<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999.
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CYBERGOLD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7311 94-3212392
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2921 ADELINE STREET
BERKELEY, CALIFORNIA 94703
(510) 845-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
A. NATHANIEL GOLDHABER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CYBERGOLD, INC.
2921 ADELINE STREET
BERKELEY, CALIFORNIA 94703
(510) 845-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
CARLA S. NEWELL, ESQ. NORA L. GIBSON, ESQ.
ANDREW BAW, ESQ. LINDSAY C. FREEMAN, ESQ.
FRANK A. GRANT IV, ESQ. ELISA S. LEE, ESQ.
ERIC E. KEPPLER, ESQ. BROBECK, PHLEGER & HARRISON LLP
GUNDERSON DETTMER STOUGH SPEAR STREET TOWER
VILLENEUVE FRANKLIN & HACHIGIAN, LLP ONE MARKET
155 CONSTITUTION DRIVE SAN FRANCISCO, CA 94105
MENLO PARK, CALIFORNIA 94025 (415) 442-0900
(650) 321-2400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $0.0001 par value.................... $46,000,000 $12,788
- ---------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
SHARES
LOGO
COMMON STOCK
This is an initial public offering of shares of common stock of Cybergold,
Inc. There is currently no public market for these shares. Cybergold expects
that the public offering price will be between $ and $ per
share.
We have applied for admission for trading and quotation of our common stock
on the Nasdaq National Market under the symbol "CGLD."
Our business involves significant risks. These risks are described under
the caption "Risk Factors" beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to Cybergold..................... $ $
</TABLE>
The underwriters may also purchase up to an additional shares of
common stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
---------------------------
SG COWEN
CIBC WORLD MARKETS
VOLPE BROWN WHELAN & COMPANY
, 1999
<PAGE> 3
[FRONT COVER OUTSIDE GATEFOLD
DESCRIPTION: Color reproduction of Cybergold web site home page with text
annotations and artwork describing various components of the home page.
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
- - Services to enhance Cybergold membership value
- - Cybergold presents to members a rotating set of featured incentive offers
- - "Spend" offers provide members with ability to purchase digital content using
Cybergold Micropayments
- - A set of changing "earn" offers provide members with opportunities to earn
cash for specific online behaviors
- - Extra member perks are sponsored by Cybergold merchants
- - Web surfers can open a free Cybergold account. No software downloads are
needed
- - Easy access to popular Internet content enhances member value
CYBERGOLD S-1
INSIDE FRONT COVER GATEFOLD
DESCRIPTION: 2-page spread color reproduction of three representative Cybergold
Web site pages, plus a rendering of a "bank" symbol and the VISA credit card
logo.
WEB SITE PAGE 1: Reproduction of the Cybergold "Earn" page.
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
- - TOP: Consumers earn cash for online activity.
- - NEAR TOP: Tabs enhance member navigation of the Cybergold web site.
- - RIGHT SIDE: Cybergold presents merchant offers for members to review and act
upon.
- - BOTTOM: Reward amounts vary according to the actions requested by merchants
and by the value of members' actions to the merchants.
- - LEFT BOTTOM: Members read summary descriptions of incentive offers. Clicking
on offers provides more information and instructions.
- - LEFT TOP: Listing by category provides additional navigational aid.
WEB SITE PAGE 2: Reproduction of the Cybergold "Account Management" page.
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
- - TOP: Account management screen enables members to review account status and
history.
- - BOTTOM RIGHT: Member balance.
- - BOTTOM LEFT: Consumer account history.
- - TOP LEFT: Account information.
UPPER RIGHT SIDE OF PAGE, SYMBOL 1: "bank" symbol annotated with Member
transfers Cybergold balance to personal bank account.
UPPER RIGHT SIDE OF PAGE, SYMBOL 2: Reproduction of "VISA" logo, annotated with:
Member transfers Cybergold balance to VISA account or Member loads Cybergold
account from VISA card.
<PAGE> 4
WEB SITE PAGE 3: Reproduction of the Cybergold "Spend" page.
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
TOP: Utilizing Cybergold Micropayments, member buys digital content, services
and products. Thousands of items are available.
NEAR TOP: log-in bar.
RIGHT SIDE 1: Cybergold's Multimedia Mart is a source for a wide variety of
digital content, services and products provided by merchants and hosted by
Cybergold.
RIGHT SIDE 2: CD World sells music CDs, DVDs, games and software.
RIGHT SIDE 3: BuyCollegeStuff provides college-branded screensaver software.
RIGHT SIDE 4: Epitonic is a vendor of independent MP3 music files.]
<PAGE> 5
PROSPECTUS SUMMARY
The following is only a summary. You should carefully read the more
detailed information contained in this prospectus, including our financial
statements and related notes. Our business involves significant risks. You
should carefully consider the information under the heading "Risk Factors."
Unless otherwise noted, all information in this prospectus: (1) assumes that all
outstanding shares of our preferred stock are converted into 14,453,186 shares
of common stock on the day that this offering is completed; (2) assumes that the
underwriters do not exercise their option to purchase additional shares, (3)
assumes the exercise of warrants to purchase 576,925 shares of Series D
Preferred Stock prior to the completion of this offering and the conversion of
such shares to common stock, (4) assumes our reincorporation in Delaware and (5)
does not reflect a for reverse stock split to be effected prior to the
consummation of the offering.
CYBERGOLD, INC.
We are a leading provider of online direct marketing and cash-based
incentive advertising solutions. We combine a variety of Internet-based direct
advertising and marketing services with cash-based online incentive programs to
provide flexible, cost-per-action incentive marketing solutions. Our payment
structure, in which our advertising and marketing clients are only charged when
our members execute specific predefined actions, provides these clients with a
known cost per yield for their advertising campaigns. By leveraging our
proprietary consumer member database and our targeting capabilities, we are able
to offer our clients customized, targeted advertising solutions designed to
improve advertisement response rates and reduce customer acquisition costs.
The unique capabilities of the Internet create significant opportunities
for advertisers, marketers and merchants to develop direct relationships with
consumers. Forrester Research estimates that Internet advertising expenditures
in 1998 were approximately $1.3 billion and projects Internet advertising
expenditures will increase to approximately $10.5 billion in 2003. To date, the
majority of Internet advertising has been in the form of passive banner
advertising. Decreasing consumer response to banner advertising has led
advertisers and marketers to seek alternative forms of online advertising to
increase the effectiveness and efficiency of their online marketing efforts. As
advertisers and marketers seek to increase the effectiveness and efficiency of
their online marketing efforts, they are turning to incentives-based programs,
which reward consumers for their attention or specific response to ads and
promotions. Most incentives-based programs offer consumers the ability to earn
"points" that are redeemable only for limited products, frequent flyer miles or
other non-cash, often restricted, rewards.
Our online Earn & Spend Community offers our 1.8 million consumer members a
broad array of cash-based incentive reward opportunities, whereby members are
compensated with cash, rather than non-cash incentives for responding to online
marketing offers. The cash earned by our members can be credited to either their
VISA or bank accounts from their Cybergold account or be used to purchase
digital content, services and products, including software, music, games, credit
reporting services and original artistic works and publications through our Earn
& Spend Community.
We have developed a proprietary micropayment system that enables the
cost-effective management of cash-based incentive programs on our Web site and
on other Web sites. Our system combined with our Earn & Spend incentives enables
the online exchange of inexpensive digital content, services and products which
has not previously been economically practical.
We believe our solution provides the following benefits:
Advertising and Marketing Client Benefits
- - Provides advertisers and marketers more flexible and effective marketing tools
to induce desired consumer behavior.
- - Provides a cost-per-action incentive marketing solution, reducing customer
acquisition costs and risk.
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<PAGE> 6
- - Enables advertisers and marketers to better measure the effectiveness of their
online advertising campaigns, allowing the review and modification of
campaigns at any time to react to consumer response rates.
- - Enables our clients to leverage our proprietary member database to offer
customized and targeted campaigns.
Member Benefits
- - Members receive cash for their Internet activity, unlike other incentive
reward programs where consumers receive only frequent flier miles, specified
products or other non-cash, often restricted, incentive rewards.
- - Member choice is increased by enabling consumers to limit the number of
advertising and marketing offers they are exposed to and to respond only to
advertising and marketing for which they have an interest. Consumers, through
our Earn & Spend Community, can spend their cash rewards on a wide variety of
digital content, services or products or simply have their cash rewards
credited to their VISA or bank accounts.
Merchant Benefits
- - Enables Internet commerce on a pay-per-transaction basis, offering merchants
an alternative revenue source by providing them access to our broad membership
base.
- - Provides merchants with value-added services, including "non-hosted" and
"hosted" services. In "non-hosted" solutions, our micropayment transaction
system enables merchants to sell inexpensive items or services on their own
Web sites. In "hosted" solutions, we provide the merchants with a complete
outsourced suite of Web site hosting, systems administration, transaction
processing and integration services, while the merchant only provides the
content.
Since inception, a total of 144 advertising and marketing clients have
offered incentives using our system. Advertising and marketing clients that have
used our service include Ask Jeeves, Inc., autobytel.com inc., Cendant
Corporation (Netmarket), The Walt Disney Company (Disney Daily Blast, Disney
Store Online), Earthlink Network, Inc., GoTo.com, Inc., Interactive Coupon
Network (Cool Savings), LifeMinders.com, Inc., New Media and Qwest
Communications International Inc.
We have entered into strategic relationships with the First National Bank
of Omaha, MBNA America Bank, Earthlink Network, Inc., BuySafe.com and others
which have enabled us to offer our advertising and marketing clients and members
a broad range of incentives and online services. We intend to continue to enter
into strategic relationships in order to build our Earn & Spend Community,
generate additional traffic to our Web site, increase membership and establish
additional sources of revenue.
We were incorporated under the name Cyber-Bucks, Inc. in California in
October 1994. We subsequently changed our name to CyberGold, Inc. and intend to
reincorporate under the name Cybergold, Inc. in Delaware prior to this offering.
Our principal executive offices are located at 2921 Adeline Street, Berkeley,
California 94703, and our telephone number is (510) 845-5000. Cybergold is our
registered trademark. Cybergold Mint and Earn & Spend are our trademarks. This
prospectus also contains trademarks of other companies. Our Web site is
www.cybergold.com. Information contained on our website does not constitute part
of this prospectus.
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock we are offering.................. shares
Common Stock to be outstanding after the shares
offering....................................
Underwriters' over-allotment option........... shares
Use of proceeds............................... For general corporate purposes, including working
capital and capital expenditures, and for potential
strategic acquisitions or investments. See "Use of
Proceeds."
Dividend policy............................... We do not anticipate paying cash dividends.
Proposed Nasdaq National Market symbol........ CGLD
</TABLE>
The number of shares of our common stock to be outstanding immediately
after the offering is based on the number of shares outstanding on May 18, 1999.
