXHIBIT E
-1-
<PAGE> 39
EXHIBIT F
CALIFORNIA ASBESTOS NOTICE
In 1998, California enacted legislation (specifically, Chapter 10.4 of the
Health and Safety Code, Section 25915 et seq.) requiring landlords and tenants
of commercial buildings constructed prior to 1979 to notify certain people,
including each other and their respective employees working within such
building, of any knowledge they may have regarding any asbestos containing
materials or asbestos-containing construction materials (collectively, "ACM")
in the building.
On July 13, 1995, Title 29, Code of Federal Regulations, Section 1910.1001
and 1926.1101 defined Presumed Asbestos Containing Material ("PACM") as thermal
system insulation and surfacing material found in buildings constructed no
later than 1980. Although not considered PACM, asphalt and vinyl flooring
installed in buildings constructed no later than 1980 must also be considered
asbestos containing. Both PACM and asphalt and vinyl flooring can be shown not
to contain asbestos through comprehensive sampling. The federal standard
requires the building and/or facility owner to notify contractors and tenants
of the presence of ACM/PACM. On May 3, 1996, Cal/OSHA adopted the same
notification requirements for PACM in Title 8 CCR 5208 & 1529.
This notification is being given to provide the information required under
this Legislation in order to help you avoid any unintentional contact with the
ACM/PACM, to assure that appropriate precautionary measures are taken before
disturbing any ACM/PACM, and to assist you in making appropriate disclosures to
your employees and others.
We have engaged qualified asbestos consultants to survey the Building for
asbestos and to assist in implementing an asbestos management plan that
includes, among other things, periodic reinspection and surveillance, air
monitoring as necessary, information and training programs for building
engineering and other measures to minimize potential fiber releases. A
description of the current Asbestos Management Plan prepared for the Building
(the "AMP") is set forth on Schedule A attached hereto. Our asbestos consultant
has provided us with the AMP, which in its qualified professional opinion,
fully complies with the disclosure requirements of Health and Safety Code
Section 25915.1
We have no reason to believe, based upon the AMP, that the ACM/PACM in the
Building is currently in a condition to release asbestos fibers which would
pose a significant health hazard to the Building's occupants. This should
remain so if such ACM/PACM is properly handled and remains undisturbed. You
should take into consideration that our knowledge as to the absence of health
risks is based solely upon general information and the information contained in
the AMP, and that we have no special knowledge concerning potential health risks
resulting from exposure to asbestos in the Building. We are therefore required
by the above-mentioned legislation to encourage you to contact local or state
public agencies if you wish to obtain a better understanding of the potential
impacts resulting from exposure to asbestos.
Because any tenant alterations or other work at the Building could disturb
ACM/PACM and possibly release asbestos fibers into the air, we must require
that you obtain our written approval prior to beginning such projects. This
includes major alterations, but might also include such activities as drilling
or boring holes, installing electrical, telecommunications or computer lines,
sanding floors, removing ceiling tiles or other work which disturbs ACM/PACM.
In many cases, such activities will not affect ACM/PACM, but you must check
with the property manager in advance, just in case. You should check with the
property manager at the address set forth on Schedule A. The property manager
will make available such instructions as may be required. Any such work should
not be attempted by an individual or contractor who is not qualified to handle
ACM/PACM. IN THE AREAS SPECIFIED IN SCHEDULE A, YOU SHOULD AVOID TOUCHING OR
DISTURBING THE ACM/PACM IN ANY WAY. IF YOU OBSERVE ANY ACTIVITY WHICH HAS THE
POTENTIAL TO DISTURB THE ACM/PACM, PLEASE REPORT THE SAME TO THE PROPERTY
MANAGER IMMEDIATELY.
Further information concerning asbestos handling procedures in general can
be found in the Building's O & M Program, located in the Building office at the
address set forth on Schedule A. We also encourage you to contact local, state
or federal public health agencies if you wish to obtain further information
regarding asbestos containing materials.
In connection with the foregoing, we have adopted the following policies
(which shall be considered rules under tenant leases): (1) the owner, and
representatives of the owner, including, without limitation, the owner's
ACM/PACM consultant, are entitled to enter into the premises of any tenant to
inspect for ACM/PACM, perform air tests and abatement; and (2) any tenant,
contractor, or other party must obtain our prior written approval before
performing any alterations on any tenant space, or performing any other work at
the property that might disturb ACM/PACM or involve exposure to asbestos fibers
as described above.
California law also requires persons in the course of doing business whose
activities may result in exposures to asbestos and other substances regulated
under the Safe Drinking Water and Toxic Enforcement Act of 1986, commonly
referred to as Proposition 65, to provide a clear and reasonably warning.
Accordingly, you are advised as follows:
WARNING: The areas within the Building that are described in Schedule A
below contain a substance known to the State of California to cause cancer.
EXHIBIT F
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<PAGE> 40
SCHEDULE A
TO
NOTICE CONCERNING ASBESTOS
BUILDING: 100 California Street
GENERAL MANAGER: Stacy McClaughry
ADDRESS OF BUILDING OFFICE: Legacy Partners, Inc.
100 California Street
San Francisco, CA 94111
Telephone: (415) 781-5100
I. EXISTING ASBESTOS MANAGEMENT PLAN ("AMP") AND ASBESTOS SURVEYS WHICH
DESCRIBE THE EXISTENCE, LOCATION AND CONDITION OF ACM.
The AMP which has been prepared for the Building since May 1997 is
generally described as follows:
A. AMP
<TABLE>
DATE DESCRIPTION
---- -----------
<S> <C>
1. May 1997 Asbestos Management Plan, prepared by Envirotest, Inc.
</TABLE>
B. SURVEYS
<TABLE>
DESCRIPTION BY COMPANY DATE
----------- ---------- ----
<S> <C> <C>
1. ACM Clarification Inspection Boelter Environmental 09/94
Consultants
2. Comprehensive Asbestos Survey Fugro West, Inc. 05/96
3. Phase I Environment Assessment Fugro West, Inc. 03/97
</TABLE>
II. CONTENTS OF AMP
The Table of Contents of the AMP contain the following sections:
SECTION I. SITE INFORMATION
SITE DESCRIPTION
List of Reports
Table 1. Confirmed Asbestos-Containing Materials
Table 2. Presumed Asbestos-Containing Materials
Table 3. Confirmed Non-Asbestos-Containing Materials
SECTION II. ASBESTOS MANAGEMENT PLAN
INTRODUCTION
Asbestos Policy
Purpose of the Management Plan
Background Asbestos Information
ASBESTOS PROGRAM COORDINATOR
TRAINING
ASBESTOS MANAGEMENT PLAN GUIDELINES
RECORD KEEPING
Employee Awareness Program Form
Notification of Outside Contractor
Inspection Reports
Floor Plans
Medical Records
OTHER PROCEDURES
Emergency Situations
ASBESTOS REGULATIONS
State Regulations
SCHEDULE A
TO
NOTICE CONCERNING ASBESTOS
-1-
<PAGE> 41
Environmental Protection Agency
Occupational Safety & Health Administration
OSHA Work Class Description
Class I Work
Class II Work
Class III Work
Class IV Work
Exposure Assessments
REQUIRED DOCUMENTATION
BUILDING MAINTENANCE
Asbestos Survey
Annual Periodic Surveillance
Notification of Building Occupants and Employees
Communication of Potential Hazards
APPENDICES
APPENDIX A: REPORT(S)
APPENDIX B: ASBESTOS MANAGEMENT PLAN PROTOCOLS
APPENDIX C: MATERIAL SAFETY DATA SHEETS
APPENDIX D: SAMPLE FORMS
APPENDIX E: EMPLOYEE HANDOUT
III. SPECIFIC LOCATIONS WHERE ACM IS PRESENT IN ANY QUANTITY
<TABLE>
<CAPTION>
MATERIAL
DATE SAMPLED DESCRIPTION LOCATION ASBESTOS CONTENT
<S> <C> <C> <C>
3/96 16" o.d. pipe elbow insulation Subbasement boiler 40% Chrysotile
3/96 Boiler Flue Insulation Subbasement Mechanical 40% Chrysotile
Shaft
3/96 4" o.d. pipe elbow insulation Subbasement 10% Amosite
3/96 Chiller Insulation Subbasement 15% Chrysotile
3/96 Mastic under Floor Tile Suite B6B 5% Chrysotile
3/96 Mastic under Cover Base Suite B6B <1% Chrysotile
3/96 Mud/Tape compound on Suite B6B 2% Chrysotile
Wallboard
3/96 Brown Floor Tile/Mastic Throughout Bld. 4% Chrysotile
3/96 Lt. Brown Floor Tile/Mastic Suite B16 3-4% Chrysotile
3/96 Black tar on fiberglass Mechanical shaft 10% Chrysotile
3/96 Mastic on Fiberglass 3rd floor mechanical shaft 10% Chrysotile
3/96 Mastic under Black Floor Tile 1st floor next to freight 4% Chrysotile
elevator
3/96 Mastic under Gray Floor Tile 1st floor next to freight 3% Chrysotile
elevator
3/96 Blue Floor Tile/Mastic 1st floor next to freight Trace in tile/3% Chrysotile in
elevator mastic
3/96 Mastic under Pink Floor Tile 1st floor next to freight 3% Chrysotile
elevator
3/96 Mud/Tape Cpd on Wallboard Basement, 1st, 2nd floors <1% Chrysotile
3/96 4" o.d. pipe valve fitting 2nd floor southwest fan room 2% Amosite, 6% Crocidolite
3/96 4" o.d. pipe valve fitting 2nd floor southwest fan room trace Chrysotile
</TABLE>
SCHEDULE A
TO
NOTICE CONCERNING ASBESTOS
-2-
<PAGE> 42
<TABLE>
<CAPTION>
DATE SAMPLED MATERIAL DESCRIPTION LOCATION ASBESTOS CONTENT
- ------------ -------------------- -------- ----------------
<S> <C> <C> <C>
3/96 6" o.d. pipe elbow insulation 3rd floor mechanical shaft 2% Chrysotile
3/96 Fireproofing material Spray- Throughout Building, except <1% Tremolite exterior layer
Applied acoustical floors 3, 8, 9, 10 in which
all areas accessible by Tenants
have been abated
210% Chrysotile
interior layer
3/96 Brown HVAC duct glue Suite 640 5% Chrysotile
3/96 Green Floor Tile/Mastic Suite 1180 5% in tile/20% Chrysotile in Mastic
3/96 Brown Ceiling Tile Mastic Throughout Building 5% Chrysotile
3/96 Yellow Carpet Adhesive Suite 1180 2% Chrysotile
3/96 Roof Flashing 15th floor roof 2% Chrysotile
3/96 Roof Mastic 14th floor roof <1% Chrysotile
3/96 Roof Flashing 14th floor roof <1% Chrysotile
8/99 Plaster Walls Restrooms throughout Building <1% - 2% Actinolite
</TABLE>
THE AMP DESCRIBED ABOVE, INCLUDING SAMPLING PROCEDURES AND THE ASBESTOS SURVEYS,
ARE AVAILABLE FOR REVIEW DURING NORMAL BUSINESS HOURS IN THE BUILDING OFFICE, AT
THE ABOVE ADDRESS, MONDAY THROUGH FRIDAY EXCEPT LEGAL HOLIDAYS. NO
REPRESENTATIONS OR WARRANTIES WHATSOEVER ARE MADE REGARDING THE AMP, THE REPORTS
CONCERNING SUCH AMP OR THE SURVEYS (INCLUDING WITHOUT LIMITATION, THE CONTENTS
OR ACCURACY THEREOF), OR THE PRESENCE OR ABSENCE OF TOXIC OR HAZARDOUS MATERIALS
IN, AT, OR UNDER ANY PREMISES, BUILDING, OR THE PROJECT.