This number does not take into account:
- 1,875,957 shares of our common stock subject to options outstanding at a
weighted average exercise price of $0.19 per share and 1,824,043 shares
of common stock reserved for issuance under our stock option plans or
other option agreements at March 31, 1999;
- 185,000 shares of common stock issuable upon conversion of outstanding
options to purchase preferred stock;
- 1,500,000 shares of common stock reserved for issuance under our 1999
Omnibus Equity Incentive Plan;
- 300,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan; and
- outstanding warrants to purchase 272,500 shares of our common stock at a
weighted average exercise price of $0.30 per share.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial data is derived and qualified in its
entirety by our financial statements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues...................................... $ 1 $ 531 $1,005 $ 107 $ 503
Gross margin........................................ 0 238 539 72 258
Loss from operations................................ (2,579) (3,729) (4,683) (1,215) (1,737)
Net loss............................................ (2,569) (3,744) (4,604) (1,220) (1,726)
Basic and diluted net loss per common share......... $ (0.46) $ (0.63) $(0.87) $ (0.20) $ (0.33)
Shares used in computing basic and diluted net loss
per common share.................................. 5,618 5,969 6,031 6,020 6,079
</TABLE>
The following table presents our summary balance sheet at March 31, 1999,
which has been adjusted for the conversion of our preferred stock outstanding as
of March 31, 1999 into 11,373,263 shares of common stock, the issuance of
3,076,923 shares of Series D Preferred Stock on May 18, 1999 and the conversion
of these shares into an equal number of shares of common stock, the issuance of
576,925 shares of Series D Preferred Stock upon the exercise of warrants and the
conversion of these shares into an equal number of shares of common stock, and
our sale of shares of our common stock at an assumed public
offering price of $ per share in this offering. See "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,280 $
Current assets.............................................. 2,403
Total assets................................................ 2,893
Long-term obligations, net of current maturities............ 291
Convertible redeemable preferred stock...................... 6,671
Total stockholders' equity (deficit)........................ (5,978)
</TABLE>
5
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. You should also refer to the other information in this
prospectus, including our financial statements and the related notes. The risks
and uncertainties described below are not the only ones potentially affecting
our company. Additional risks and uncertainties that we are unaware of or that
we currently deem immaterial also may become important factors that affect our
company.
If any of the following risks occur, our business, results of operations or
financial condition could be materially harmed. As a result, the trading price
of our common stock could decline, and you could lose all or part of your
investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND EXPECT CONTINUED LOSSES FOR THE FORESEEABLE
FUTURE
We have not achieved profitability in any previous quarter, and given our
planned level of operating expenses, we expect to continue to incur operating
losses for the foreseeable future. Our retained deficit as of March 31, 1999 was
approximately $13.8 million. We plan to increase our operating expenses as we
continue to build brand and infrastructure and consequently, our losses will
increase in the future. 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. If our revenue growth is slower than we
anticipate or our operating expenses exceed our expectations, our losses will
significantly increase. We may never achieve profitability. Even if we were to
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more information on our operating history and results of operations.
WE CANNOT ASSURE YOU THAT WE WILL BE PROFITABLE BECAUSE WE HAVE OPERATED OUR
BUSINESS ONLY FOR A SHORT PERIOD OF TIME AND HAVE ONLY A LIMITED OPERATING
HISTORY UPON WHICH TO EVALUATE OUR BUSINESS
We were incorporated in October 1994 but did not begin to generate
meaningful revenues until March 1997. Accordingly, we have only a limited
operating history upon which to evaluate our business and prospects. Before
buying our common stock, you should carefully consider the risks and
difficulties that are frequently encountered by early stage companies in the
electronic commerce and direct marketing industries. These risks and
difficulties include any:
- inability to add new members to our program or retain members;
- failure by advertisers, marketers or consumers to adopt and accept online
direct marketing;
- failure to maintain, expand and develop relationships with advertisers,
marketers, partners, third-party Web sites and merchants;
- inability to increase awareness of the Cybergold brand;
- inability to expand the breadth and depth of services we offer;
- lack of broad acceptance of our method for making small payments over the
Internet;
- inability to develop and upgrade our technology to keep pace with the
demands of the electronic commerce, direct marketing and micropayments
industries;
- failure to enforce and protect our intellectual property rights;
6
<PAGE> 9
- inability to hire or retain key employees;
- inability to adapt to the changing advertising, marketing and Internet
markets; and
- inability to predict accurately future results of operations.
If we are unsuccessful in addressing these risks and uncertainties, our
business, results of operations and financial condition may be harmed. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" for detailed information on our historical operating results.
THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS OF OPERATIONS MAKES IT DIFFICULT
TO PREDICT OUR FINANCIAL PERFORMANCE AND MAY ADVERSELY AFFECT THE TRADING PRICE
OF OUR COMMON STOCK
Our quarterly results of operations have varied in the past and are likely
to vary significantly from quarter to quarter. A number of factors are likely to
cause these variations, some of which are outside of our control. These factors
include:
- changes in revenue levels resulting from the advertising and marketing
budget cycles of individual advertisers and marketers;
- changes in advertising and marketing 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 and marketing generally;
- our rate of member acquisition and the level of activity of new and
existing members;
- the number and type of programs and development contracts established
with our advertising and marketing clients as well as the impact of the
fixed price portion of development contracts on gross margin;
- the introduction of new products and services by us or by our
competitors;
- unexpected costs and delays resulting from the expansion of our
operations; and
- the occurrence of technical difficulties or unscheduled system downtime.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising and marketing and consumer
purchasing, which are typically higher during the fourth calendar quarter and
lower in the following quarter. In addition, expenditures by advertisers and
marketers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns. Consequently, our results of operations could be
harmed by a downturn in the general economy or a shift in consumer buying
patterns.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful and you should not
rely upon them as an indication of our future performance. Our operating
expenses are based on expected future revenues and are relatively fixed in the
short term. If our revenues are lower than expected, we would incur greater than
expected losses. In addition, during future periods our operating results likely
will fall below the expectations of public market analysts and investors. In
this event, the market price of our common stock likely would decline. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<PAGE> 10
WE DEPEND ON THE INCREASED ACCEPTANCE OF ONLINE INCENTIVES-BASED DIRECT
MARKETING PROGRAMS
Our success depends in part on the increased acceptance of online
incentives-based direct marketing programs. Although incentive programs have
been used extensively in traditional marketing and sales channels, they have
only recently begun to be used online.
The success of online incentives-based direct marketing programs will
depend on the ability of these programs to attract and retain members,
advertising and marketing clients and merchants. Our ability to attract and
retain members, clients and merchants will depend on our marketing efforts and
on the quality of each member, client or merchant experience with our system.
The number and relevance of the direct marketing offers we provide and the
perceived value of the incentives we offer will be necessary to achieve future
success. Our ability to generate revenue from clients and merchants will depend
on our ability to differentiate ourselves through the services we provide and
technology solutions we offer, as well as our success in generating adequate
participation from consumers in our online incentives-based direct marketing
programs. The attractiveness of our program to consumers depends in large part
on the attractiveness of the incentives we offer. To the extent that our online
incentives-based direct marketing program does not achieve market acceptance
among members, clients and merchants, our business, results of operations and
financial condition would be harmed.
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. Although we currently have approximately 1.8 million members,
we generate the majority of our revenues from a small percentage of our members,
and we cannot assure you that the percentage of active members will increase. In
addition, approximately 360,000 of our members have requested not to receive
e-mail from us. Because our revenues are primarily driven by commissions 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
the Cybergold Earn & Spend Community, our business, results of operations and
financial condition will be harmed. Although our membership has grown in prior
periods, we cannot be certain that our membership growth will continue at
current rates or increase in the future. Currently, we attract the majority of
our members through co-registration agreements with online partners, whereby
registrants for those sites have the option to concurrently sign up for the
Cybergold Earn & Spend Community. We believe that the convenience afforded by
this co-registration capability is a significant factor in attracting new
members. If we were to lose these relationships with our online co-registration
partners, we would lose a significant source of new members, and our business,
results of operations and financial condition would be harmed.
IF OUR ABILITY TO DEPOSIT TO AND TRANSFER FUNDS FROM VISA ACCOUNTS WERE TO BE
DISCONTINUED OR IF THIS ABILITY WERE TO BE EXTENDED TO COMPETITORS, OUR BUSINESS
COULD BE HARMED
Cybergold has a relationship with the First National Bank of Omaha, an
acquiring bank for VISA International Service Association (VISA), that enables
the transfer of funds from individual Cybergold member accounts to their VISA
accounts, as well as from their VISA accounts to their Cybergold accounts. This
transaction processing capability required re-engineering of the First National
Bank of Omaha's VISA transaction processing system, and would be difficult to
replicate with another financial service provider if our relationship with the
First National Bank of Omaha were to deteriorate or terminate. The First
National Bank of Omaha can terminate the contract at any time with 30 days
notice. Currently, under the conditions of our contract, we cannot enter into
similar relationships with other credit card providers such as MasterCard,
American Express or Discover. However, the First National Bank of Omaha can at
its own discretion freely offer similar services to our existing and potential
competitors. If we were to lose this relationship with the First National Bank
of Omaha, or if
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they were to extend similar services to our competitors, our business, results
of operations and financial condition would be harmed.
IF WE ARE UNABLE TO ESTABLISH THE CYBERGOLD BRAND, OUR BUSINESS WOULD BE HARMED
Developing a strong brand is critical to our business. The reputation of
the Cybergold brand will largely depend on our ability to provide a high-quality
experience for our clients, members and merchants. We cannot assure you that we
will be successful in developing our brand. Any client, member or merchant
dissatisfaction with the quality of an experience with our company for reasons
within or outside of our control could damage our reputation. Any damage to our
reputation could have a material adverse effect on our business, results of
operations and financial condition. We intend to spend a portion of the proceeds
of this offering to further develop our brand. If we expend additional resources
to build the Cybergold brand and do not generate a corresponding increase in
revenues as a result of our branding efforts, or if we otherwise fail to promote
our brand successfully, our business, results of operations and financial
condition would be harmed.
IF THE INTERNET FAILS TO GAIN FURTHER ACCEPTANCE AS A MEDIUM FOR ADVERTISING AND
MARKETING, OUR BUSINESS WOULD BE HARMED
Our business depends on market acceptance of the Internet as a medium for
advertising and marketing. Advertisers, marketers and advertising and marketing
agencies that have historically relied on traditional forms of advertising and
marketing may be reluctant or slow to adopt online advertising and marketing.
Many advertisers and marketers have limited or no experience using the Internet
as an advertising and marketing medium. In addition, these advertisers and
marketers may have allocated only a limited portion of their budgets to online
advertising and marketing, or may find online advertising and marketing to be
less effective for promoting their products and services than traditional
advertising and marketing media, including television, radio and print.
Advertisers, marketers, and advertising and marketing agencies that have
invested substantial resources in traditional methods of advertising and
marketing may also be reluctant to reallocate their resources to online
advertising and marketing. The market for online advertising and marketing also
depends on the overall growth and acceptance of electronic commerce. If the
markets for online advertising and marketing and electronic commerce fail to
develop or develop more slowly than we expect, our business, results of
operations and financial condition would be harmed.
WE DEPEND ON CONSUMER DEMAND FOR MAKING SMALL PAYMENTS OVER THE INTERNET
We cannot assure you that the demand for and market acceptance of Internet
micropayment services will develop to a sufficient level to support our
continued operations or planned expansion, and we also cannot assure you that
consumers, Web sites or merchants will utilize a system for micropayment
transactions over the Internet. Currently, Internet content and service
providers typically use a subscription model to charge for content or services
they provide, if they charge consumers directly for their content or services at
all. We cannot assure you that these entities will ever adopt a method for
accepting small payments for their content or services over the Internet. In
addition, the development of a market for micropayments on the Internet may
depend on the eventual adoption of a standard micropayment system. There can be
no assurance that our micropayment system will be the system adopted by
consumers, Web sites, or merchants. If a widespread demand for micropayments
does not develop or if another method for micropayments is adopted as a
standard, our business, results of operations and financial condition will be
harmed.