SCHEDULE A
TO
NOTICE CONCERNING ASBESTOS
-3-
<PAGE> 43
EXHIBIT G
TENANT CERTIFICATE
Please complete all of the blanks with the appropriate information
<TABLE>
<S> <C>
LEASED PREMISES: Suite 1200, 100 California Street, San
Francisco, California (the "LEASED PROPERTIES")
LANDLORD/BORROWER: WHLNF REAL ESTATE LIMITED PARTNERSHIP, a Delaware
limited partnership (the "LANDLORD")
TENANT: MYPOINTS.COM, INC., a Delaware corporation (the
"TENANT")
LEASE DATED: November __, 1999 (the "LEASE")
TENANT'S NOTICE ADDRESS: 100 California Street, Suite 1200
San Francisco, California 94111
DATE: November __, 1999
</TABLE>
GENERAL ELECTRIC CAPITAL CORPORATION ("GECC") has made or is about to make a
loan (the "LOAN") to the Landlord which will be secured by a mortgage or deed
of trust and security agreement (the "DEED OF TRUST"), covering the real
property described on EXHIBIT A and the buildings and improvements located
thereon (collectively, the "REAL PROPERTY"). In connection with the making of
the Loan, GECC has requested that the Tenant complete this Tenant Certificate
with the appropriate information as it pertains to the Tenant's lease and to
agree to the requirements set forth herein.
The undersigned, Tenant, hereby certifies to and agrees with GECC, as to the
following:
ACKNOWLEDGMENT OF LEASE
1. The Leased Premises contain approximately 38,386 rentable square feet. The
terms of the Lease is for seven (7) years, and shall commence on the Lease
Commencement Date as determined pursuant to the Lease.
2. The monthly Base Rent initially payable under the Lease is $69,574.63.
3. Concurrently with Tenant's execution of the Lease, Tenant is required to
deliver to Landlord a letter of credit in the amount of $1,933,694.70.
4. No rent or other sum which is payable under the Lease has been paid by or
on behalf of Tenant more than one (1) month in advance.
5. The Lease, upon execution by the Landlord, is valid and in full force and
effect, and, to the best of Tenant's knowledge, neither Landlord nor
Tenant is in default thereunder.
6. Any improvements required by the Lease to be made by Landlord have been
completed to the full satisfaction of Tenant, except as required pursuant
to Exhibit B attached to the Lease.
7. The Lease has not been assigned, modified, supplemented or amended in any
way. Tenant shall not enter into any assignment, modification, supplement
or amendment to the Lease without the prior written consent of GECC. The
Lease constitutes the entire agreement between the parties and there are
no other agreements (including any letter agreements between Landlord and
Tenant concerning the Leased Premises. Tenant shall not, without obtaining
the prior written consent of GECC, (a) prepay any of the rents, additional
rents or other sums due under the Lease for more than one (1) month in
advance of the due dates thereof, (b) voluntarily surrender the Leased
Premises or terminate the Lease without cause, or (c) assign the Lease or
sublet the Leased Premises other than pursuant to the provisions of the
Lease.
SUBORDINATION
8. The Lease (including, without limitation, all rights to insurance proceeds
and condemnation awards, any rights of first refusal, options to purchase,
and any other rights granted to Tenant pursuant to the Lease) is, and
shall at all times continue to be, subject and subordinate in each and
every respect, to (a) the Deed of Trust and to any and all liens, security
interests, rights and any other interest created thereby and to any and
all increases, renewals, modifications, extensions, substitutions,
replacements and/or consolidations of the Deed of Trust and the Loan, and
(b) any additional financing of the Real Property or portions thereof
provided by GECC and the liens and security interests under the document
evidencing and securing such additional financing, and to any increases
therein or supplements thereto.
NON-DISTURBANCE
9. So long as the Lease is in full force and effect and Tenant is not in
default in the payment of rent, additional rent, taxes, utility charges or
other sums payable by Tenant under the terms of the Lease, or under any of
the other terms, covenants or conditions of the Lease on Tenant's part to
be performed (beyond the period, if any, specified in the Lease within
which Tenant may cure such default (a) Tenant's possession of the Leased
Premises under the Lease shall not be disturbed or interfered with by GECC
in the exercise of any of its rights under the Deed of Trust, including
any foreclosure, and
EXHIBIT G
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<PAGE> 44
(b) GECC will not join Tenant as a party defendant for the purpose of
terminating Tenant's interest and estate under the Lease in any proceeding
for foreclosure of the Deed of Trust.
ATTORNMENT
10. If, at any time GECC (or any person, or such person's successors or
assigns, who acquire the interest of the Landlord under the Lease through
foreclosure action of the Deed of Trust, or upon a transfer of the Real
Property by conveyance in lieu of foreclosure, or otherwise) shall succeed
to the rights of the Landlord under the Lease as a result of a default or
event of default under the Mortgage, and if the Tenant is not then in
default under the Lease (beyond the time permitted therein, if any, to cure
such default), then (a) the Lease shall not terminate, (b) upon receipt by
Tenant of written notice of such succession, Tenant shall attorn to and
recognize such person as succeeding to the rights of the Landlord under the
Lease (herein sometimes called "Successor Landlord"), upon the terms and
conditions of the Lease, and (c) Successor Landlord shall accept such
attornment and recognize Tenant as the Successor Landlord's tenant under
the Lease. Upon such attornment and recognition, the Lease shall continue
in full force and effect as, or as if it were, a direct lease between the
Successor Landlord and Tenant upon all of the terms, conditions and
covenants (including any right under the Lease on the part of the Tenant to
extend the term of the Lease) as are set forth in the Lease and which shall
be applicable after such attornment and recognition. Notwithstanding
anything to the contrary set forth herein, GECC or such Successor Landlord
shall not be (i) liable for any act or omission of any previous landlord,
including the Landlord, (ii) subject to any offset, defense or counterclaim
which Tenant might be entitled to assert against any previous landlord,
including the Landlord, (iii) bound by any payment of rent or additional
rent made by the Tenant to any previous landlord (including the Landlord)
for more than one (1) month in advance, unless the same was paid to and
received by the Successor Landlord, (iv) bound by any amendment or
modification of the Lease hereafter made without the written consent of
GECC, or (v) liable for any deposit or letter of credit that Tenant may
have given to any previous landlord (including the Landlord) which has not
been transferred to the Successor Landlord, except as otherwise expressly
provided in Section 6 of the Letter of Credit Rider attached to the Lease.
Further, notwithstanding anything to the contrary set forth herein, the
liability of GECC for any obligations under the Lease shall be limited to
GECC's interest in the Real Property. GECC shall not have any liability or
responsibility under or pursuant to the terms of the Lease after it ceases
to own an interest in or to the Real Property.
11. The provisions of this Tenant Certificate regarding attornment by Tenant
shall be self-operative and effective without the necessity of execution of
any new lease or other document on the part of any party hereto or the
respective heirs, legal representatives, successors or assigns of any such
party. Tenant agrees, however, to execute and deliver at any time and from
time to time, upon the request of GECC or of any Successor Landlord, any
instrument or certificate which, in the reasonable judgment of GECC or such
Successor Landlord may be necessary or appropriate in any such foreclosure
proceeding or otherwise to evidence such attornment, including, if
requested, a new lease of the Leased Premises on the same terms and
conditions as the Lease.
HAZARDOUS MATERIALS
12. Tenant shall neither suffer nor itself manufacture, store, handle,
transport, dispose of, spill, leak or dump any toxic or hazardous waste,
waste product or substance (as they may be defined in any federal or state
statute, rule or regulation pertaining to or governing such wastes, waste
products or substances) on the Leased Premises or on any property in the
vicinity of the Leased Premises at any time during the term (including any
renewal term) of the Lease and during Tenant's occupancy of the Leased
Premises.
NOTICE
13. Tenant hereby acknowledges and agrees that: (a) from and after the date
hereof, in the event of any act or omission of Landlord which would give
Tenant the right, either immediately or after the lapse of time, to
terminate the Lease or to claim a partial or total eviction, Tenant will
not exercise any such right (i) until it has given written notice of such
act or omission to GECC and (ii) until the expiration of thirty (30) days
following such giving of notice to GECC in which time period GECC shall be
entitled to cure any such act or omissions of Landlord; (b) Tenant shall
send to Landlord all copies of any such default, notice or statement under
the Lease at the same time such notice is sent to Landlord; and (c) if GECC
notifies Tenant of a default under the Deed of Trust and demands that
Tenant pay its rent and all other sums due under the Lease to GECC, Tenant
shall honor such demand and pay its rent and all of the sums due under the
Lease directly to GECC or as otherwise required pursuant to such notice.
All notices and other communications from Tenant to GECC shall be in
writing and shall be delivered or mailed by registered mail, postage paid,
return receipt requested, or delivered by an overnight courier, addressed
to GECC at:
General Electric Capital Corporation
16479 Dallas Parkway, Suite 400
Two Bent Tree Tower
Dallas, TX 75248
Attention: Julie Krommenhock
Re: Loan No. 65204
or at such other address as GECC, any successor, purchaser or transferee
shall furnish to the Tenant in writing.
EXHIBIT G
-2-
<PAGE> 45
This Tenant Certificate is being executed and delivered by Tenant to induce
GECC to make the Loan which is to be secured in part by an assignment to GECC
of Landlord's interest in the Lease and with the intent and understanding that
the above statements will be relied upon by GECC. This Tenant Certificate shall
inure to the benefit of and be binding upon the parties hereto, their
successors and permitted assigns, and any purchaser or purchasers at
foreclosure of the Real Property, and their respective heirs, personal
representatives, successors and assigns.
TENANT:
MYPOINTS.COM, INC.,
a Delaware corporation
By: _______________________________ (Please sign name)
Name: _____________________________ (Please print name)
Title: ____________________________ (Please print title within Company)
Date: _____________________________ (Please print date of execution)
GECC
GENERAL ELECTRIC CAPITAL CORPORATION
a New York corporation
By: _______________________________
Name: Michael J. Jaynes
Title: Its Attorney-In-Fact
Date: _____________________________
SIGNATURES MUST BE ACKNOWLEDGED, PLEASE ATTACH NOTARY FORMS.
EXHIBIT G
-3-
<PAGE> 46
STATE OF _________________ )
) ss.
COUNTY OF ________________ )
On _______________, before me, _______________, a Notary Public in
and for said state, personally appeared _______________ and _______________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the persons whose names are subscribed to the within instrument and
acknowledged to me that they executed the same in their authorized capacities,
and that by their signatures on the instrument, the persons, or the entity upon
behalf of which the persons acted, executed the instrument.
WITNESS my hand and official seal.
---------------------------------------
Notary Public in and for said State
STATE OF _________________ )
) ss.
COUNTY OF ________________ )
On _______________, before me, _______________, a Notary Public in
and for said state, personally appeared _______________ and _______________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the persons whose names are subscribed to the within instrument and
acknowledged to me that they executed the same in their authorized capacities,
and that by their signatures on the instrument, the persons, or the entity upon
behalf of which the persons acted, executed the instrument.
WITNESS my hand and official seal.
---------------------------------------
Notary Public in and for said State
EXHIBIT G
-4-
<PAGE> 47
EXHIBIT A TO EXHIBIT G
LEGAL DESCRIPTION OF THE REAL PROPERTY
Lot 17, as shown on a Map entitled "Parcel Map, Being a Subdivision of
Assessor's Lot 15, Block 236, Also Being a portion of Fifty Vara Block No. 10,
San Francisco, California", recorded October 11, 1978, in Block 9, of Parcel
Maps, at Page 18, in the Office of the County Recorder of the City and County
of San Francisco, California.
Assessor's Parcel No.: Assessor's Parcel No. Lot 17, Block 236
EXHIBIT A TO
EXHIBIT G
-1-
<PAGE> 48
EXHIBIT II
INITIAL FIRST OFFER SPACE
[LANDLORD TO PROVIDE]
EXHIBIT II
-1-
<PAGE> 49
EXTENSION OPTION RIDER
This Extension Option Rider ("EXTENSION RIDER") is made and entered into
by and between WHLNF REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited
partnership ("LANDLORD"), and MYPOINTS.COM, INC. a Delaware corporation
("TENANT"), and is dated as of the date of the Office Lease ("LEASE") by and
between Landlord and Tenant to which this Extension Rider is attached. The
agreements set forth in this Extension Rider shall have the same force and
effect as if set forth in the Lease. To the extent the terms of this Extension
Rider are inconsistent with terms of the Lease, the terms of this Extension
Rider shall control.
1. Option Right. Landlord hereby grants Tenant one (1) option to extend
the Lease Term for a period of five (5) years (the "OPTION TERM"), which option
shall be exercisable only by written Exercise Notice (as defined below)
delivered by Tenant to Landlord as provided below. Upon the proper exercise of
such option to extend the Lease, the Lease Term shall be extended for the Option
Term.
2. Option Rent. The Annual Base Rent payable by Tenant during the
Option Term (the "OPTION RENT") shall be equal to the greater of (i) the Annual
Base Rent payable by Tenant during the last year of the initial Lease Term and
(ii) the "Fair Market Rental Rate" for the Premises. As used herein, the "FAIR
MARKET RENTAL RATE" for purposes of determining the Annual Base Rent for the
Option Term (or for purposes of determining the Annual Base Rate for the First
Offer Space pursuant to Section 1.4 of the Lease) shall mean the annual Base
Rent at which non-equity tenants, as of the commencement of the Option Term (or
the lease term for the First Offer Space, as the case may be), will be leasing
non-sublease, non-equity, unencumbered space comparable in size, location and
quality to the Premises (or the First Offer Space, as the case may be) for a
comparable term, which comparable space is located in the Building and in other
comparable first-class office buildings in the Financial District of San
Francisco, California, taking into account and adjusting the Base Year to be the
calendar year in which the Option Term (or the lease term for the First Offer
Space, as the case may be) commences, and taking into consideration all free
rent and other out-of-pocket concessions generally being granted at such time
for such comparable space for the Option Term (or the lease term for the First
Offer Space, as the case may be) (including, without limitation, any tenant
improvement allowance provided for such comparable space, with the amount of
such tenant improvement allowance to be provided for the Premises during the
Option Term (or the First Offer Space during the lease term for the First Offer
Space), as the case may be) to be determined after taking into account the age,
quality and layout of the tenant improvements in the Premises (or the First
Offer Space, as the case may be) as of the commencement of the Option Term (or
the lease term for the First Offer Space, as the case may be)). All other terms
and conditions of the Lease shall apply throughout the Option Term; however,
Tenant shall, in no event, have the option to extend the Lease Term beyond the
last Option Term described in Section 1 above.
3. Exercise of Option. The option contained in this Extension Rider
shall be exercised by Tenant, if at all, only in the following manner: (i)
Tenant shall deliver written notice to Landlord not more than sixteen (16)
months nor less than fifteen (15) months prior to the expiration of the initial
Lease Term, stating that Tenant may be interested in exercising its option; (ii)
Landlord, after receipt of Tenant's notice, shall deliver notice (the "OPTION
RENT NOTICE") to Tenant not less than fourteen (14) months prior to the
expiration of the initial Lease Term setting forth Landlord's determination of
the Fair Market Rental Rate; and (iii) if Tenant wishes to exercise such option,
Tenant shall, on or before the date (the "EXERCISE DATE") which is the earlier
of (A) the date occurring twelve (12) months prior to the expiration of the
initial Lease Term, and (B) the date occurring thirty (30) days after Tenant's
receipt of the Option Rent Notice, exercise the option by delivering written
notice ("EXERCISE NOTICE") thereof to Landlord. In the event that Landlord
determines that the Fair Market Rental Rate is greater than the Annual Base Rent
payable by Tenant during the last year of the initial Lease Term, during the
period of time between the date Landlord delivers the Option Rent Notice and the
Exercise Date, Landlord and Tenant shall discuss Landlord's determination of the
Fair Market Rental Rate Concurrently with Tenant's delivery of the Exercise
Notice, if Landlord and Tenant have not already agreed in writing upon the Fair
Market Rental Rate, Tenant may object, in writing, to Landlord's determination
of the Fair Market Rental Rate set forth in the Option Rent Notice, in which
event such Fair Market Rental Rate shall be determined pursuant to Section 4
below. Tenant's failure to deliver the Exercise Notice on or before the Exercise
Date, shall be deemed to constitute Tenant's waiver of its extension right
hereunder. Tenant's failure to timely object in writing to Landlord's
determination of the Fair Market Rental Rate set forth in the Option Rent Notice
shall be deemed Tenant's acceptance thereof and the following provisions of
Section 4 shall not apply.
4. Determination of Fair Market Rental Rate. If Tenant timely objects
to the Fair Market Rental Rate submitted by Landlord in the Option Rent Notice
(or timely objects to Landlord's determination of the Fair Market Rental Rate
for the First Offer Space pursuant to Section 1.4.3 of the Lease), Landlord and
Tenant shall thereafter attempt in good faith to agree upon such Fair Market
Rental Rate, using their best good faith efforts. If Landlord and Tenant fail to
reach agreement on such Fair Market Rental Rate within thirty (30) days
following Tenant's objection to such Fair Market Rental Rate ("the OUTSIDE
AGREEMENT DATE") then the applicable Fair Market Rental Rate shall be submitted
to appraisal in accordance with Sections 4.1 through 4.7 below.
4.1 Landlord and Tenant shall each appoint one (1) "appraiser" who
shall by profession be a real estate broker who shall have been active over the
ten (10) year period ending on the date of such appointment in the brokerage of
office buildings in the Financial District of San Francisco, California. The
determination of the appraisers shall be limited solely to the issue of whether
Landlord's or Tenant's submitted Fair Market Rental Rate is the closer to the
actual Fair Market Rental Rate as determined by the appraisers, taking into
account the requirements with respect thereto set forth in Section 2 above.
Each such appraiser shall be appointed within fifteen (15) days after the
Outside Agreement Date.
4.2 The two (2) appraisers so appointed shall, within fifteen
(15) days of the date of the appointment of the last appointed appraiser, agree
upon and appoint a third appraiser who shall be qualified under the same
criteria set forth hereinabove for qualification of the initial two (2)
appraisers.
4.3 The three (3) appraisers shall, within thirty (30) days of
the appointment of the third appraiser, reach a decision as to which of
Landlord's or Tenant's submitted Fair Market Rental Rate is closer to the
actual Fair Market Rental Rate and shall select such closer determination as
the Fair Market Rental Rate and notify Landlord and Tenant thereof.
EXTENSION
OPTION RIDER
-1-
<PAGE> 50
4.4 The decision of the majority of the three (3) appraisers shall
be binding upon Landlord and Tenant; provided, however, in the event that the
appraisers select a submitted Fair Market Rental Rate that is lower than the
Annual Base Rent payable by Tenant for the last year of the initial Lease Term,
then the Option Rent shall be equal to the Annual Base Rent payable by Tenant
during the least year of the initial Lease Term.
4.5 If either Landlord or Tenant fails to appoint an appraiser
within the time period specified in Section 4.1 hereinabove, the appraiser
appointed by one of them shall reach a decision, notify Landlord and Tenant
thereof, and such appraiser's decision shall be binding upon Landlord and
Tenant.
4.6 If the two (2) appraisers fail to agree upon and appoint a
third appraiser, a third appraiser shall be appointed by the Superior Court of
San Francisco County, California.
4.7 Each party shall pay the fees and expenses of the appraiser
appointed by or on behalf of it, and each shall pay one-half of the fees and
expenses of the third appraiser, if any.
5. Suspension of Right to Extend Lease Term. Notwithstanding anything
in the foregoing to the contrary, at Landlord's option, and in addition to all
of Landlord's remedies under the Lease, at law or in equity, the right to extend
the Lease Term herein above granted to Tenant shall not be deemed to be properly
exercised if, as of the date Tenant delivers the Exercise Notice or as of the
end of the initial Lease Term, Tenant is in default under this Lease. In
addition, Tenant's right to extend the Lease Term is personal to the original
Tenant executing the Lease and any Affiliate to which Tenant's entire interest
in this Lease has been assigned pursuant to Section 14.7 of the Lease, and may
not be otherwise assigned or exercised, voluntarily or involuntarily, by or to,
any person or entity other than the original Tenant or any Affiliate-assignee,
and shall only be available to and exercisable by the Tenant or the
Affiliate-assignee when the original tenant or the Affiliate-assignee is in
actual and physical possession of the entire Premises.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Legacy Partners Commercial, Inc.,
a Texas corporation, as manager
and agent by Landlord
By: /s/ [Signature Illegible]
-------------------------------
Name:
------------------------
Its:
------------------------
"Tenant":
MYPOINTS.COM, INC., a Delaware corporation
By:
------------------------------------
Name:
------------------------------
Its:
------------------------------
By:
------------------------------------
Name:
------------------------------
Its:
------------------------------
EXTENSION
OPTION RIDER
-2-
<PAGE> 51
LETTER OF CREDIT RIDER
This LETTER OF CREDIT RIDER ("LC RIDER") is made and entered into by and
between WHLNF REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
("LANDLORD"), and MYPOINTS.COM, INC., a Delaware corporation ("TENANT"), and is
dated as of the date of the Office Lease ("LEASE") by and between Landlord and
Tenant to which this LC Rider is attached. The agreements set forth in this
Letter of Credit Rider shall have the same force and effect as if set forth in
the Lease and that certain Temporary Space Agreement by and between Landlord and
Tenant (the "TEMPORARY AGREEMENT"). To the extent the terms of this LC Rider are
inconsistent with the terms of the Lease or the Temporary Agreement, the terms
of this LC Rider shall control.