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WE FACE SIGNIFICANT COMPETITION FROM ONLINE INCENTIVES-BASED ADVERTISING AND
MARKETING PROGRAMS AND PROVIDERS OF MICROPAYMENT SYSTEMS
We face significant competition from online incentives-based advertising
and marketing programs and providers of micropayment systems. We expect
competition to increase due to the lack of significant barriers to entry for
online business generally and for online incentives programs and micropayment
transactions in particular. Currently, several companies offer competitive
online incentives programs, including MyPoints.com, Inc. and Netcentives, Inc.
We may also face competition from established Internet 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. In addition, financial service organizations, such as banks and
credit card companies, or other large organizations may develop competitive
micropayment systems and incentives-based advertising and marketing programs.
Some of our current and potential competitors have longer operating
histories, greater brand recognition, larger client and member bases and
significantly greater financial, technical and marketing resources than we do.
These advantages may enable them to respond more quickly to new or emerging
technologies and changes in customer preferences. These advantages may also
allow them to engage in more extensive research and development, undertake
extensive far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, strategic
partners and advertisers. As a result, it is possible that our existing
competitors or new competitors may rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margin and
loss of market share. We may not be able to compete successfully, and
competitive pressures may adversely affect our business, results of operations
and financial condition. See "Business -- Competition."
A SIGNIFICANT PORTION OF OUR QUARTERLY REVENUES IS RECOGNIZED FROM A LIMITED
NUMBER OF ADVERTISING AND MARKETING CLIENTS
A significant portion of our revenues to date have been recognized from a
limited number of advertising and marketing clients. Our five largest clients
accounted for approximately 65% and 63% of our revenues for the year ended
December 31, 1998 and the quarter ended March 31, 1999, respectively and our ten
largest clients accounted for approximately 84% and 85% of our revenues for the
year ended December 31, 1998 and the quarter ended March 31, 1999, respectively.
We generally do not have long-term contracts with any of our clients, and
clients can generally terminate their relationships with us upon specified
notice and without penalties. Our client base fluctuates significantly from
quarter to quarter primarily as a result of the advertising and marketing budget
cycles of individual clients. In addition, to date this fluctuating client base
has been drawn from a concentrated group of companies. Revenues from significant
clients as a percentage of total revenues are as follows:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1998
Qwest Communications International, Inc................... 22%
Interactive Coupon Network (Cool Savings)................. 16%
THREE MONTHS ENDED MARCH 31, 1999
Qwest Communications International, Inc................... 20%
autobytel.com inc......................................... 12%
LifeMinders.com, Inc...................................... 11%
Cendant Corporation (Netmarket)........................... 11%
The Walt Disney Company (Disney Daily Blast, Disney Store
Online)................................................ 10%
</TABLE>
We expect that the majority of our revenues will continue to depend on
sales to a relatively small number of clients and that our client base will
continue to vary significantly from quarter to quarter. Any
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negative change in our relationship with or downturn in the business of clients
or any general downturn in the businesses of the concentrated group of companies
from which our client base is drawn could seriously harm our results of
operations.
IF WE FAIL TO ADAPT TO RAPID CHANGE IN OUR INDUSTRY OR OUR INTERNALLY DEVELOPED
SYSTEMS CANNOT BE MODIFIED PROPERLY FOR INCREASED TRAFFIC OR VOLUME, OUR
PRODUCTS AND SERVICES MAY BECOME OBSOLETE
Our industry is characterized by rapid change. The introduction of products
and services embodying new technologies, the emergence of new industry standards
and changing consumer needs and preferences could render our existing services
obsolete and unmarketable. Our future success will depend in part on our ability
to respond effectively to rapidly changing technologies, industry standards and
customer requirements by adapting and improving the performance features and
reliability of our services. We may experience technical difficulties that could
delay or prevent the successful development, introduction or marketing of new
products and services. In addition, any new enhancements to our products and
services must meet the requirements of our current and prospective users. We
could incur substantial costs to modify our services or infrastructure to adapt
to rapid change in our industry.
We internally developed our systems for maintaining our Web site processing
transactions and maintaining member accounts. If, in the future, we cannot
modify these systems to accommodate increased traffic and an increased volume of
transactions and orders, we could suffer slower response time, problems with
customer service and delays in reporting accurate financial information. During
the first three months of 1999, we experienced instances of unscheduled system
downtime, which resulted in our Web site being inaccessible for periods ranging
from several minutes to several hours and could experience such unscheduled
system downtime in the future.
WE RELY ON OUR INTELLECTUAL PROPERTY RIGHTS AND MAY BE UNABLE TO PROTECT THESE
RIGHTS
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our technology or business model.
Monitoring unauthorized use of our technology and business model is difficult
and we cannot be certain that the steps we have taken will prevent unauthorized
use of our technology and business model. In addition, our business activities
may infringe upon the proprietary rights of others, and, from time to time, we
have received, and may continue to receive, claims of infringement against us.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Litigation could subject us to significant
liability for damages and invalidation of our proprietary rights. These
lawsuits, regardless of their success, would likely be time consuming and
expensive to resolve and would divert management's time and attention away from
our business. Any potential intellectual property litigation could also force us
to do one or more of the following:
- make significant changes to the structure and operation of our business;
- 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 may not be possible. Accordingly, an adverse determination in any
litigation that we are a party to would have a material adverse effect on our
business, results of operations and financial condition.
Cybergold has two issued U.S. Patents covering its business model and
software architecture. We also have U.S. and foreign pending patent
applications. Cybergold is our only registered trademark,
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although we have applied to register additional trademarks in the United States.
We cannot assure you that our patents or trademarks will not be successfully
challenged by others or invalidated, that our pending patents will be issued or
that our trademark registrations will be approved. If our trademark
registrations are not approved because third parties own these trademarks, our
use of these trademarks would be restricted unless we entered into arrangements
with the third-party owners, which might not be possible on reasonable terms.
We generally enter into confidentiality or license agreements with our
employees and consultants, and control access to and distribution of our
technologies, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights from unauthorized use or disclosure,
unauthorized parties may attempt to disclose, obtain or use our solutions or
technologies. We cannot assure you that the steps we have taken will prevent
misappropriation of our solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States. See
"Business -- Intellectual Property" for more information on our intellectual
property.
ANY FAILURE OF OUR NETWORK INFRASTRUCTURE COULD HARM OUR BUSINESS
Our success depends on the capacity, reliability and security of our
networking hardware, software and telecommunications infrastructure. We use
network servers that are housed at an Internet co-location service provider's
data center in San Jose, California. Despite precautions taken by us and the
host of our Web site, our system is susceptible to natural and man-made
disasters such as earthquakes, fires, floods, power loss and vandalism.
Telecommunications failures, computer viruses, electronic break-ins or other
similar disruptive problems could adversely affect the operation of our systems.
In addition, any technical failure or security problems at our Internet service
provider and co-location facility could harm our business, financial condition
and results of operations. Our insurance policies may not adequately compensate
us for any losses that may occur due to any damages or interruptions in our
systems. Accordingly, we could be required to make capital expenditures in the
event of unanticipated damage. We do not currently have redundant systems or a
formal disaster recovery plan.
In addition, our members depend on Internet service providers for access to
our Web site. Internet service providers and Web sites have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. These problems
could harm our business, results of operations and financial condition.
IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR BUSINESS, RESULTS OF OPERATIONS
AND FINANCIAL CONDITION COULD BE HARMED
Our success will depend in part on our ability to manage our growth and
expansion effectively. We plan to expand our technology, sales, administrative
and marketing organizations. Our anticipated future expansion may place a
significant strain on our management systems and resources. We will need to
continue to improve our financial and managerial controls and reporting systems
and procedures and to expand, train and manage our workforce. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
In addition, we are in the process of moving our operations to new
facilities. During this move our technology infrastructure could be more
susceptible to technical failures or other disruptive problems. Any such
problems could diminish or halt our ability to provide services to our
customers, which could harm our business, results of operations and financial
condition.
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MANY OF OUR KEY PERSONNEL ARE NEW TO CYBERGOLD AND MAY NOT WORK TOGETHER
SUCCESSFULLY
A number of people on our management team and sales force have joined our
Company in the last 12 months. Our management team has limited experience
working together. Our future performance will depend, in part, on our ability to
integrate successfully our newly hired executive officers into our management
team, and our ability to develop an effective working relationship among
management. Our executive officers, who have worked together for only a short
time, may not be successful in working together or managing our company. Any
dissent among executive officers, or between our officers and our board of
directors, could affect our ability to make strategic decisions. See
"Management." In addition, the majority of our sales force has joined our
Company in the last six months and they have limited experience marketing our
services and working together. If our key personnel are unable to market our
services and work together successfully, our business, results of operations and
financial condition could be harmed.
WE MAY NOT BE ABLE TO HIRE OR RETAIN KEY EMPLOYEES
Our future success will depend, in part, on our ability to attract and
retain highly skilled employees, particularly management, sales and technical
personnel. Competition for employees in our industry is intense. We may be
unable to retain our key employees or to attract other highly qualified
employees in the future. We have experienced difficulty from time to time in
attracting the personnel necessary to support the growth of our business, and we
may experience similar difficulty in the future. If we are unable to hire or
retain key employees, our business, results of operations and financial
condition will be harmed.
WE MAY FACE RISKS AND COSTS ASSOCIATED WITH POTENTIAL FUTURE ACQUISITIONS
We may acquire or make investments in businesses, products, services, or
technologies to carry out our business strategy. We do not have any present
understanding, nor are we having any discussions relating to any acquisition or
investment. If we acquire businesses, products, services or technologies, we
could have difficulty in assimilating them into our operations. These
difficulties could disrupt our ongoing business, distract our management and
employees and increase our expenses. In addition, effecting acquisitions could
require use of a significant amount of our available cash. Furthermore, we may
have to issue equity or equity-linked securities to pay for future acquisitions,
and any such issuance could be dilutive to existing and future stockholders. In
addition, acquisitions and investments may have negative effects on our reported
results of operations due to acquisition-related charges and amortization of
acquired technology and other intangibles. Any of these acquisition-related
risks or costs could harm our business, financial condition and operating
results.
WE FACE RISKS ASSOCIATED WITH EXPANDING OUR BUSINESS INTERNATIONALLY
An element of our growth strategy is to introduce our services in
international markets. Our participation in international markets will be
subject to a number of risks, including foreign government regulations, export
license requirements, tariffs and taxes, fluctuations in currency exchange
rates, introduction of the European Union common currency, difficulties in
managing foreign operations and political and economic instability. To the
extent our potential international members are impacted by currency
devaluations, general economic crises or other 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. To date, we have not entered into any
strategic relationship with any international partners. We cannot assure you
that we will be able to establish international relationships, or that if
established, they will be successful. In addition, we cannot assure
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<PAGE> 16
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
develop banking relationships with foreign banks or overcome any legal
restrictions related to offering cash rewards and incentives that exist in
foreign jurisdictions. Any failure to develop our business internationally may
harm our competitive position and consequently our business.
WE MAY NEED MORE WORKING CAPITAL TO EXPAND OUR BUSINESS, AND OUR PROSPECTS FOR
OBTAINING ADDITIONAL FINANCING ARE UNCERTAIN
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
capital expenditures and working capital requirements through the end of 2000.
However, we may need to raise additional funds sooner to fund more rapid
expansion, to develop new or enhance existing services or products, to respond
to competitive pressures or to acquire complementary products, businesses, or
technologies. If additional funds are raised through the issuance of equity or
equity-linked securities, the percentage ownership of our stockholders would be
reduced. In addition, these securities may have rights, preferences or
privileges senior to those of our stockholders. We cannot assure you that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our expansion, take advantage of potential opportunities,
develop or enhance services or products, or otherwise respond to competitive
pressures would be significantly limited. Our business, results of operations
and financial condition could be harmed by this limitation. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" for a discussion of
working capital and capital expenditures.