1. Concurrent with Tenant's execution of the Lease, Tenant shall
deliver to Landlord, as collateral for the full and faithful performance by
Tenant of all of its obligations under the Lease or the Temporary Agreement and
for all losses and damages Landlord may suffer as a result of any default by
Tenant under the Lease or the Temporary Agreement, an irrevocable and
unconditional negotiable letter of credit (the "LETTER OF CREDIT"), in the form
and containing the terms required herein, payable in the County of San
Francisco, California, running in favor of Landlord issued by a bank with
offices in the County of San Francisco, California and approved by Landlord, in
the amount set forth in Section 11 of the Summary of the Lease (the "Letter of
Credit Amount"). The Letter of Credit shall be (i) at sight and irrevocable,
(ii) subject to the terms of this LC Rider, maintained in effect, whether
through replacement, renewal or extension, for the period from the date of
execution of the Lease and continuing until the date (the "LC EXPIRATION DATE")
which is sixty (60) days after the expiration of the Lease Term, and Tenant
shall deliver a new Letter of Credit or certificate of renewal or extension to
Landlord at least thirty (30) days prior to the expiration of the Letter of
Credit, without any action whatsoever on the part of Landlord, (iii) subject to
the Uniform Customs and Practices for Documentary Credits (1993-Rev)
International Chamber of Commerce Publication #500, (iv) fully assignable by
Landlord in connection with a transfer of Landlord's interest in the Lease and
the Temporary Space Agreement, and (v) permit partial draws. In addition to the
foregoing, the form and terms of the Letter of Credit (and the bank issuing the
same) shall be acceptable to Landlord, in Landlord's reasonable discretion, and
shall provide, among other things, in effect that: (A) Landlord, or its then
managing agent, shall have the right to draw down an amount up to the face
amount of the Letter of Credit upon the presentation to the issuing bank of
Landlord's (or Landlord's then managing agent's) written statement that such
amount is due to Landlord under the terms and conditions of the Lease or the
Temporary Agreement, it being understood that if Landlord or its managing agent
be a corporation, partnership or other entity, then such statement shall be
signed by an officer (if a corporation), a general partner (if a partnership),
or any authorized party (if another entity); (B) the Letter of Credit will be
honored by the issuing bank without inquiry as to the accuracy thereof and
regardless of whether the Tenant disputes the content of such statement; and (C)
in the event of a transfer of Landlord's interest in the Building, Landlord
shall transfer the Letter of Credit, in whole or in part (or cause a substitute
letter of credit to be delivered, as applicable) to the transferee and thereupon
Landlord shall, without any further agreement between the parties, be released
by Tenant from all liability therefor, and it is agreed that the provisions
hereof shall apply to every transfer or assignment of the whole or any portion
of said Letter of Credit to a new Landlord.
2. If, as result of any application or use by Landlord of all or any
part of the Letter of Credit (or any "Cash Collateral," as that term is defined,
below), the amount of the Letter of Credit and Cash Collateral shall
collectively be less than the Letter of Credit Amount, Tenant shall, within five
(5) days thereafter, provide Landlord with either (1) cash (the "CASH
COLLATERAL") to be held and applied by Landlord as collateral in the same manner
as if Landlord held such amount as part of the Letter of Credit, or (2)
additional letter(s) of credit in an amount equal to the deficiency (or a
replacement letter of credit in the total Letter of Credit Amount), and any such
additional (or replacement) letter of credit shall comply with all of the
provisions of this LC Rider, and if Tenant fails to comply with the foregoing,
the same shall constitute an uncurable default by Tenant. Tenant further
covenants and warrants that it will neither assign nor encumber the Letter of
Credit or Cash Collateral, as the case may be, or any part thereof and that
neither Landlord nor its successors or assigns will be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance. Without
limiting the generality of the foregoing, if the Letter of Credit expires
earlier than the LC Expiration Date, Landlord will accept Cash Collateral, a
renewal letter of credit or substitute letter of credit (such renewal or
substitute letter of credit or Cash Collateral to be in effect and delivered to
Landlord, as applicable, not later than thirty (30) days prior to the expiration
of the Letter of Credit), which with respect to any letter of credit shall be
irrevocable and automatically renewable as above provided through the LC
Expiration Date upon the same terms as the expiring Letter of Credit or such
other terms as may be acceptable to Landlord in its reasonable discretion.
However, if the Cash Collateral is not timely delivered or the Letter of Credit
is not timely renewed or a substitute Letter of Credit is not timely received,
or if Tenant fails to maintain the Letter of Credit and/or the Cash Collateral
in the amount and in accordance with the terms set forth in this LC Rider,
Landlord shall have the right to present the Letter of Credit to the bank in
accordance with the terms of this LC Rider, and the entire sum evidenced thereby
shall be paid to and held by Landlord as Cash Collateral for performance of all
of Tenant's obligations under the Lease and the Temporary Agreement and for all
losses and damages Landlord may suffer as a result of any default by Tenant
under the Lease or the Temporary Agreement. Landlord shall not be required to
keep any Cash Collateral separate from its general funds.
3. If there shall occur a default under the Lease as set forth in
Article 19 of the Lease or the Temporary Agreement, Landlord may, but without
obligation to do so, draw upon the Letter of Credit and/or utilize the Cash
Collateral, to the extent Landlord deems necessary to cure any default of Tenant
and/or to compensate Landlord for any and all damages of any kind or nature
sustained or which may be sustained by Landlord resulting from Tenant's default.
Tenant agrees not to interfere in any way with payment to Landlord of the
proceeds of the Letter of Credit, either prior to or following a "draw" by
Landlord of any portion of the Letter of Credit, regardless of whether any
dispute exists between Tenant and Landlord as to Landlord's right to draw from
the Letter of Credit. No condition or term of the Lease or the Temporary
Agreement shall be deemed to render the Letter of Credit conditional to justify
the issuer of the Letter of Credit in failing to honor a drawing upon such
Letter of Credit in a timely manner.
4. Landlord and Tenant acknowledge and agree that in no circumstance
shall the Letter of Credit or any renewal thereof or substitute therefor or Cash
Collateral be (x) deemed to be or treated as a "security deposit" within the
meaning of California Civil Code Section 1950.7, (y) subject to the terms of
such Section 1950.7, or (z) intended to serve as a "security deposit" within the
meaning of such Section 1950.7. The parties hereto (a) recite that the Letter
of Credit and/or Cash Collateral as the case may be, is not intended to serve
as a security deposit and such Section 1950.7 and any and all other laws, rules
and
LETTER OF
CREDIT RIDER
-1-
<PAGE> 52
regulations applicable to security deposits in the commercial context ("SECURITY
DEPOSIT LAWS" shall have no applicability or relevancy thereto and (b) waive
any and all rights, duties and obligations either party may now or, in the
future, will have relating to or arising from the Security Deposit Laws.
5. Notwithstanding anything to the contrary set forth in this LC Rider,
it is hereby agreed that the Letter of Credit Amount shall be reduced by and to
the amounts of the dates set forth on the schedule below so long as no default
on behalf of Tenant exists as of the scheduled reduction date and Landlord has
not drawn down on any portion of the Letter of Credit prior to such reduction
date. Any such reduction of the Letter of Credit Amount may be provided by
amendment to or replacement of the Letter of Credit, as shall be determined by
Landlord.
<TABLE>
<CAPTION>
AMOUNT OF REVISED AMOUNT OF
REDUCTION DATE REDUCTION LETTER OF CREDIT
- ------------------------------- ----------- ----------------
<S> <C> <C>
First day of 25th month of initial Lease Term $446,237.20 $1,487,457.50
First day of 37th month of initial Lease Term $297,491.50 $1,189,966.00
First day of 49th month of initial Lease Term $297,491.50 $ 892,474.50
</TABLE>
6. In the event that Landlord shall have improperly drawn down on any
portion of the Letter of Credit and such drawn down portion(s) have been
improperly applied by Landlord, then Tenant shall have the rights set forth in
this Paragraph 6. Specifically, Tenant may institute legal proceedings to
determine and collect the amount of the portion(s) of the Letter of Credit
which Landlord improperly drew down, if any, and in the event that Tenant
prevails in such legal proceedings and receives a final non-appealable monetary
judgment against Landlord, then Landlord shall pay such final, non-appealable
monetary judgment to Tenant within thirty (30) days after the date such
monetary judgment is entered. If such monetary judgment is not so paid, the
Tenant shall be entitled to deduct from Rent (as such term is defined in
Section 4.1 of the Lease) the amount of such final non-appealable monetary
judgment. The right of deduction described in the immediately preceding
sentence shall be enforceable against Landlord and any successor-in-interest to
Landlord, and shall prevail over any contrary provisions of the Lease or the
Temporary Agreement.
"Landlord"
WHNLF REAL ESTATE LIMITED PARTNERSHIP
a Delaware limited partnership
By: Legacy Partners Commercial, Inc.,
as agent and manager for Landlord
By: /s/ [Signature Illegible]
-------------------------------
Name:
-------------------------
Its: -------------------------
"Tenant"
MYPOINTS.COM, INC., a Delaware limited
partnership
By:
-------------------------------
Name:
-------------------------
Its: -------------------------
By:
-------------------------------
Name:
-------------------------
Its: -------------------------
LETTER OF
CREDIT RIDER
-2-
<PAGE> 53
TEMPORARY SPACE AGREEMENT
This Temporary Space Agreement ("Temporary Space Agreement") is entered
into on this 16 day of November 1999, by and between WHLNF REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord"), and MYPOINTS.COM,
INC., a Delaware corporation ("Tenant").
R E C I T A L S:
- - - - - - - -
Landlord and Tenant have entered into that certain Office Lease (the
"Lease") dated November , 1999, for 38,386 rentable square feet of space
which is the entirety of the space located on the eleventh and twelfth floors
(the "Premises") of the building located at 100 California Street, San
Francisco, California (the "Building").
A. As additional consideration for Tenant having entered into the Lease
with Landlord, Landlord shall lease to Tenant and Tenant shall lease from
Landlord, on a temporary basis, those certain temporary premises described
below.
B. Except as otherwise expressly set forth in this Temporary Space
Agreement, all defined terms herein shall have the meaning assigned to such
terms in the Lease, and the terms and conditions of the Lease shall remain in
full force and effect.