RISKS RELATED TO THE INTERNET INDUSTRY
IF WE ARE UNABLE TO SECURELY MAINTAIN AND EXPAND OUR MEMBERSHIP DATABASE, OUR
BUSINESS COULD BE HARMED
An important feature of our program is our ability to develop and maintain
individual member profiles. Security and privacy concerns may cause consumers to
resist providing the personal data necessary to support this profiling
capability. As a result of these security and privacy concerns, we may incur
significant costs to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Use of our Cybergold Earn & Spend
Community could decline if any compromise of security occurred. In addition, if
unauthorized third parties gain access to our system and alter or destroy
information in our database, our ability to target direct marketing offers to
members would be harmed. We could also be subject to legal claims from members.
Any public perception that we engaged in unauthorized release of member
information would adversely affect our ability to attract and retain members.
Any of these events could have a material adverse effect on our business,
results of operations and financial condition.
We maintain a database containing information on our members, including
their account balances. Our database may be accessed by unauthorized users
accessing our systems remotely. If we experience a security breach, the
integrity of our database may be jeopardized. Any breach of this type could lead
to financial losses through the unauthorized redemption of monies.
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WE COULD BE SUBJECT TO LIABILITY FOR ONLINE CONTENT THAT MAY NOT BE COVERED BY
OUR INSURANCE
The nature and breadth of information disseminated on our Web site could
expose us to liability in various areas, including claims relating to:
- programs and promotions we offer;
- content and publication of various materials posted on our Web site based
on defamation, libel, negligence, personal injury and other legal
theories; and
- copyright or trademark infringement and wrongful action due to the
actions of third parties.
Claims of these kind against us would result in our incurring substantial
costs and would have a negative impact on our financial and other resources. If
there were numerous claims, or if the claims were severe, we would need to
implement measures to reduce our exposure and potential liability. Accordingly,
we may be required to change our services in such a way that would be less
attractive to our advertisers, marketers, merchants and members. This in turn
could reduce traffic to our Web site, negatively impact our membership or reduce
our revenue from electronic commerce or advertising and marketing. Our general
liability insurance may be insufficient to cover expenses and losses in
connection with any claims against us. To the extent our insurance coverage does
not cover liability or expenses we incur, our business, financial condition and
results of operations would be harmed.
IF THE INTERNET INFRASTRUCTURE FAILS TO DEVELOP OR BE ADEQUATELY MAINTAINED, OUR
BUSINESS WOULD BE HARMED BECAUSE MEMBERS MAY NOT BE ABLE TO ACCESS OUR SERVICES
We depend on the Internet infrastructure to provide the performance,
capacity and reliability needed to support the anticipated expansion of
electronic commerce on the Internet. If Internet usage grows, the Internet
infrastructure may not be able to support the demands placed on it by this
growth, and its performance and reliability may decline. Among other things,
continued development of the Internet infrastructure will require a reliable
network backbone with necessary speed, data capacity and security. Currently,
there are regular failures of the Internet network infrastructure, and there are
likely to be more in the future. These failures may undermine our marketing
clients' and our members' confidence in the Internet as a viable commercial
medium. Any actual or perceived degradation in the performance of the Internet
as a whole could undermine the benefits of our services. In addition, the
Internet could lose its viability as a commercial medium due to delays in the
development or adoption of new technology required to accommodate increased
levels of Internet activity or due to government regulation. If outages or
delays occur frequently in the future, electronic commerce and the use of our
services could grow more slowly or decline, which could harm our business,
results of operations and financial condition.
WE MAY BE VULNERABLE TO UNAUTHORIZED ACCESS, COMPUTER VIRUSES AND OTHER
DISRUPTION PROBLEMS THAT COULD ADVERSELY AFFECT US
Despite the implementation of security measures, our networks may be
vulnerable to unauthorized and illegal access, computer viruses and other
disruptive problems. Eliminating computer viruses and alleviating other security
problems may require interruptions, delays or cessation of service to users
accessing our Web sites, which could have a material adverse effect on our
business, results of operations and financial condition. A party who is able to
circumvent security measures could misappropriate proprietary information or
cause interruptions in our Internet operations. Internet service providers and
online service providers have in the past experienced, and may in the future
experience, interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
We may be required to expend significant capital or other resources to protect
against the
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threat of security breaches or to alleviate problems caused by breaches.
Although we intend to continue to implement security measures, we cannot be
certain that measures implemented by us will not be circumvented in the future.
OUR BUSINESS IS SUBJECT TO RISKS REGARDING SECURE TRANSMISSION OF CONFIDENTIAL
INFORMATION OVER PUBLIC NETWORKS
A necessity of online commerce and communications is the secure
transmission of confidential information over public networks. Our security
measures may not prevent security breaches. Any failure to prevent security
breaches could harm our business. We rely on encryption and authentication
technology licensed from third parties to provide the security and
authentication technology to effect secure transmission of confidential
information, including customer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other
developments may result in a compromise or breach of the technology used by us
to protect customer transaction data. Any such compromise of our security could
harm our reputation and, therefore, our business.
FUTURE REGULATION OF THE INTERNET COULD RESTRICT THE OPERATION AND GROWTH OF OUR
BUSINESS
Any new regulation of the Internet could inhibit growth of the Internet and
decrease the acceptance of the Internet as a communications and commercial
medium, which could have a material and adverse effect on our business. The laws
governing the Internet and email services remain largely unsettled. There is no
single governmental body overseeing our industry, and many state laws enacted in
recent years have different and sometimes inconsistent application to our
business.
In addition, industry standards and practices by Internet service providers
and other third-party e-mail providers vary. Some of these providers have
blocked in the past and, at their discretion, may in the future elect to block,
all e-mails coming from a specific domain, such as Cybergold, preventing
distribution of e-mails from us.
POTENTIAL PRIVACY REGULATION
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.
POTENTIAL CURRENCY REGULATION
Our online incentive program rewards are not currently subject to currency
regulation in any jurisdiction. If any governmental agency deemed that our
rewards are subject to such regulation, our business, financial condition and
results of operations could be harmed.
POTENTIAL FOREIGN REGULATION
Governments of foreign countries may also attempt to regulate electronic
commerce. New laws could stall the growth of the Internet and decrease the
acceptance of the Internet as a commercial
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medium. In addition, existing laws such as those governing intellectual property
and privacy may be interpreted to apply to the Internet. In the event that
foreign governments, the federal government, state governments or other
governmental authorities adopt, modify or re-interpret laws or regulations
relating to the Internet, our business, results of operations and financial
condition could be harmed.
POTENTIAL ELECTRONIC COMMERCE REGULATION
In 1998, the United States government enacted a three-year moratorium
prohibiting states and local governments from imposing new taxes on electronic
commerce transactions. Upon expiration of this moratorium, if it is not
extended, states or other governments may levy sales or use taxes on electronic
commerce transactions. An increase in the taxation of electronic commerce
transactions may make the Internet less attractive for consumers and businesses
which would harm our business.
WE FACE A NUMBER OF UNKNOWN RISKS ASSOCIATED WITH THE YEAR 2000 PROBLEM, ANY OF
WHICH MAY HARM OUR BUSINESS
Many currently installed computer systems and software products are coded
to accept only two digit entries in their date code field. Beginning in the Year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software products used by many companies may need to be upgraded to
comply with these Year 2000 requirements.
The costs we have incurred and expect to incur related to Year 2000
compliance have not been material to our business, results of operations or
financial condition. In the event that our assessment of our Year 2000 readiness
is inaccurate, we could be required to expend substantial resources to remedy
any unanticipated Year 2000 problems. Costs associated with unanticipated Year
2000 problems and difficulties in remedying these problems by year-end could
have a material adverse effect on our business, results of operations and
financial condition.
The most likely Year 2000 failure scenario attributable to a supplier or
customer is a systematic failure beyond our control or the supplier's or
customer's immediate control, such as a prolonged data communication,
telecommunications or electrical failure. A failure of this sort could prevent
members from accessing our Web site and prevent us from operating our business.
The primary business risks in the event of such a failure would include lost
revenues, increased operating expenses and loss of members. Any of these risks
could have a material adverse effect on our business, results of operations and
financial condition.
We have not yet developed a comprehensive contingency plan to address Year
2000 problems that are not detected and corrected prior to their occurrence.
RISKS RELATED TO THE OFFERING
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL RETAIN SUBSTANTIAL VOTING CONTROL OVER
CYBERGOLD AFTER THE OFFERING WHICH WILL ALLOW THEM TO INFLUENCE THE OUTCOME OF
MATTERS SUBMITTED TO STOCKHOLDERS FOR APPROVAL
We anticipate that our executive officers, our directors and entities
affiliated with them will, in the aggregate, beneficially own approximately %
of our outstanding common stock following the completion of this offering, or
% assuming exercise of the underwriters option to purchase additional shares.
As a result, these stockholders will retain substantial control over matters
requiring approval by our stockholders, such as the election of directors and
approval of significant corporate transactions. This
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concentration of ownership may also have the effect of delaying or preventing a
change in control. See "Principal Stockholders" for more information relating to
the ownership positions of our executive officers and directors.
SOME OF THE PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS
THAT COULD PREVENT A CHANGE IN CONTROL OF CYBERGOLD
Some of the provisions of our certificate of incorporation, our bylaws and
the Delaware General Corporation Law could make it more difficult for a third
party to acquire us, even if a change of control would be beneficial to our
stockholders. See "Description of Capital Stock" for more information on our
charter provisions and Delaware General Corporation Law. Such provisions
include:
- authorizing the issuance of up to 5,000,000 shares of "blank
check"preferred stock;
- providing for a classified board of directors with staggered, three year
terms; and
- prohibiting certain stockholder action by written consent.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE IN THE NEAR FUTURE MAY
CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE
A substantial number of shares of common stock will be available for sale
in the public market following this offering, which could adversely affect the
market price for our common stock. See "Shares Eligible for Future Sale" for a
more detailed description of the eligibility of shares of our common stock for
future sale.
A PUBLIC MARKET FOR OUR SECURITIES MAY NOT DEVELOP OR BE SUSTAINED
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our common stock will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for the shares will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of prices that will prevail in the trading market. You may not be able to resell
your shares at or above the initial public offering price. See "Underwriting."
OUR STOCK PRICE COULD BE VOLATILE FOLLOWING THIS OFFERING WHICH COULD LEAD TO
CLASS ACTION LITIGATION
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly Internet-related
companies, have been highly volatile. Investors may not be able to resell their
shares at or above the initial public offering price. In addition, in the past,
securities class action litigation has often been instituted against a company
following periods of volatility in the company's stock price. This type of
litigation could result in substantial costs and could divert our management's
attention and resources which could harm our business.
YOU WILL EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF
YOUR INVESTMENT
The initial public offering price of our common stock is substantially
higher than what the net tangible book value per share of the common stock will
be immediately after this offering. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $ in the net
tangible book value per share of our common stock from the price you pay for our
common stock (based upon an assumed initial public offering price of $ per
share). See "Dilution." The exercise of outstanding options and warrants may
result in further dilution.
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MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE
We intend to use the net proceeds from the sale of the common stock for
general corporate purposes, including working capital, and for potential
strategic acquisitions or investments. We have not determined how the proceeds
will be allocated among the anticipated uses. Accordingly, our management will
have significant flexibility in applying the net proceeds of this offering and
you will not have the opportunity, as part of your investment decision, to
assess whether the proceeds are being used appropriately. The net proceeds may
be used for corporate purposes that do not increase our profitability or our
market value. Until the proceeds are needed, we plan to invest them in
investment-grade, interest-bearing securities. The failure of management to
apply these funds effectively could harm our business. See "Use of Proceeds."
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement. In addition, this prospectus contains forward-looking
statements attributed to third party industry sources relating to their
estimates regarding the growth of Internet use. You should not place undue
reliance on these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to changes in our expectations.
19
<PAGE> 22
USE OF PROCEEDS
We estimate that our net proceeds from the sale of shares of
common stock we are offering will be approximately $ million ($ million
if the underwriters exercise their over-allotment option in full) at an assumed
initial public offering price of $ and after deducting estimated
offering expenses of $ and underwriting discounts and commissions
payable by us.
We expect to use the net proceeds for general corporate purposes, including
working capital and capital expenditures. A portion of the net proceeds may also
be used to acquire or invest in businesses, technologies, product lines or
products that are complementary to our business. We have no current agreements
or commitments with respect to any of these acquisitions or investments. Our
management will have broad discretion concerning the use of the net proceeds of
the offering. Pending these uses, we intend to invest the net proceeds of this
offering in investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock or other
securities and do not currently anticipate paying cash dividends in the future.
Our equipment financing obligations currently prohibit the payment of dividends.
20
<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. The
pro forma information reflects the sale of 3,076,923 shares of Series D
Preferred Stock on May 18, 1999, the issuance of 576,925 shares of Series D
Preferred Stock upon the exercise of outstanding warrants, the filing of an
amendment to our amended and restated certificate of incorporation to provide
for authorized capital stock of 75,000,000 shares of common stock and 5,000,000
shares of undesignated preferred stock and the conversion of all outstanding
shares of preferred stock into 15,030,111 shares of common stock on completion
of this offering. The pro forma as adjusted information reflects the sale of the
shares of common stock offered hereby and the application of the net proceeds we
receive from this offering. The outstanding share information excludes 1,958,364
shares of common stock issuable upon exercise of outstanding options as of March
31, 1999 at a weighted average exercise price of $0.19 per share, 185,000 shares
of common stock issuable upon conversion of outstanding options to purchase
preferred stock, 272,500 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $0.30 per share,
1,500,000 shares of common stock reserved for issuance under our 1999 Omnibus
Equity Incentive Plan and 300,000 shares of common stock reserved for issuance
under our 1999 Employee Stock Purchase Plan. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the related notes.
See "Use of Proceeds" and "Management -- Stock Plans."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------------- ------------ -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, net of current
maturities.................................... $ 291,425 $ $
Convertible redeemable preferred stock, $0.0001
par value, 8,000,029 shares authorized,
6,283,792 shares issued and outstanding,
actual; no shares authorized, no shares issued
and outstanding, pro forma and pro forma as
adjusted...................................... 6,671,480
------------ ---------- ----------
Stockholders' equity (deficit):
------------ ---------- ----------
Preferred stock, $0.0001 par value, 5,329,971
shares authorized, 5,092,471 shares issued and
outstanding, actual; 5,000,000 shares
authorized, no shares issued or outstanding,
pro forma and pro forma as adjusted........... 509
Common stock, $0.0001 par value, 20,000,000
shares authorized, 6,109,017 shares issued and
outstanding, actual; 75,000,000 shares
authorized, shares issued and
outstanding, pro forma; shares
authorized, issued and
outstanding, pro forma as adjusted............ 611
Stock subscription receivable...................
Additional paid-in capital...................... 8,916,025
Deferred compensation........................... (1,143,674)
Retained deficit................................ (13,751,771)
------------ ---------- ----------
Total stockholders' equity
(deficit).......................... (5,978,300)
------------ ---------- ----------
Total capitalization.................. $ $ $
============ ========== ==========
</TABLE>
21
<PAGE> 24
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
1999, giving effect to (i) the sale of 3,076,923 shares of Series D Preferred
Stock on May 18, 1999, (ii) the issuance of 576,925 shares of Series D Preferred
Stock upon the exercise of outstanding warrants and (iii) the conversion of all
outstanding shares of preferred stock into common stock on the closing of this
offering, was $ , or approximately $ per share of common stock.
"Pro forma net tangible book value per share" represents the amount of our total
tangible assets reduced by the amount of our total liabilities divided by
shares of common stock outstanding after giving effect to the
conversion of the preferred stock outstanding as of March 31, 1999 into common
stock. After giving effect to the issuance and sale of shares of
common stock offered by us and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us, our pro forma net
tangible book value as of March 31, 1999 would have been , or
$ per share. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate dilution
in net tangible book value of $ per share to new investors. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of March
31, 1999............................................... $
Increase per share attributable to new investors..........
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution per share to new investors
======
</TABLE>
The following table summarizes on a pro forma basis, giving effect to the
conversion of all outstanding shares of preferred stock into common stock on the
closing of this offering, as of March 31, 1999, the difference between the
number of shares of common stock purchased from us by existing stockholders and
by new investors, the total consideration paid to us by existing stockholders
and new investors and the average price paid by existing stockholders and by new
investors, before deduction of estimated discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. $ $
New investors.....................
--------- ----- ---------- ----- ------
Totals.................. 100.0% 100.0%
========= ===== ========== ===== ======
</TABLE>
As of March 31, 1999, there were options outstanding to purchase a total of
1,875,957 shares of common stock at a weighted average exercise price of $0.19
per share; 185,000 shares of common stock issuable upon conversion of
outstanding options to purchase preferred stock; 272,500 shares of common stock
issuable upon exercise of outstanding warrants at a weighted average exercise
price of $0.30 per share; 1,500,000 shares of common stock reserved for issuance
under our 1999 Omnibus Equity Incentive Plan and 300,000 shares of common stock
reserved for issuance under our 1999 Employee Stock Purchase Plan. To the extent
outstanding options or warrants are exercised, there will be further dilution to
new investors. See "Management -- Stock Plans."
22
<PAGE> 25
SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the financial
statements of Cybergold, Inc. These financial statements have been audited by
Arthur Andersen LLP, independent public accountants. The balance sheets as of
December 31, 1997 and 1998 and the statements of operations for the years ended
December 31, 1996, 1997 and 1998, and the related report, are included elsewhere
in this prospectus.
The selected financial data presented below as of March 31, 1999 and for
the three months ended March 31, 1998 and 1999 are derived from our unaudited
financial statements and are not necessarily indicative of the results that may
be expected for future periods, including the year ending December 31, 1999. In
the opinion of the Company, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of our financial position and
results of operations for such periods have been included.
The selected balance sheet data set forth below, as of December 31, 1997,
and 1998 and the statement of operations data for each of the three years in the
period ended December 31, 1998, are derived from the Company's financial
statements which have been audited by Arthur Andersen LLP, independent public
accountants, and which are included elsewhere in this prospectus.
The selected financial data as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 are derived from the Company's unaudited financial
statements which are included elsewhere in this prospectus and which include, in
the opinion of the Company, all adjustments, consisting only of normal recurring
adjustments, that are necessary for a fair presentation of its financial
position and the results of its operations for those periods. Operating results
for the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
The Company was formed in 1994 but did not begin meaningful operating
activities until 1996. Therefore, no selected financial data is presented for
the years ended December 31, 1994 or 1995.
The selected financial data set forth below should be read in conjunction
with our financial statements and notes and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" included elsewhere
in this prospectus.
The selected consolidated financial data should be read in conjunction
with, and is qualified by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements and notes thereto included elsewhere in this Prospectus.
23
<PAGE> 26
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Transaction............................ $ 1 $ 457 $ 628 $ 107 $ 333
Custom marketing services and other.... 0 74 377 0 170
------- ------- ------- ------- -------
Total revenues................. 1 531 1,005 107 503
Cost of revenues......................... 1 293 466 35 244
------- ------- ------- ------- -------
Gross margin........................... 0 238 539 72 259
------- ------- ------- ------- -------
Operating expenses:
Product development.................... 1,093 1,190 1,700 376 484
Sales and marketing.................... 841 2,162 2,695 791 967
General and administrative............. 645 615 642 120 228
Amortization of deferred
compensation........................ 0 0 185 0 316
------- ------- ------- ------- -------
Total operating expenses....... 2,579 3,967 5,222 1,287 1,995
------- ------- ------- ------- -------
Loss from operations..................... (2,579) (3,729) (4,683) (1,215) (1,736)
Interest income (expense), net........... 10 (15) 79 (5) 11
------- ------- ------- ------- -------
Net loss............................... $(2,569) $(3,744) $(4,604) $(1,220) $(1,725)
Dividend attributable to preferred
stockholders........................... -- -- (660) -- (293)
------- ------- ------- ------- -------
Net loss attributable to common
stockholders........................... $(2,569) $(3,744) $(5,265) $(1,220) $(2,018)
======= ======= ======= ======= =======
Net loss per common share,
Basic and diluted(1)................... $ (0.46) $ (0.63) $ (0.87) $ (0.20) $ (0.33)
======= ======= ======= ======= =======
Weighted average common shares
outstanding,
Basic and diluted(1)................... 5,618 5,969 6,031 6,020 6,079
======= ======= ======= ======= =======
Pro forma basic and diluted(1)........... $ (0.31) $ (0.10)
======= =======
Weighted average common shares
outstanding, basic and diluted...... 14,915 17,396
======= =======
</TABLE>
- -------------------------
(1) See Note 1 of Notes to Financial Statements for a description of the method
used to compute basic and diluted net loss per common share.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
------- ---------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 1,240 $ 3,175 $ 2,280
Current assets....................................... 1,401 3,592 2,403
Total assets......................................... 1,823 4,040 2,893
Long term obligations, net of current maturities..... 272 226 291
Convertible redeemable preferred stock............... -- 6,379 6,671
Total stockholders' equity (deficit)................. 743 (4,277) (5,978)
</TABLE>
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to those statements that appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and elsewhere in this prospectus, particularly in "Risk
Factors."
OVERVIEW
We are a leading provider of online direct marketing and cash-based
incentive advertising solutions. We combine a variety of Internet-based direct
advertising and marketing services with cash-based online incentive programs to
provide flexible, cost-per-action incentive marketing solutions. Our payment
structure, in which our advertising and marketing clients are only charged when
our members execute specific predefined actions, provides these clients with a
known cost per yield for their advertising campaigns. By leveraging our
proprietary consumer member database and our targeting capabilities, we are able
to offer our clients customized, targeted advertising solutions designed to
improve advertisement response rates and reduce customer acquisition costs.
Cybergold was incorporated in October 1994 and from inception through the
second quarter of 1996, we were in an early stage of development, and had no
sales and limited operating activities. From the second quarter of 1996 through
the first quarter of 1997, operating activities related primarily to developing
necessary infrastructure, recruiting personnel, raising capital, initial
strategic planning and developing our Web site. In March 1997, we launched our
initial service and enrolled our first Cybergold members. In March 1999, we
introduced our micropayments system, and launched our Earn & Spend Community.
Our membership base increased from approximately 250,000 at December 31, 1997 to
approximately 1.0 million at December 31, 1998 and to approximately 1.8 million
at May 18, 1999. Although our membership has grown in prior periods, we cannot
be certain that our membership growth will continue at current rates or increase
in the future. See "Risk Factors -- Our success depends on our ability to
maintain and expand an active membership base."