A G R E E M E N T:
- - - - - - - - -
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant
agree as follows:
1. Temporary Premises. Landlord hereby agrees to lease to Tenant and
Tenant hereby agrees to lease from Landlord certain premises consisting of
approximately 1,820 rentable square feet known as Suites 756 and 744 and
located on the seventh floor of the Building (the "Temporary Premises"), in
their "as is" condition as of the date hereof.
2. Term. The term of this lease of the Temporary Premises (the
"Temporary Lease Term") shall continue from the date of execution of the Lease
until the date (the "Termination Date") which is the earlier of (i) the Lease
Commencement Date of the Lease for the Premises; or (ii) date the Lease
terminates for any reason, including as a result of Tenant's default
thereunder. Upon such Termination Date, this lease of the Temporary Premises
shall automatically terminate and be of no further force or effect.
3. Base Rent. The Monthly Base Rent payable for the Temporary Premises
shall be $6,066,67 per month during the Temporary Lease Term, payable in
advance on the first (1st) day of each calendar month during the Temporary
Lease Term, without demand, notice or offset,
<PAGE> 54
except that the first month's installment of such Monthly Base Rent shall be
paid by Tenant concurrently upon execution of this Temporary Space Agreement.
4. Additional Rent. Tenant shall also be obligated to pay to Landlord
the costs of any excess consumption of utilities pursuant to the provisions of
Section 6.2 of the Lease. However, Tenant shall not be obligated to pay any
Operating Expenses in connection with Tenant's lease of the Temporary Premises.
5. Default. Any default by Tenant under this Temporary Space Agreement
shall also constitute a default by Tenant under the Lease.
6. Incorporation of Lease Provisions. Except to the extent the Lease
conflict with this Temporary Space Agreement, the entirety of the Lease is
hereby incorporated herein as if stated in its entirety; provided, however, that
Landlord and Tenant agree that Sections 1.2, 1.4, Article 4, and Exhibits A, B
and H attached to the Lease shall have no applicability to this Temporary Space
Agreement.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Temporary Space
Agreement to be executed on the day and date first above written.
"Landlord"
WHLNF REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Legacy Partners Commercial, Inc., as agent
and manager for Landlord
By: /s/ [Signature Illegible]
-----------------------------------
Name:
-----------------------------
Its: Sr VP Operations
------------------------------
11/16/99
"Tenant"
MYPOINTS.COM, INC., a Delaware corporation
By: /s/ CHAZ BERMAN EVP
---------------------------------------
Name: Chaz Berman
---------------------------------
Its: Executive Vice President
----------------------------------
By: /s/ THOMAS P. CALDWELL
---------------------------------------
Name: Thomas P. Caldwell
---------------------------------
Its: SVP & CFO
----------------------------------
By:
-----------------------------------
-2-
<PAGE> 55
STORAGE AGREEMENT
THIS STORAGE AGREEMENT ("Agreement") is made as of this 16 day of
November, 1999, by and between WHLNF REAL ESTATE LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord") and MYPOINTS.COM,INC., a Delaware
corporation ("Tenant").
W I T N E S S E T H:
- - - - - - - - - -
A. Tenant has entered into that certain Office Lease (the "Lease") with
Landlord dated November ___, 1999, pursuant to which Tenant leases approximately
38,386 rentable square feet of space (the "Premises") in that certain office
building located at 100 California Street, San Francisco, California 94111, (the
"Building"), which Building is owned by Landlord.
B. In connection with the Lease, Tenant desires to have the right to
lease from Landlord certain storage facilities located in the Building, and
Landlord has agreed to give certain rights to lease the storage facilities to
Tenant pursuant to the terms of this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
A G R E E M E N T:
- - - - - - - - -
1. AGREEMENT TO USE STORAGE AREA. Tenant hereby leases from Landlord
two (2) separate storage spaces. The first such storage space consists of
approximately 672 rentable square feet, is referred to herein as the "Basement
Storage Space," is located in the basement of the Building and is depicted on
EXHIBIT A attached hereto. The second such storage space consists of
approximately 90 rentable square feet, is referred to herein as "the Ground
Floor Storage Space," is located on the ground floor of the Building and is
depicted on Exhibit "B" attached hereto. The Basement Storage Area and the
Ground Floor Storage Area shall collectively be referred to herein as the
"Storage Area." Tenant's lease of the Storage Area is subject to Tenant's strict
compliance with all the terms of this Agreement.
2. TERM. The term of Tenant's lease of the Storage Area (the "Term")
shall commence on November 29, 1999 (the "Storage Commencement Date"), and shall
continue thereafter until the expiration or earlier termination of the Lease;
provided, however, in the event that Tenant shall not remain in possession of
the entirety of the Premises, both Landlord and Tenant shall have the right to
terminate this Agreement by delivering to the other party thirty (30) days'
written notice of such party's election to terminate this Agreement.
3. STORAGE RENT. During the Term of this Agreement Tenant shall pay to
Landlord the Storage Rent as set forth in the following schedule:
<TABLE>
<CAPTION>
Annual Rate per Rentable
Years of Term Monthly Installment of Square Foot of Storage
of the Lease Annual Storage Rent Storage Rent Area
<S> <C> <C> <C>
1-2 $13,716.00 $1,143.00 $18.00
3-5 $15,240.00 $1,270.00 $20.00
6-7 $16,764.00 $1,397.00 $22.00
</TABLE>
Such Storage Rent shall be payable in advance (except that the first month's
installment of Storage Rent shall be paid concurrently with Tenant's execution
of this Agreement) in monthly installments on the first day of each month during
the Term of this Agreement. The Storage Rent shall be paid without offset, prior
notice or demand to Landlord at the address set forth in the Lease for payment
of rent thereunder, or to such other person or place as Landlord may designate
in writing from time to time. If the Term ends on a day other than the last day
of a month, then the Storage Rent for the month during which such expiration
occurs shall be prorated on the basis of the actual number of days in such
month. In addition to the Storage Rent, Tenant shall pay to Landlord, within ten
(10) days after Landlord's written demand therefor, all utility charges, if any,
allocable to Tenant's use of the Storage Area, as reasonably determined by
Landlord. In the event the Storage Rent or any other amounts payable by Tenant
hereunder are not paid within five (5) days of the date due, Tenant shall be in
default under this Agreement, and Landlord shall have the right, in addition to
all of Landlord's other remedies at law or in equity, to terminate this
Agreement, which termination shall be effective upon Landlord's written notice
to Tenant thereof. In addition to the foregoing, if Tenant fails to pay to
Landlord the Storage Rent or any other amounts payable hereunder as and when
due, such amounts shall bear interest from the date due until paid at a rate
equal to the lesser of eighteen percent (18%) per annum or the highest rate
permitted by applicable law.
<PAGE> 56
4. Government Regulations and Other Obligations of Tenant. Tenant
shall obtain, at its sole cost and expense, all governmental permits and
authorizations of whatever nature required by any and all applicable
governmental agencies in connection with Tenant's use of the Storage Area. In
addition, Tenant shall comply with all governmental laws and regulations,
including but not limited to, the American Disabilities Act, with respect to the
Storage Area and Tenant's use thereof, and all rules and regulations as Landlord
may adopt from time to time in connection with Tenant's use of the Storage Area.
All persons who enter upon the Storage Area pursuant to this Agreement do so at
their own risk, and shall comply with any and all instructions and directions of
Landlord.
5. Indemnification. All persons who enter upon or use the Storage
Area pursuant to this Agreement do so at their own risk, and shall comply with
any and all instructions and directions of Landlord. Tenant agrees and
acknowledges that its use of the Storage Area is at its sole risk, and Tenant
hereby waives, releases and absolves Landlord and Legacy Partners Commercial,
Inc., and their respective partners, officers, directors, employees and agents
(collectively the "Releasees") from any and all cost, loss, damage, expense,
liability and claims, whether foreseeable or not, from any cause whatsoever
(including, but not limited to, theft and water damage), that Tenant may suffer
to its personal property, including, without limitation, Tenant's employees'
bicycles located anywhere in the Storage Area or that it or its agents,
employees, principals and invitees may suffer with respect to person or property
as a direct or indirect consequence of Tenant's lease of or use of the Storage
Area or access areas to the Storage Area or for any other reason arising from or
related to this Storage Agreement. In addition, Tenant hereby agrees to
indemnify, defend, protect, and hold Landlord and the Releasees harmless from
and against any loss, cost, damage, liability, expense, claim and cause of
action (including attorneys' fees) resulting as a direct or indirect consequence
of (a) Tenant's lease or use of the Storage Area or access areas to the Storage
Area, (b) any act or omission of Tenant or any of Tenant's agents, employees or
invitees, (c) any breach by Tenant of any of its obligations under this
Agreement, or (d) for any other reason arising from or related to this Storage
Agreement. Tenant's indemnification of Landlord as set forth in this Section 5
shall survive the expiration or termination of this Agreement.
6. Use and Maintenance of Storage Area. Tenant agrees not to store
any flammable, combustible or other materials in the Storage Area that would
increase the cost of Landlord's insurance, and not to store any toxic or
hazardous materials, substances or waste in the Storage Area. Tenant also agrees
not to store excess or highly concentrated weight in the Storage Area; it shall
be Tenant's responsibility to obtain from Landlord the tolerable limits hereof.
Tenant agrees to use the Storage Area solely for storage purposes of dry goods
and materials and not as office space. Tenant agrees to use the Storage Area in
a manner which shall not interfere with the use and enjoyment of the Building by
Landlord or any tenants, occupants or persons claiming through or under
Landlord. Tenant agrees that Landlord and its agents may enter and inspect the
Storage Area and any property stored therein at any time upon giving reasonable
advance notice to Tenant (except that no such prior notice shall be required in
cases of emergency). Tenant shall deliver to Landlord a key for any locks
installed by Tenant for Landlord's emergency entry purposes. Tenant accepts the
Storage Area in its "as is", "with all faults", "without any warranties or
representations" condition, and shall maintain and repair the Storage Area in
good order and condition, at Tenant's sole cost and expense. Tenant shall not
suffer or permit to be enforced against the Building, or any part thereof, any
mechanics, materialmen's, contractors' or subcontractor's liens arising from the
activities of Tenant, and Tenant shall pay or cause to be paid all of said
liens, claims or demands before any action is brought to enforce the same
against the Building or any portion thereof. Notwithstanding anything herein to
the contrary, Tenant shall not store bicycles in the Basement Storage Area, and
in the event that Tenant shall store bicycles in the Ground Floor Storage Area,
Tenant and Tenant's employees shall bring such bicycles to and from the Ground
Floor Storage Area through the Building's loading dock. Tenant's use of the
Building's loading dock shall be subject to Landlord's reasonable rules and
regulations concerning the use of the Building's loading dock. In no event shall
Tenant or its employees be permitted to transport bicycles through the
Building's ground floor lobby or elevators.
7. Surrender. Upon the expiration or termination of the Term of this
Agreement, Tenant shall surrender the Storage Area to Landlord in the following
condition: (a) Tenant shall remove all of its property and all trash and debris
from the Storage Area: (b) Tenant shall broom clean all portions of the Storage
Area and common areas adjacent to the Storage Area: and (c) Tenant shall
otherwise perform and pay for costs of repairing and restoring the Storage Area
to at least as good condition as existed prior to Tenant's use of the Storage
Area.
8. Defaults. Breach of any of its covenants or obligations under
this Agreement by Tenant shall, at the option of Landlord, also constitute a
default under the Lease. A default under the Lease by Tenant shall, at the
option of Landlord, also constitute a default under this Agreement.
9. Notices. Any notice required or permitted to be given hereunder
by Tenant or Landlord shall be given pursuant to the notice of the Lease.
10. Relocation of Storage Area. Landlord reserves the right, upon not
less than thirty (30) days' prior written notice to Tenant, to substitute for
the Storage Area comparable storage area within the Building having
substantially equivalent usable area as the Storage Area, provided that Landlord
shall pay all expenses reasonably incurred in moving Tenant's property to such
new location; and upon the expiration of such 30-day written notice, the new
storage area shall be deemed to be the Storage Area covered by this Agreement.
In addition, in the event that Landlord shall substitute other storage area
within the Building for the Ground Floor Storage Space, Landlord shall permit
Tenant to store bicycles in such substituted storage space.
11. Insurance.
(a) Coverages. Prior to and at all times after initially entering
upon the Storage Area for any purpose, Tenant shall at its sole expense maintain
with a reputable company or companies acceptable to Landlord, (i) a policy or
policies of commercial general liability insurance with respect to the Storage
Area and the operations
-2-
<PAGE> 57
of or on behalf of Tenant on or about the Storage Area, including, but not
limited to, personal injury, blanket contractual, broad form property damage,
coverage for not less than Three Million Dollars ($3,000,000.00) combined
single limit bodily injury, death and property damage liability per occurrence,
or the current limit of liability carried, whichever is greater, and (ii)
policy or policies of property damage insurance upon a "all risk" basis
covering all of Tenant's personal property in the Storage Area, for full
replacement cost. All policies of property insurance required to be carried by
Tenant hereunder shall include a clause or endorsement denying the insurer any
rights of subrogation against Landlord.
(b) Form and Provisions. Tenant shall provide that the policies of
insurance required above shall be primary and shall name Landlord and Legacy
Partners Commercial, Inc. as additional insureds, with the provision that any
other insurance carried by any such parties shall be noncontributing. Such
policies shall contain a provision that the naming of additional insureds shall
not negate any right the additional insured would have had as claimant under
the policy if not so named. All policies of insurance required under the
provisions of this Paragraph 11 shall contain an endorsement or provision that
not less than ten (10) days' prior written notice be given to Landlord prior to
cancellation or reduction of coverage or amount of such policy. A certificate
issued by the insurance carrier of each policy of insurance required to be
maintained by Tenant, stating the limits and other provisions to be required
hereunder, shall be delivered to Landlord prior to Tenant entering upon the
Storage Area or any portion thereof for any purpose, and thereafter not later
than thirty (30) days prior to the expiration of the term of each such policy.
12. Remedies. In the event of termination hereof due to a breach or
threatened breach by Tenant of any provision hereunder, Landlord may re-enter
and take exclusive possession of the Storage Area and remove all persons or
things therefrom, without legal process to the maximum extent permitted by law,
or by such legal process as Landlord may deem appropriate. Landlord may also
seek any other remedy available at law or in equity for any breach by Tenant of
any of its obligations hereunder, including but not limited to a suit for
damages, for any action for specific performance and/or injunction. Landlord
shall also have the right, but not the obligation, in the event of any breach or
default by Tenant under this Agreement, to enter upon the Storage Area and cure
such breach of default, in which event Tenant shall immediately reimburse
Landlord for the cost incurred by Landlord in effecting such cure. All remedies
provided herein or by law or equity shall be cumulative and not exclusive. No
termination or expiration of this Agreement shall relieve Tenant of its
obligations to perform those acts required to be performed either prior to or
after its termination.
13. Assignability. This Agreement may not be assigned, whether
voluntarily or by operation of law, and Tenant shall not sublease or permit the
use of the Storage Area, or any part thereof, to or by any other parties
(except use by Tenant's employees in strict compliance with the provisions
hereof), and any attempt to do so shall be null and void and constitute a
default by Tenant under this Agreement; provided, however, that Tenant shall
have the right to assign this Agreement to a Permitted Affiliate (as such term
is defined in Section 14.7 of the Lease).
14. Costs of Enforcement. In the event it is necessary for Landlord to
employ an attorney or other person or commence an action to enforce any of the
provisions of this Agreement or to remove Tenant from the Storage Area, Tenant
agrees to pay all costs of enforcement in connection therewith, including, but
not limited to, court costs and attorneys' fees.
15. Exculpation. The obligations of Landlord under this Agreement do
not constitute personal obligations of the corporation or individual partners
or subpartners of Landlord, and Tenant shall look solely to the Building and to
no other assets of Landlord for satisfaction of any liability with respect to
this Agreement and will not seek recourse against the corporate or individual
partners or subpartners of Landlord, nor against any of their assets for such
satisfaction.
16. Miscellaneous. This Agreement constitutes the entire understanding
between the parties hereto with respect to the lease and use of the Storage
Area and supersedes any and all prior arrangements or understanding between the
parties with respect thereto. No supplement, modification or amendment of this
Agreement shall be binding unless in writing and executed by the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions, whether or not similar, nor
shall any waiver be a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver. This instrument shall be
construed and enforced in accordance with, and governed by, the law of the
State of California. The headings of this instrument are for purposes of
reference only and shall not limit or define the meaning of the provisions
hereof. This Agreement may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one and the same
instrument. Neither this instrument nor a short form memorandum or assignment
hereof shall be filed or recorded in any public office without Landlord's prior
written consent.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of
the date first above written.
"Landlord" WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Legacy Partners Commercial, Inc.
a Texas corporation, as agent and manager for Landlord
By: /s/ [Signature Illegible]
--------------------------------------------------
Name:
--------------------------------------------
Its: Sr VP Operations
---------------------------------------------
"Tenant" MYPOINTS.COM, a Delaware corporation
By: /s/ CHAZ BERMAN EVP
------------------------------------------------------
Name: Chaz Berman
------------------------------------------------
Its: Executive Vice President
-------------------------------------------------
By: /s/ THOMAS P. CALDWELL
------------------------------------------------------
Name: Thomas P. Caldwell
------------------------------------------------
Its: SVP & CFO
-------------------------------------------------
-4-
<PAGE> 59
TEMPORARY SPACE AGREEMENT
This Temporary Space Agreement ("Temporary Space Agreement") is entered
into on this 16 day of November 1999, by and between WHLNF REAL STATE LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord"), and MYPOINTS.COM,
INC., a Delaware corporation ("Tenant").
R E C I T A L S:
A. Landlord and Tenant have entered into that certain Office Lease the
("Lease") dated November __, 1999, for 38,386 rentable square feet of space
which is the entirety of the space located on the eleventh and twelfth floors
(the "Premises") of the building located at 100 California Street, San
Francisco, California (the "Building").
B. As additional consideration for Tenant having entered into the Lease
with Landlord, Landlord shall lease to Tenant and Tenant shall lease from
Landlord, on a temporary basis, those certain temporary premises described
below.
C. Except as otherwise expressly set forth in this Temporary Space
Agreement, all defined terms herein shall have the meanings assigned to such
terms in the Lease, and the terms and conditions of the Lease shall remain in
full force and effect.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant
agree as follows:
1. Temporary Premises. Landlord hereby agrees to lease to Tenant and
Tenant hereby agrees to lease from Landlord certain premises consisting of
approximately 9,534 rentable square feet, known as Suites 1120, 1140, 1160 and
1165 and located on the eleventh floor of the Building (the "Temporary
Premises"), in their "as is" condition as of the date hereof.
2. Term. The term of this lease of the Temporary Premises (the
"Temporary Lease Term") shall continue from November 29, 1999 until the date
(the "Termination Date") which is the earlier of (i) the Lease Commencement Date
of the Lease for the Premises; or (ii) date the Lease terminates for any reason,
including as a result of Tenant's default thereunder. Upon such Termination
Date, this lease of the Temporary Premises shall automatically terminate and be
of no further force or effect.
3. Base Rent. The Monthly Base Rent payable for the Temporary Premises
shall be $31,780.00 per month during the Temporary Lease Term, payable in
advance on the first (1st) day of each calendar month during the Temporary Lease
Term, without demand, notice or offset,
<PAGE> 60
except that the first month's installment of such Monthly Base Rent shall be
paid by Tenant concurrently upon execution of this Temporary Space Agreement.
4. Additional Rent. Tenant shall also be obligated to pay to Landlord
the costs of any excess consumption of utilities pursuant to the provisions of
Section 6.2 of the Lease. However, Tenant shall not be obligated to pay any
Operating Expenses in connection with Tenant's lease of the Temporary Premises.
5. Default. Any default by Tenant under this Temporary Space Agreement
shall also constitute a default by Tenant under the Lease.
6. Incorporation of Lease Provisions. Except to the extent the Lease
conflict with this Temporary Space Agreement, the entirety of the Lease is
hereby incorporated herein as if stated in its entirety; provided, however,
that Landlord and Tenant agree that Sections 1.2, 1.4, Article 4, and Exhibits
A, B and H attached to the Lease shall have no applicability to this Temporary
Space Agreement.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Temporary Space
Agreement to be executed on the day and dated first above written.
"Landlord"
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Legacy Partners Commercial, Inc., as agent
and manager for Landlord
By: /s/ [Signature Illegible]
---------------------------------------
Name:
----------------------------------
Its: Sr VP Operations
-----------------------------------
11/16/99
-----------------------------------
"Tenant"
MYPOINTS.COM, INC.,
a Delaware corporation
By: /s/ CHAZ BERMAN EVP
--------------------------------------
Name: Chaz Berman
---------------------------------
Its: Executive Vice President
----------------------------------
By: /s/ THOMAS P. CALDWELL
--------------------------------------
Name: Thomas P. Caldwell
---------------------------------
Its: SVP & CFO
----------------------------------
-2-
<PAGE> 61
TEMPORARY SPACE AGREEMENT
This Temporary Space Agreement ("Temporary Space Agreement") is entered
into on this 16 day of November 1999, by and between WHLNF REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord"), and MYPOINTS.COM,
INC., a Delaware corporation ("Tenant").
R E C I T A L S:
Landlord and Tenant have entered into that certain Office Lease (the
"Lease") dated November __, 1999, for 38,386 rentable square feet of space which
is the entirety of the space located on the eleventh and twelfth floors (the
"Premises") of the building located at 100 California Street, San Francisco,
California (the "Building").
A. As additional consideration for Tenant having entered into the Lease
with Landlord, Landlord shall lease to Tenant and Tenant shall lease from
Landlord, on a temporary basis, those certain temporary premises described
below.