Our revenues consist of transaction revenues and custom marketing services
and other revenues. Transaction revenues represent fees paid to us each time a
member either earns or spends incentive rewards within our system and for
micropayments transactions. Our members earn rewards by responding to online
advertisements with a specific action such as filling out a survey or
registering for services. We are paid a transaction fee by advertisers or
marketers and we pay a portion of this fee to our members as a cash reward. We
also earn a transaction fee when our members spend their cash rewards to
purchase inexpensive digital content, services or products through our site or
other sites using our system. These transaction revenues are not recognized
until the transaction has been completed. In the case of prepayments by the
advertising or marketing client, amounts not yet recognized are included in
deferred revenue on the balance sheet. To date, our transaction revenues have
been primarily generated from per-transaction fees received from our advertising
and marketing clients for incentive programs. Revenues from micropayment
transactions have not been material.
Our transaction revenues are driven by a number of factors, including:
- the number of our advertising and marketing clients;
- the size of our membership base;
- the number of transactions performed by each member; and
- the average revenue per transaction.
25
<PAGE> 28
Custom marketing services and other revenues include production and
development fees received for customization of marketing programs, fees received
for delivering targeted e-mail to our members and fees received for other
advertising and marketing services. Production and development fees represent
HTML design services, graphic services, engineering and database development and
related services. We charge clients for production and development fees on
either a fixed price or time and materials basis. Revenue is recognized as these
services are performed. These revenues fluctuate based on the number of new
programs initiated, type of services, and scope and complexity of each program.
The cost of revenues associated with our transaction revenues represent
cash rewards paid to our members for completing transactions or actions. We pay
our members a portion of the amount received from the advertiser or marketer in
return for completing a specified response or action. Gross margin on
transaction revenues may fluctuate based on the nature of the incentive programs
and the advertisers and marketers in any given period.
The cost of revenues associated with custom advertising and marketing
services and other revenues primarily consist of costs for production and
development personnel and independent contractors, including associated payroll
tax, benefits and other indirect costs. Gross margin associated with these
revenues varies from contract to contract depending on the specific terms of the
individual contract, and may also fluctuate significantly based on the number
and size of fixed price contracts that we undertake in any period and our
ability to complete them within the anticipated budget.
We incurred a net loss of approximately $4.6 million in 1998, and
approximately $1.7 million in the three months ended March 31, 1999. As of March
31, 1999 we had a retained deficit of approximately $13.6 million. We plan to
increase our operating expenses as we continue to build brand and infrastructure
and consequently, our losses will increase in the future. 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 may
not be able to sustain or increase profitability on a quarterly or annual basis.
In connection with the granting of options to purchase our common stock to
certain employees, directors and consultants during 1998 and the first quarter
of 1999, we recorded deferred compensation of $1.6 million representing the
difference between the exercise price of options granted and the deemed fair
market value of our common stock at the time of grant. We will amortize this
deferred compensation as an expense over the vesting periods of the related
options. Total deferred compensation expenses recognized during the year ended
December 31, 1998 and the three month period ended March 31, 1999 were $185,000,
and $316,000, respectively.
26
<PAGE> 29
RESULTS OF OPERATIONS
The following table sets forth selected financial data for the periods
indicated as a percentage of total revenues. Data for the year ended December
31, 1996 is not presented because we had no material revenues during that
period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
---------------- ------------------
1997 1998 1998 1999
------ ------ -------- ------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction......................................... 86.0% 62.5% 99.1% 65.2%
Custom marketing services and other................. 14.0 37.5 0.9 34.8
------ ------ -------- ------
Total revenues.............................. 100.0 100.0 100.0 100.0
-------- ------
Cost of revenues...................................... 55.2 46.4 33.3 47.3
------ ------
Gross margin................................ 44.8 53.6 66.7 52.7
Operating expenses:
Product development................................. 224.1 169.0 283.3 95.3
Sales and marketing................................. 407.2 268.2 811.1 200.8
-------- ------
General and administrative.......................... 115.8 63.9 112.0 48.2
-------- ------
Amortization of deferred compensation............... -- 18.4 0.0 64.2
------ ------
Total operating expenses.................... 747.1 519.5 1,206.4 408.5
------ ------ -------- ------
Loss from operations.................................. (702.3) (466.0) (1,139.7) (355.8)
======== ======
Interest income (expense), net........................ (2.8) 7.9 10.3 2.2
------ ------ -------- ------
Net loss.............................................. (705.1)% (458.1)% (1,129.4)% (353.6)%
====== ====== ======== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUES
Our revenues increased 370% to $503,000 in the three months ended March 31,
1999 from $107,000 in the three months ended March 31, 1998.
Transaction Revenues. Transaction revenues increased 211% to $333,000 in
the three months ended March 31, 1999 from $107,000 in the three months ended
March 31, 1998. The increase in transaction revenues is a the result of the
growth in our membership base and an increase in the average revenue per
transaction. Total membership grew 265% to approximately 1,550,000 as of March
31, 1999 from approximately 425,000 as of March 31, 1998.
Custom Marketing Services and Other Revenues. Custom marketing services and
other revenues were $170,000 in the three months ended March 31, 1999. We did
not generate any custom marketing services and other revenues in the three
months ended March 31, 1998. The increase in custom marketing services revenues
is primarily the result of a relationship with a single significant customer. We
expect custom marketing services and other revenues to fluctuate from period to
period.
COST OF REVENUES
Cost of revenues represents the cash incentives paid to members for
performing specified actions in response to advertisements and the personnel
costs associated with custom marketing services and other revenues. Cost of
revenues increased 597% to $244,000 in the three months ended March 31, 1999
from $35,000 in the three months ended March 31, 1998, and gross margin
decreased to 51% from 67% in these respective periods. This decrease in gross
margin was primarily due to a change in the mix of
27
<PAGE> 30
revenue-generating services, including an increase in lower-margin custom
marketing services and other revenues. We expect gross margin to fluctuate in
future periods as a result of continued variation in the mix of services we
provide, as well as the potential impact of fixed price custom marketing
services contracts.
PRODUCT DEVELOPMENT COSTS
Our product development costs primarily consist of compensation for
technology personnel, fees for outside technology consultants, and an allocation
of overhead costs. Product development costs increased 29% to $484,000 in the
three months ended March 31, 1999 from $376,000 in the three months ended March
31, 1998, but decreased as a percentage of revenues to 96% from 351% in these
respective periods. The increase in product development costs was primarily due
to the increased hiring of additional technical personnel, including
consultants. The decrease in product development expenses as a percentage of
revenues is primarily attributable to an increase in revenues as we increased
our membership and advertising and marketing clients. In addition, the fixed
nature of certain development costs also contributed to the decrease in expense
as a percentage of revenues. To date, we have expensed all product development
costs as they have been incurred. We expect product development costs to
continue to increase as we continue to build features and functionality into our
system.
SALES AND MARKETING EXPENSES
Our sales expenses primarily consist of compensation for sales personnel,
expenses for trade shows and an allocation of overhead costs. Our marketing
expenses consist primarily of member acquisition expenses, promotions directed
towards new and existing incentives-based advertisers and marketers,
compensation for marketing personnel and an allocation of overhead costs.
Sales and marketing expenses increased 22% to $967,000 in the three months
ended March 31, 1999 from $792,000 in the three months ended March 31, 1998, but
decreased as a percentage of revenues to 192% from 739% in these respective
periods. The increase in sales and marketing expenses is primarily attributable
to additional hiring of sales and marketing personnel, increased sales
commissions resulting from higher revenues, increased expenses associated with
membership acquisition, and increased advertising and promotion expenses. The
decrease in sales and marketing expenses as a percentage of revenues is
attributable primarily to an increase in revenues as we increased our membership
and advertising and marketing clients. We expect sales and marketing expenses to
increase as we continue to increase our marketing efforts, expand our direct
sales force and open additional regional sales offices.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses include compensation for
administrative personnel, fees for outside professional advisors and an
allocation of overhead costs. General and administrative expenses increased 90%
to $228,000 in the three months ended March 31, 1999 from $120,000 in the three
months ended March 31, 1998, but decreased as a percentage of revenues to 45%
from 112% in these respective periods. The increase in general and
administrative expenses resulted from higher professional fees as well as an
increase in payroll expenses due to hiring additional administrative personnel.
The decrease in general and administrative expenses as a percentage of revenues
is primarily attributable to an increase in revenues as we increased our
membership and advertising and marketing clients. In addition, the fixed nature
of certain general and administrative costs also contributed to the decrease in
expenses as a percentage of revenues. We expect that general and administrative
expenses will continue to increase as we expand our operations and incur
additional costs related to being a public company.
28
<PAGE> 31
AMORTIZATION OF DEFERRED COMPENSATION EXPENSE
In connection with the granting of options to purchase our common stock to
certain employees, directors and consultants during the three months ended March
31, 1999, we recorded deferred compensation representing the difference between
the exercise price of options granted and the deemed fair market value of our
common stock at the time of grant. Amortization of deferred compensation was
$316,000 in the three months ended March 31, 1999. In the three months ended
March 31, 1998, we recorded no deferred compensation.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net, primarily consists of interest earned on
cash balances, including balances in Cybergold member accounts, offset by
interest expense incurred with respect to the Company's capital leases and
equipment financing obligations. Interest income (expense), net, was $11,000 in
the three months ended March 31, 1999 and was a net expense of $5,000 in the
three months ended March 31, 1998. The change from net expense to net income
resulted primarily from increased interest income on higher cash balances.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUES
Revenues increased 88% to $1.0 million in the year ended December 31, 1998
from $531,000 in the year ended December 31, 1997. We had no material revenues
in 1996.
Transaction Revenues. Transaction revenues increased 37% to $628,000 in the
year ended December 31, 1998 from $457,000 in the year ended December 31, 1997.
The increase in transaction revenues is the result of the growth in our
membership base and the average revenue per transaction generated by those
members. Total membership grew 320% from approximately 254,000 on December 31,
1997 to approximately 1,066,000 on December 31, 1998.
Custom Marketing Services and Other Revenues. Custom marketing services and
other revenues increased 409% to $377,000 in the year ended December 31, 1998
from $74,000 in the year ended December 31, 1997. The increase in custom
marketing services and other revenues resulted primarily from the initiation of
relationships with three significant customers.
COST OF REVENUES
Cost of revenues increased 59% to $466,000 in the year ended December 31,
1998 from $293,000 in the year ended December 31, 1997, but gross margin
increased to 54% from 45% in these respective periods. This increase in gross
margin was primarily due to improved gross margin on transaction revenues.
PRODUCT DEVELOPMENT COSTS
Product development costs increased 42% to $1.7 million in the year ended
December 31, 1998 from $1.2 million in the year ended December 31, 1997, but
decreased as a percentage of revenues to 169% from 226% in these respective
periods. The decrease in product development expenses as a percentage of
revenues is primarily attributable to an increase in revenues as we increased
our membership and advertising and marketing clients. In addition, the fixed
nature of certain development costs also contributed to the decrease in expense
as a percentage of revenues.
29
<PAGE> 32
Product development costs were $1.1 million in the year ended December 31,
1996. The increase in costs from 1996 to 1997 was primarily due to increased
hiring of technical employees and consultants.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 23% to $2.7 million in the year
ended December 31, 1998 from $2.2 million in the year ended December 31, 1997,
but decreased as a percentage of revenues to 270% from 414% in these respective
periods. The increase in sales and marketing expenses is primarily attributable
to additional hiring of sales and marketing personnel, increased sales
commissions resulting from higher revenues, increased expenses associated with
member acquisition, and increased advertising and promotion expenses. The
decrease in sales and marketing expenses as a percentage of revenues is
attributable primarily to an increase in revenues as we increased our membership
and advertising and marketing clients.