B. Except as otherwise expressly set forth in this Temporary Space
Agreement, all defined terms herein shall have the meanings assigned to such
terms in the Lease, and the terms and conditions of the Lease shall remain in
full force and effect.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant
agree as follows:
1. Temporary Premises. Landlord hereby agrees to lease to Tenant and
Tenant hereby agrees to lease from Landlord certain premises consisting of
approximately 1,820 rentable square feet, known as Suites 756 and 744 and
located on the seventh floor of the Building (the "Temporary Premises"), in
their "as is" condition as of the date hereof.
2. Term. The term of this lease of the Temporary Premises (the
"Temporary Lease Term") shall continue from the date of execution of the Lease
until the date (the "Termination Date") which is the earlier of (i) the Lease
Commencement Date of the Lease for the Premises; or (ii) date the Lease
terminates for any reason, including as a result of Tenant's default thereunder.
Upon such Termination Date, this lease of the Temporary Premises shall
automatically terminate and be of no further force or effect.
3. Base Rent. The Monthly Base Rent payable for the Temporary Premises
shall be $6,066.67 per month during the Temporary Lease Term, payable in advance
on the first (1st) day of each calendar month during the Temporary Lease Term,
without demand, notice or offset,
<PAGE> 62
except that the first month's installment of such Monthly Base Rent shall be
paid by Tenant concurrently upon execution of this Temporary Space Agreement.
4. Additional Rent. Tenant shall also be obligated to pay to Landlord
the costs of any excess consumption of utilities pursuant to the provisions of
Section 6.2 of the Lease. However, Tenant shall not be obligated to pay any
Operating Expenses in connection with Tenant's lease of the Temporary Premises.
5. Default. Any default by Tenant under this Temporary Space Agreement
shall also constitute a default by Tenant under the Lease.
6. Incorporation of Lease Provisions. Except to the extent the Lease
conflict with this Temporary Space Agreement, the entirety of the Lease is
hereby incorporated herein as if stated in its entirety; provided, however,
that Landlord and Tenant agree that Section 1.2, 1.4, Article 4, and Exhibits
A, B and H attached to the Lease shall have no applicability to this Temporary
Space Agreement.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Temporary Space
Agreement to be executed on the day and date first above written.
"Landlord"
WHLNF REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Legacy Partners Commercial, Inc. as agent
and manager for Landlord
By: /s/ [Signature Illegible]
-----------------------------------------
Name:
-------------------------------------
Its: Sr VP Operations
-------------------------------------
11/16/99
"Tenant"
MYPOINTS.COM, INC., a Delaware Corporation
By: /s/ CHAZ BERMAN EVP
-----------------------------------------
Name: Chaz Berman
-------------------------------------
Its: Executive Vice President
-------------------------------------
By: /s/ THOMAS P. CALDWELL
-----------------------------------------
Name: Thomas P. Caldwell
-------------------------------------
Its: SVP & CFO
-------------------------------------
-2-
<PAGE> 63
EXTENSION OPTION RIDER
This Extension Option Rider ("Extension Rider") is made and entered into
by and between WHLNF REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited
partnership ("Landlord"), and MYPOINTS.COM, INC., a Delaware corporation
("Tenant"), and is dated as of the date of the Office Lease ("Lease") by and
between Landlord and Tenant to which this Extension Rider is attached. The
agreements set forth in this Extension Rider shall have the same force and
effect as if set forth in the Lease. To the extent the forms of this Extension
Rider are inconsistent with the terms of the Lease, the terms of this Extension
Rider shall control.
1. Option Right. Landlord hereby grants Tenant one (1) option to extend
the Lease Term for a period of five (5) years (the "Option Term"), which option
shall be exercisable only by written Exercise Notice (as defined below)
delivered by Tenant to Landlord as provided below. Upon the proper exercise of
such option to extend the Lease, the Lease Term shall be extended for the
Option Term.
2. Option Rent. The Annual Base Rent payable by Tenant during the Option
Term (the "Option Rent") shall be equal to the greater of (i) the Annual Base
Rent payable by Tenant during the last year of the initial Lease Term and (ii)
the "Fair Market Rental Rate" for the Premises. As used herein, the "Fair
Market Rental Rate" for purposes of determining the Annual Base Rent for the
Option Term (or for purposes of determining the Annual Base Rent for the First
Offer Space pursuant to Section 1.4 of the Lease) shall mean the annual Base
Rent at which non-equity tenants, as of the commencement of the Option Term (or
the lease term for the First Offer Space, as the case may be), will be leasing,
non-sublease, non-equity, unencumbered space comparable in size, location and
quality to the Premises (or the First Offer Space, as the case may be) for a
comparable term which comparable space is located in the Building and in other
comparable first-class office buildings in the Financial District of San
Francisco, California, taking into account and adjusting the Base Year to be
the calendar year in which the Option Term (or the lease term for the First
Offer Space, as the case may be) commences, and taking into consideration all
free rent and other out-of-pocket concessions generally being granted at such
time for such comparable space for the Option Term (or the lease term for the
First Offer Space, as the case may be) (including, without limitation, any
tenant improvement allowance provided for such comparable space, with the
amount of such tenant improvement allowance to be provided for the Premises
during the Option Term (or the First Offer Space during the lease term for the
First Offer Space, as the case may be) to be determined after taking into
account the age, quality and layout of the tenant improvements to the Premises
(or the First Offer Space, as the case may be) as of the commencement of the
Option Term (or the lease term for the First Offer Space, as the case may be)).
All other terms and conditions of the Lease shall apply throughout the Option
Term; however, Tenant shall, in no event, have the option to extend the Lease
Term beyond the last Option Term described in Section 1 above.
3. Exercise of Option. The option contained in this Extension Rider shall
be exercised by Tenant, if at all, only in the following manner: (i) Tenant
shall deliver written notice to Landlord not more than (16) months nor less than
fifteen (15) months prior to the expiration of the initial Lease Term, stated
that Tenant may be interested in exercising its option; (ii) Landlord, after
receipt of Tenant's notice, shall deliver notice (the "Option Rent Notice") to
Tenant not less than fourteen (14) months prior to the expiration of the initial
Lease Term setting forth Landlord's determination of the Fair Market Rental
Rate; and (iii) if Tenant wishes to exercise such option, Tenant shall, on or
before the date (the "Exercise Date") which is the earlier of (A) the date
occurring twelve (12) months prior to the expiration of the initial Lease Term,
and (B) the date occurring thirty (30) days after Tenant's receipt of the Option
Rent Notice, exercise the option by delivering written notice ("Exercise
Notice") thereof to Landlord. In the event that Landlord determines that the
Fair Market Rental Rate is greater than the Annual Base Rent payable by Tenant
during the last year of the initial Lease Term, during the period of time
between the date Landlord delivers the Option Rent Notice and the Exercise Date,
Landlord and Tenant shall discuss Landlord's determination of the Fair Market
Rental Rate. Concurrently with Tenant's delivery of the Exercise Notice, if
Landlord and Tenant have not already agreed in writing upon the Fair Market
Rental Rate, Tenant may object, in writing, to Landlord's determination of the
Fair Market Rental Rate set forth in the Option Rent Notice, in which event such
Fair Market Rental Rate shall be determined pursuant to Section 4 below.
Tenant's failure to deliver the Exercise Notice on or before the Exercise Date,
shall be deemed to constitute Tenant's waiver of its extension right hereunder.
Tenant's failure to timely object in writing to Landlord's determination of the
Fair Market Rental Rate set forth in the Option Rent Notice shall be deemed
Tenant's acceptance thereof and the following provisions of Section 4 shall not
apply.
4. Determination of Fair Market Rental Rate. If Tenant timely objects to
the Fair Market Rental Rate submitted by Landlord in the Option Rent Notice (or
timely objects to Landlord's determination of the Fair Market Rental Rate for
the First Offer Space pursuant to Section 1.4.3 of the Lease). Landlord and
Tenant shall thereafter attempt in good faith to agree upon such Fair Market
Rental Rate, using their best good faith efforts. If Landlord and Tenant fail
to reach agreement on such Fair Market Rental Rate within thirty (30) days
following Tenant's objection to such Fair Market Rental Rate (the "Outside
Agreement Date") then the applicable Fair Market Rental Rate shall be submitted
to appraisal in accordance with Sections 4.1 through 4.7 below.
4.1 Landlord and Tenant shall each appoint one (1) "appraiser" who
shall be profession be a real estate broker who shall have been active over the
ten (10) year period ending on the date of such appointment in the brokerage of
office buildings in the Financial District of San Francisco, California. The
determination of the appraisers shall be limited solely to the issue of whether
Landlord's or Tenant's submitted Fair Market Rental Rate is the closer to the
actual Fair Market Rental Rate as determined by the appraisers, taking into
account the requirements with respect thereto set forth in Section 2 above.
Each such appraiser shall be appointed within fifteen (15) days after the
Outside Agreement Date.
4.2 The two (2) appraisers so appointed shall, within fifteen (15)
days of the date of the appointment of the [ILLEGIBLE]
4.3 The three (3) appraisers shall, within thirty (30) days of the
appointment of the third appraiser, reach a decision as to which of Landlord's
or Tenant's submitted Fair Market Rental Rate is closer to the actual Fair
Market Rental Rate and shall select such closer determination as the Fair
Market Rental Rate and notify Landlord and Tenant thereof.
EXTENSION
OPTION RIDER
-1-
<PAGE> 64
4.4 The decision of the majority of the three (3) appraisers shall
be binding upon Landlord and Tenant; provided, however, in the event that the
appraisers select a submitted Fair Market Rental Rate that is lower than the
Annual Base Rent payable by Tenant for the last year of the initial Lease Term,
then the Option Rent shall be qual to the Annual Base Rent payable by Tenant
during the lease year of the initial Lease Term.
4.5 If either Landlord or Tenant fails to appoint an appraiser within
the time period specified in Section 4.1 hereinabove, the appraiser appointed by
one of them shall reach a decision, notify Landlord and Tenant thereof, and such
appraiser's decision shall be binding upon Landlord and Tenant.
4.6 If the two (2) appraisers fail to agree upon and appoint a third
appraiser, a third appraiser shall be appointed by the Superior Court of San
Francisco County, California.
4.7 Each party shall pay the fees and expenses of the appraiser
appointed by or on behalf of it, and each shall pay one-half of the fees and
expenses of the third appraiser, if any.