Sales and marketing expenses were $841,000 in the year ended December 31,
1996. The increase in sales and marketing expenses from 1996 to 1997 is
primarily attributable to additional hiring of sales and marketing personnel,
increased sales commissions resulting from higher revenues, increased expenses
associated with member acquisition, and increased advertising and promotion
expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 4% to $642,000 in the year
ended December 31, 1998 from $615,000 in the year ended December 31, 1997, but
decreased as a percentage of revenues to 64% from 116% in these respective
periods. The increase in general and administrative expenses resulted from
higher professional fees as well as an increase in payroll expenses due to
hiring additional administrative personnel. The decrease in general and
administrative expenses as a percentage of revenues is primarily attributable to
an increase in revenues as we increased our membership and advertising and
marketing clients. In addition, the fixed nature of certain general and
administrative costs also contributed to the decrease in expense as a percentage
of revenues.
General and administrative expenses were $645,000 in the year ended
December 31, 1996.
AMORTIZATION OF DEFERRED COMPENSATION EXPENSE
In connection with the granting of options to purchase our common stock to
certain employees, directors and consultants during the year ended December 31,
1998, we recorded deferred compensation representing the difference between the
exercise price of options granted and the deemed fair market value of our common
stock at the time of grant. Amortization of deferred compensation in the year
ended December 31, 1998 was $185,000. For the years ended December 31, 1997 and
1996 we recorded no deferred compensation.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net was $79,000 in the year ended December 31,
1998, compared to a net expense of $15,000 in the year ended December 31, 1997.
The change to net interest income from net interest expense is primarily
attributable to an increase in the amount of interest earned on cash balances,
partially offset by an increase in interest expense generated from capital lease
and equipment financing obligations.
Interest income (expense), net was $10,000 in the year ended December 31,
1996. The change to net interest expense in 1997 from net interest income in
1996 is primarily attributable to an increase in interest expense generated from
capital lease and equipment financing obligations as well as interest on
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investor notes that were paid in full upon completion of the Company's Series B
Preferred Stock financing in May 1997.
INCOME TAXES
We recorded a net loss of $4.6 million for the year ended December 31,
1998. For federal and state tax purposes, no provision for income taxes was
recorded, and no tax benefit has been recognized due to the uncertainty of
realizing future tax deductions for these losses.
As of December 31, 1998, we had net operating loss carryforwards of
approximately $9,360,000 for federal and state income tax purposes. The federal
and state net operating loss carryforwards begin to expire in the years 2011 and
2005, respectively. Our ability to utilize our net operating loss carryforwards
to offset future taxable income, if any, may be restricted as a result of equity
transactions that give rise to changes in ownership as defined in the Tax Reform
Act of 1986.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain statement of operations data for the
quarters ended March 31, 1999 in dollars and as a percentage of revenues. This
data has been derived from our unaudited financial statements and is not
necessarily indicative of the results that may be expected for future periods.
In our opinion, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of our financial position and results of
operations for such period have been included.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction........................... $ 107 $ 155 $ 175 $ 191 $ 333
Custom marketing services and other... 0 8 108 261 170
------- ------- ------- ------- -------
Total revenues................. 107 163 283 452 503
Cost of revenues........................ 35 66 142 223 244
------- ------- ------- ------- -------
Gross margin................... 72 97 141 229 259
------- ------- ------- ------- -------
Operating expenses:
Product development................... 376 414 430 480 484
Sales and marketing................... 791 637 563 704 967
General and administrative............ 120 119 207 196 228
Amortization of deferred
compensation........................ 0 3 30 152 316
------- ------- ------- ------- -------
Total operating expenses....... 1,287 1,173 1,230 1,532 1,995
------- ------- ------- ------- -------
Loss from operations.................... (1,215) (1,076) (1,089) (1,303) (1,736)
Interest income (expense), net........ (5) 12 16 55 11
------- ------- ------- ------- -------
Net loss................................ $(1,220) $(1,064) $(1,073) $(1,248) $(1,725)
======= ======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET REVENUES:
Revenues:........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................... 32.7 40.5 50.2 49.3 48.5
--------- ------ ------ ------ ------
Gross margin............... 67.3 59.5 49.8 50.7 51.5
--------- ------ ------ ------ ------
Operating expenses:
Product development............... 351.4 253.4 151.9 106.2 96.2
Sales and marketing............... 739.2 389.5 198.9 155.5 192.2
General and administrative........ 112.2 74.9 73.1 43.6 45.3
Amortization of deferred
compensation.................... 0.0 1.8 10.7 33.6 62.8
--------- ------ ------ ------ ------
Total operating expenses... 1,202.8 719.6 434.6 338.9 396.5
--------- ------ ------ ------ ------
Loss from operations................ (1,135.5) (660.1) (384.8) (288.2) (345)
Interest income (expense), net.... (4.7) 7.4 5.7 12.2 2.2
--------- ------ ------ ------ ------
Net loss............................ (1,140.2)% (652.7)% (379.1)% (276)% (342.8)%
========= ====== ====== ====== ======
</TABLE>
Our total revenues have grown in each quarter. Transaction revenues have
increased in each quarter as a result of growth in our membership base, the
average revenue per transaction generated by these members and the average
number of transactions per member. Custom marketing services and other revenues
decreased from the quarter ended December 31, 1998 to the quarter ended March
31, 1999 as the result of the timing of recognition of revenue from a single
significant contract in the quarter ended December 31, 1998. Gross margin has
also fluctuated as a result of quarter to quarter changes in the mix of revenue
between higher-margin transaction revenues and lower-margin custom marketing
services and other revenues.
Our operating expenses have increased significantly from 1996 to 1998 and
in the first quarter of 1999 as we have transitioned from the development stage
to the commercialization of our services. Sales and marketing expenses
fluctuated during 1998, declining sequentially in the second and third quarters
of 1998 as a result of changes made to our sales and marketing personnel in an
effort to enhance the quality and quantity of advertisers, marketers and new
members we attract. Sales and marketing expenses increased during the fourth
quarter of 1998 as we added new sales and marketing personnel, including a new
Vice President of Sales, and increased promotional expenditures to fuel
membership growth and to attract new advertising and marketing clients.
We plan to increase our operating expenses as we continue to build brand
and infrastructure. Consequently, our losses may increase in the future.
Although we have experienced revenue growth in recent periods, we cannot be
certain that such growth will continue at its current rate or increase in the
future. If our revenue growth is slower than we anticipate or our operating
expenses exceed our expectations, our losses will be significantly greater.
Our quarterly results of operations have varied in the past, and our
revenues and operating results are likely to vary significantly from quarter to
quarter. A number of factors are likely to cause these variations, some of which
are outside of our control. These factors include:
- changes in revenue levels resulting from the advertising and marketing
budget cycles of individual advertisers and marketers;
- changes in advertising and marketing costs that we incur to attract and
retain members;
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<PAGE> 35
- changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for Internet advertising and marketing generally;
- our rate of member acquisition and the level of activity of new and
existing members;
- the number and type of programs and development contracts established
with our advertising and marketing clients as well as the impact of the
fixed price portion of development contracts on gross margin;
- the introduction of new products and services by us or by our
competitors;
- unexpected costs and delays resulting from the expansion of our
operations; and
- the occurrence of technical difficulties or unscheduled system downtime.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising and marketing and consumer
purchasing, which are typically higher during the fourth calendar quarter and
lower in the following quarter. In addition, expenditures by advertisers and
marketers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns. As a result, our results of operations could be harmed
by a downturn in the general economy or a shift in consumer buying patterns.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful and you should not
rely upon them as any indication of our future performance. Our operating
expenses are based on our expectations of our future revenues and are relatively
fixed in the short term. If our revenues are lower than expected, we would incur
greater than expected losses. In addition, during future periods our operating
results likely will fall below the expectations of public market analysts and
investors. In this event, the market price of our common stock likely would
decline.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1998, our cash and cash equivalents consisted primarily of
demand deposits and money market funds held by large institutions in the United
States and our short-term investments were invested in corporate debt and equity
securities maturing in less than one year. Due to the nature of our short-term
investments, we have concluded that there is no material market risk exposure.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from the sale of
equity securities to venture capital firms and other individual, institutional
and strategic investors. We have also borrowed funds under long-term capital
lease and equipment financing facilities. As of March 31, 1999, we had cash and
cash equivalents of $330,633 million and $115,196 million outstanding under
capital lease and equipment financing facilities. In addition, in May 1999, we
completed a Series D convertible preferred stock financing that resulted in net
proceeds to us of $8.0 million.
Net cash used in operating activities was $3.5 million in 1998, $3.2
million in 1997, $2.3 million in 1996 and $891,000 in the three months ended
March 31, 1999. In 1998, the net cash used in operating activities consisted
primarily of our net loss, offset in part by an increase in net accounts
payable, members payable, membership acquisition payable, depreciation and
amortization, and deferred revenue. In 1997, the net cash used in operating
activities consisted primarily of our net loss, offset by an increase in
depreciation, members payable, membership acquisition payable, and deferred
revenue. In 1996, the
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net cash used in operating activities consisted primarily of our net loss,
offset in part by an increase in accounts payable and depreciation and
amortization.
Net cash used in investing activities was $153,000 in 1998, $58,000 in
1997, $387,000 in 1996 and $89,000 in the three months ended March 31, 1999.
These amounts were used to acquire property and equipment.
Net cash provided by financing activities was $5.6 million in 1998, $4.3
million in 1997, $2.9 million in 1996 and $85,000 in the three months ended
March 31, 1999. In 1998, this amount included $5.8 million in proceeds from the
issuance of preferred stock, less payments on capital leases. In 1997, this
amount included primarily $3.1 million in net proceeds from the issuance of
preferred stock, $1.0 million in proceeds from stockholder loans that were
subsequently converted into preferred stock, and $250,000 in proceeds from a
sale-leaseback transaction related to certain items of computer equipment, less
payments on capital leases. In 1996, this amount included primarily $3,000,000
in proceeds from the issuance of preferred stock. Net cash provided by financing
activities in the three months ended March 31, 1999 consisted primarily of
proceeds from equipment financing.
In 1997 and 1998, we entered into various non-cancelable capital lease
agreements for certain types of capital expenditures. As a result of these
capital lease agreements, we had lease payment obligations of approximately
$110,000 in 1997 and $143,000 in 1998. Borrowings under these capital lease
arrangements have terms ranging from 36 to 48 months with monthly payments and
interest rates ranging from 10.5% to 11.5%.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements through the end of 2000.
However, we may need to raise additional funds sooner to fund more rapid
expansion, to develop new or enhance existing services or products, to respond
to competitive pressures or to acquire complementary products, businesses or
technologies. If adequate funds are not available on acceptable terms, our
business, results of operations and financial condition could be harmed. See
"Risk Factors -- We may need more working capital to expand our business, and
our prospects for obtaining additional financing are uncertain."
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Development 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
financial statements.
In April 1998, the Accounting Standards Executive Committee issued SOP
98-5, Reporting on the Costs of Start-Up Activities. This SOP provides guidance
on the financial reporting of start-up costs and organization costs. It requires
the costs of the start-up activities and organization costs to be expensed as
incurred. The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company adopted the SOP during the year
ended December 31, 1998. The adoption of the SOP did not have a material impact
on our financial statements.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in their date code field. Beginning in the Year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and
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<PAGE> 37
software products used by many companies may need to be upgraded to comply with
these Year 2000 requirements.