5. Suspension of Right to Extend Lease Term. Notwithstanding anything in
the foregoing to the contrary, at Landlord's option, and in addition to all of
Landlord's remedies under the Lease, at law or in equity, the right to extend
the Lease Term herein above granted to Tenant shall not be deemed to be properly
exercised if, as of the date Tenant delivers the Exercise Notice or as of the
end of the initial Lease Term, Tenant is in default under this Lease. In
addition, Tenant's right to extend the Lease Term is personal to the original
Tenant executing the Lease and any Affiliate to which Tenant's entire interest
in this Lease has been assigned pursuant to Series 14.7 of the Lease, and may
not be otherwise assigned or exercised, voluntarily or involuntarily, by or to,
any person or entity other than the original Tenant or any Affiliate-assignee,
and shall only be available to and exercisable by the Tenant of the Affiliate-
assignee when the original Tenant or the Affiliate-assignee is in actual and
physical possession of the entire Premises.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Legacy Partners Commercial, Inc.,
a Texas corporation, as manager and
agent for Landlord
By: /s/ [Signature Illegible]
-----------------------------------
Name:
------------------------------
Its:
------------------------------
"Tenant":
MYPOINTS.COM, INC.,
a Delaware corporation
By: /s/ CHAZ BERMAN EVP
-----------------------------------
Name: Chaz Berman
------------------------------
Its: Executive Vice President
------------------------------
By: /s/ ROBERT C. HOYLER
-----------------------------------
Name: Robert C. Hoyler
------------------------------
Its: President
------------------------------
EXTENSION
OPTION RIDER
-2-
<PAGE> 65
LETTER OF CREDIT RIDER
This LETTER OF CREDIT RIDER ("LC Rider") is made and entered into by and
between WHLNF REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord"), and MYPOINTS.COM, INC., a Delaware corporation ("Tenant"), and
is dated as of the date of the Office Lease ("Lease") by and between Landlord
and Tenant to which this LC Rider is attached. The agreements set forth in this
Letter of Credit Rider shall have the same force and effect as if set forth in
the Lease and that certain Temporary Space Agreement by and between Landlord
and Tenant (the "Temporary Agreement"). To the extent the terms of this LC
Rider are inconsistent with the terms of the Lease or the Temporary Agreement,
the terms of this LC Rider shall control.
1. Concurrent with Tenant's execution of the Lease, Tenant shall
deliver to Landlord, as collateral for the full and faithful performance by
Tenant of all of its obligations under the Lease or the Temporary Agreement and
for all losses and damages Landlord may suffer as a result of any default by
Tenant under the Lease or the Temporary Agreement, an irrevocable and
unconditional negotiable letter of credit (the "Letter of Credit"), in the form
and containing the terms required herein, payable in the County of San
Francisco, California, running in favor of Landlord issued by a bank with
offices in the County of San Francisco, California and approved by Landlord, in
the amount set forth in Section 11 of the Summary of the Lease (the "Letter of
Credit Amount"). The Letter of Credit shall be (i) at sight and irrevocable,
(ii) subject to the terms of this LC Rider, maintained in effect, whether
through replacement, renewal or extension, for the period from the date of
execution of the Lease and continuing until the date (the "LC Expiration Date")
which is sixty (60) days after the expiration of the Lease Term, and Tenant
shall deliver a new Letter of Credit or certificate of renewal or extension to
Landlord at least thirty (30) days prior to the expiration of the Letter of
Credit, without any action whatsoever on the part of Landlord, (iii) subject to
the Uniform Customs and Practices for Documentary Credits (1993-Rev)
International Chamber of Commerce Publication #500, (iv) fully assignable by
Landlord in connection with a transfer of Landlord's interest in the Lease and
the Temporary Space Agreement, and (v) permit partial draws. In addition to the
foregoing, the form and terms of the Letter of Credit and the bank issuing the
same) shall be acceptable to Landlord, in Landlord's reasonable discretion, and
shall provide, among other things, in effect that: (A) Landlord, or its then
managing agent, shall have the right to draw down an amount up to the face
amount of the Letter of Credit upon the presentation to the issuing bank of
Landlord's (or Landlord's then managing agent's) written statement that such
amount is due to Landlord under the terms and conditions of the Lease or the
Temporary Agreement, is being understood that if Landlord or its managing agent
be a corporation, partnership or other entity, then such statement shall be
signed by an officer (if a corporation), a general partner (if a partnership),
or any authorized party (if another entity); (B) the Letter of Credit will be
honored by the issuing bank without inquiry as to the accuracy thereof and
regardless of whether the Tenant disputes the content of such statement; and
(C) in the event of a transfer of Landlord's interest in the Building, Landlord
shall transfer the Letter of Credit, in whole or in part (or cause a substitute
letter of credit to be delivered, as applicable) to the transferee and
thereupon Landlord shall, without any further agreement between the parties, be
released by Tenant from all liability therefor, and it is agreed that the
provisions hereof shall apply to every transfer or assignment of the whole or
any portion of said Letter of Credit to a new Landlord.
2. If, as a result of any application or use by Landlord of all or any
part of the Letter of Credit (or any "Cash Collateral," as that term is
defined below), the amount of the Letter of Credit and Cash Collateral shall
collectively be less than the Letter of Credit Amount, Tenant shall, within
five (5) days thereafter, provide Landlord with either (1) cash (the "Cash
Collateral") to be held and applied by Landlord as collateral in the same manner
as if Landlord held such amount as part of the Letter of Credit, or (2)
additional letter(s) of credit in an amount equal to the deficiency (or a
replacement letter of credit in the total Letter of Credit Amount), and any
such additional (or replacement) letter of credit shall comply with all of the
provisions of this LC Rider, and if Tenant fails to comply with the foregoing,
the same shall constitute an uncurable default by Tenant. Tenant further
covenants and warrants that it will neither assign nor encumber the Letter of
Credit or Cash Collateral, as the case may be, or any part thereof and that
neither Landlord nor its successors or assigns will be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance. Without
limiting the generality of the foregoing, if the Letter of Credit expires
earlier than the LC Expiration Date, Landlord will accept Cash Collateral, a
renewal letter of credit or substitute letter of credit (such renewal or
substitute letter of credit or Cash Collateral to be in effect and delivered
to Landlord, as applicable, not later than thirty (30) days prior to the
expiration of the Letter of Credit), which with respect to any letter of credit
shall be irrevocable and automatically renewable as above provided through the
LC Expiration Date upon the same terms as the expiring Letter of Credit or such
other terms as may be acceptable to Landlord in its reasonable discretion.
However, if the Cash Collateral is not timely delivered or the Letter of Credit
is not timely renewed or a substitute Letter of Credit is not timely received,
or if Tenant fails to maintain the Letter of Credit and/or the Cash Collateral
in the amount and in accordance with the terms set forth in this LC Rider,
Landlord shall have the right to present the Letter of Credit to the bank in
accordance with the terms of this LC Rider, and the entire sum evidenced
thereby shall be paid to and held by Landlord as Cash Collateral for
performance of all of Tenant's obligations under the Lease and the Temporary
Agreement and for all losses and damages Landlord may suffer as a result of any
default by Tenant under the Lease or the Temporary Agreement. Landlord shall
not be required to keep any Cash Collateral separate from its general funds.
3. If there shall occur a default under the Lease as set forth in
Article 19 of the Lease or the Temporary Agreement, Landlord may, but without
obligations to do so, draw upon the Letter of Credit and/or utilize the Cash
Collateral, to the extent Landlord deems necessary to cure any default of
Tenant and/or to compensate Landlord for any and all damages of any kind as
nature sustained or which may be sustained by Landlord resulting from Tenant's
default. Tenant agrees not to interfere in any way with payment to Landlord of
the proceeds of the Letter of Credit, either prior to or following a "draw" by
Landlord of any portion of the Letter of Credit, regardless of whether any
dispute exists between Tenant and Landlord as to Landlord's right to draw from
the Letter of Credit. No condition or term of the Lease or the Temporary
Agreement shall be deemed to render the Letter of Credit conditional to justify
the issuer of the Letter of Credit in failing to honor a drawing upon such
Letter of Credit in a timely manner.
4. Landlord and Tenant acknowledge and agree that in no event or
circumstance shall the Letter of Credit or any renewal thereof or substitute
therefor or Cash Collateral be (x) deemed to be or treated as a "security
deposit" within the meaning of California Civil Code Section 1950.7, (y)
subject to the terms of such Section 1950.7, or (z) intended to serve as a
"security deposit" within the meaning of such Section 1950.7. The parties
hereto (a) recite that the Letter of Credit and/or Cash Collateral, as the case
may be, is not intended to serve as a security deposit and such Section 1950.7
and any and all other laws, rules and
LETTER OF
CREDIT RIDER
-1-
<PAGE> 66
relevancy thereto and (b) waive any and all rights, duties and obligations
either party may now or, in the future, will have relating to or arising from
the Security Deposit Laws.
5. Notwithstanding anything to the contrary set forth in this LC Rider, it
is hereby agreed that the Letter of Credit Amount shall be reduced by and to the
amounts on the dates set forth on the schedule below so long as no default on
behalf of Tenant exists as of the scheduled production date and Landlord has not
drawn down on any portion of this Letter of Credit prior to such reduction date.
Any such reduction of the Letter of Credit Amount may be provided by amendment
to or replacement of the Letter of Credit, as shall be determined by Landlord.
<TABLE>
<CAPTION>
Reduction Date Amount of Reduction Revised Amount of Letter of Credit
<S> <C> <C>
First day of 25th month of initial Lease Term $446,237.20 $1,482,437.50
First day of 37th month of initial Lease Term $297,491.50 $1,189,956.00
First day of 49th month of initial Lease Term $297,491.50 $892,470.50
</TABLE>
6. In the event that Landlord shall have improperly drawn down on any
portion of the Letter of Credit and such drawn down portion(s) have been
improperly applied by Landlord, then Tenant shall have the rights set forth in
this Paragraph 6. Specifically, Tenant may institute legal proceedings to
determine and collect the amount of the portion(s) of the Letter of Credit which
Landlord improperly drew down, if any, and in the event that Tenant prevails in
such legal proceedings and receives a final, non-appealable monetary judgment
against Landlord, then Landlord shall pay such final, non-appealable monetary
judgment to Tenant within thirty (30) days after the date such monetary judgment
is entered. If such monetary judgment is not so paid, then Tenant shall be
entitled to deduct from Rent (as such term is defined in Section 4.1 of the
Lease) the amount of such final, non-appealable monetary judgment. The right of
deduction described in the immediately preceding sentence shall be enforceable
against Landlord and any successor-in-interest to Landlord, and shall prevail
over any contrary provisions of the Lease or the Temporary Agreement.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Legacy Partners Commercial, Inc.
as agent and manager for Landlord
By: /s/ [Signature Illegible]
--------------------------------------------------
Name:
--------------------------------------------
Its:
---------------------------------------------
"Tenant":
MYPOINTS.COM, a Delaware corporation
By: /s/ CHAZ BERMAN EVP
------------------------------------------------------
Name: Chaz Berman
------------------------------------------------
Its: Executive Vice President
-------------------------------------------------
By: /s/ ROBERT C. HOYLER
------------------------------------------------------
Name: Robert C. Hoyler
------------------------------------------------
Its: President
-------------------------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this registration statement on Form S-1 of
our report dated March 26, 1999 relating to the consolidated financial
statements of MyPoints.com, Inc. (formerly Intellipost Corporation), which
appear in such registration statement. We also consent to the references to us
under the captions "Experts" and "Selected Financial Data" in such registration
statement.
/s/ PRICEWATERHOUSECOOPERS LLP
- --------------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
January 19, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this registration statement on Form S-1 of
our report dated March 26, 1999 relating to the combined financial statements of
Enhanced Response Technologies, Inc. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such registration
statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
January 19, 2000