We designed the software underlying our Web-based programs as well as our
Web site and related technology infrastructure to be Year 2000 compliant.
However, we rely on third-party hardware and software in the operation of our
business. We believe we have identified all of the major information systems
used in our internal operations and have substantially completed all
modifications, upgrades or replacements to minimize the possibility of a
material disruption of our business. The expenditures that we have incurred to
date and the expenditures we expect to incur in this regard have not been and
are not expected to be material to our business, results of operations and
financial condition.
We have also contacted the vendors of third-party hardware and software we
use in order to gauge their Year 2000 compliance. Based on these vendors'
representations and the activities we have conducted, we believe that the
third-party hardware and software we use are Year 2000 compliant. We cannot
assure you, however, that we will not experience unanticipated negative
consequences, including material costs caused by undetected errors or defects in
the technology used in our internal systems. If, in the future, it comes to our
attention that the software underlying our email or Web-based programs requires
modification, or that any of our third-party hardware and software are not Year
2000 compliant, then we will seek to make modifications to our systems. In such
case, we expect such modifications will not have a material effect on our
results of operations. There can be no assurance, however, that we will be able
to modify such systems in a timely and successful manner to comply with the Year
2000 requirements. Any failure to do so could have a material adverse effect on
our business, results of operations and financial conditions.
We are also vulnerable to systemic failures resulting from Year 2000
problems. These failures could include prolonged data communications,
telecommunications or electrical failures. A failure of this type could prevent
members from accessing our Web site or prevent us from operating our business.
As a result, we could experience lost revenues, increased operating expenses and
loss of members. Any of these eventualities could have a material adverse effect
on our business, results of operations and financial condition.
We have not yet developed a comprehensive contingency plan to address Year
2000 problems that are not detected and corrected prior to their occurrence.
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BUSINESS
OVERVIEW
We are a leading provider of online direct marketing and cash-based
incentive advertising solutions. We combine a variety of Internet-based direct
advertising and marketing services with cash-based online incentive programs to
provide flexible, cost-per-action incentive marketing solutions. Our payment
structure, in which our advertising and marketing clients are only charged when
our members execute specific predefined actions, provides these clients with a
known cost per yield for their advertising campaigns. By leveraging our
proprietary consumer member database and our targeting capabilities, we are able
to offer our clients customized, targeted advertising solutions designed to
improve advertisement response rates and reduce customer acquisition costs.
Our online Earn & Spend Community offers our 1.8 million consumer members a
broad array of cash-based incentive reward opportunities, whereby members are
compensated with cash, rather than non-cash incentives for responding to online
marketing offers. The cash earned by our members can be credited to either their
VISA or bank accounts from their Cybergold account or be used to purchase
digital content, services and products, including software, music, games, credit
reporting services and original artistic works and publications through our Earn
& Spend Community. Advertising and marketing clients that have used our service
include Ask Jeeves, Inc., autobytel.com inc., Cendant Corporation (NetMarket),
The Walt Disney Company, Earthlink Network, Inc., GoTo.com, Inc., Interactive
Coupon Network (Cool Savings), LifeMinders.com, Inc., New Media and Qwest
Communications International Inc.
INDUSTRY BACKGROUND
Growth of the Internet and Online Commerce
The Internet has emerged rapidly as an important medium for facilitating
communication, disseminating information and conducting commerce. International
Data Corporation (IDC) estimates that the number of Internet users worldwide
exceeded 97 million in 1998 and will grow to approximately 320 million by the
end of 2002. IDC also estimates that worldwide commerce over the Internet will
reach approximately $426 billion by the end of 2002, up from approximately $32
billion in 1998. The availability of a broad range of content and the acceptance
of electronic commerce has driven rapid Internet adoption by businesses and
consumers alike, which has in turn stimulated the proliferation of additional
content and electronic commerce.
Online Advertising and Direct Marketing
The Internet possesses unique and commercially powerful characteristics
that differentiate it from traditional forms of media, including a lack of
geographic or temporal limitations, real time access to dynamic interactive
content, and instantaneous connections between advertisers, marketers and
consumers. Advertisers and marketers are particularly attracted to the Internet
because it enables them to distribute information efficiently, reach potential
customers globally and engage in one-to-one customer interaction. These
capabilities create significant opportunities for advertisers, marketers and
merchants to develop direct relationships with consumers. The Internet also
facilitates the efficient collection of valuable customer data and demographic
information, enabling advertisers and marketers to develop targeted marketing
campaigns directed to existing and potential customers.
These characteristics have resulted in the rapid growth of Internet
advertising. Forrester Research estimates that Internet advertising expenditures
in 1998 were approximately $1.3 billion and projects Internet advertising
expenditures to increase to $10.5 billion in 2003. The majority of Internet
advertising
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<PAGE> 39
to date has been in the form of passive banner advertising. However, as the
number of Web sites and amount of advertising on the Internet has proliferated,
we believe decreasing consumer response to banner advertising has led
advertisers and marketers to question the effectiveness of such advertising and
marketing campaigns. According to NetRatings, click-through rates, used by
advertisers to measure the effectiveness of their online efforts, was 0.63% in
April 1999.
These trends are causing marketers to consider alternative marketing
solutions that encourage consumers not only to pay greater attention to
marketing messages but also to increase response rates to those messages.
Conversely, many consumers prefer to limit the number of advertisements to which
they are exposed and prefer to be exposed only to those advertisements for
products or services in which they are interested. We believe that the inability
of traditional banner advertising to maximize the powerful one-to-one
relationships enabled by the Internet has led advertisers to place greater
emphasis on online direct marketing as a more effective means to convert
Internet users into customers. The Direct Marketing Association estimates that
spending on Internet direct marketing will grow from $603 million in 1998 to
$5.3 billion in 2003, representing a compound annual growth rate of 54%.
Online Incentive Programs
As advertisers and marketers seek to increase the effectiveness and
efficiency of their online marketing efforts, they are turning to
incentives-based programs, which reward consumers for their attention or
specific response to ads and promotions. Because advertisers are charged on a
cost-per-action basis in these programs, advertisers are provided with a
predictable cost for the desired response. In contrast, banner advertisers pay
simply for the number of times a banner appears on a Web site page, regardless
of how many consumers actually view or click on the banners or whether they take
additional actions based on what they read.
Most incentives-based programs offer consumers the ability to earn "points"
that are redeemable only for limited products, frequent flyer miles or other
non-cash rewards. These non-cash incentive programs often have significant
limitations on redemption due to the limited items for which rewards can be
redeemed as well as various program restrictions. For example, programs offering
frequent flyer miles are often restrictive and generally only appeal to
consumers who otherwise actively participate in frequent flyer programs. In
addition, rewards for participation in online direct marketing programs mostly
come in small increments and the redemption opportunities generally require
large outlays of points. Therefore, while these programs have the potential to
provide significant benefits to advertisers and marketers, they remain limited
to a subset of Internet users.
Online Payment Mechanisms
Traditionally, Internet companies have chosen either to fund the free
distribution of content or services through selling banner advertising on their
Web sites or to sell their content or services on a subscription basis. However,
the increasing amount of online advertising inventory and the decreasing
effectiveness of banner advertising is causing the price for banner advertising
to decline. According to AdKnowledge, the overall average advertising banner
cost per thousand impressions (CPMs) have fallen 7.5% from June 1998 to March
1999. We believe a continued decline in CPM rates will lead Internet content and
service providers, many of whom depend on advertising sales as a major source of
revenue, to find alternative revenue sources, including the sale of content or
services on a per transaction basis.
While credit cards have traditionally been the dominant form of payment for
Internet transactions, the relatively high costs of processing credit card
payments makes them less suitable for inexpensive Internet purchases. In
addition, consumers have traditionally been reluctant to use credit cards for
inexpensive purchases. As a result, the absence of a broadly accepted online
micropayment system has left sales of inexpensive content, services and products
economically impractical.
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Market Opportunity
Advertisers, marketers and merchants need more effective means to induce
consumers to respond to online advertising and marketing and facilitate the
online purchase of inexpensive content, goods and services. While there have
been several attempts to address these needs, current incentives-based online
advertising and marketing and micropayment solutions have a number of
significant limitations. Current incentives-based online advertising and
marketing campaigns impose significant limitations on consumer choice, limiting
consumers' ability to monetize their time spent online. These shortcomings limit
the utility and flexibility of incentives-based online marketing programs and,
therefore, consumers' desire to participate. In addition, current transaction
processing methods for the distribution of inexpensive content, services and
products are prohibitively expensive. There is a need for online
incentives-based advertising and marketing and micropayment solutions which
effectively target consumers and provide consumers with greater flexibility and
purchasing opportunities.
THE CYBERGOLD SOLUTION
We are a leading provider of online direct marketing and cash-based
incentive advertising solutions. We believe that we are the first online company
to combine a cash-based incentive program with a direct marketing approach that
provides extensive benefits for our advertising and marketing clients, consumer
members and merchants. Our Earn & Spend Community has over 1.8 million consumer
members, which enables our advertising and marketing clients to offer
cost-per-action incentive programs either to our entire member database or to a
targeted subset. Users are compensated for responding to online advertisements
or promotions by performing certain client-specified actions, such as filling
out online surveys or purchasing products or services. Internet users become
Cybergold members at no cost by completing a short online registration form on
our Web site or on a co-marketer or co-registration Web site.
In order to manage these cash-based incentive programs on our Web site and
on other sites, we have developed a proprietary transaction system that enables
the cost-effective management of cash-based incentive reward programs and
micropayment transactions. Our Earn & Spend Community allows our members to earn
cash by interacting with offers that appeal to their interests. For example,
under a current promotion, members can earn $3.00 for requesting a quote for a
new car from our marketing client, autobytel.com inc. The cash earned by our
members is deposited in their Cybergold accounts and can then be credited to
either their VISA cards or bank accounts or be used to purchase digital content,
services and products, including software, music, games and original artistic
works and publications.
[Earn & Spend Diagram:
DESCRIPTION: Presentation of "virtuous circle" diagram.
TOP OF DIAGRAM TEXT ANNOTATION: Web surfers encounter Cybergold
merchants offering cash incentives in exchange for their online behavior.
RIGHT SIDE OF DIAGRAM TEXT ANNOTATION: Members can transfer the money
in their Cybergold accounts to their personal VISA or bank account; or they
can spend it on digital content.
BOTTOM OF DIAGRAM TEXT ANNOTATION: Members can purchase and download
digital content, services and products using cash from their Cybergold
accounts.
LEFT SIDE OF DIAGRAM TEXT ANNOTATION: To increase their account
balances, members "load" accounts either by transferring funds from their
VISA accounts or by performing incentive transactions with Cybergold
merchants.]
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Benefits of our unique incentive programs include:
Advertising and Marketing Client Benefits
- FLEXIBLE AND EFFECTIVE MARKETING SOLUTION. We provide a variety of
advertising and marketing services for our clients, including incentive
offers on our Earn & Spend Community site, targeted and untargeted
e-mails, and ad campaigns that offer cash incentives directly on
third-party sites. We believe our services provide our clients with more
effective advertising tools to induce desired consumer behavior,
including purchasing, product evaluation and subscriptions.
- COST-PER-ACTION PAYMENT STRUCTURE. We provide a cost-per-action
incentive marketing solution, in which our clients are only charged when
our members take pre-defined actions specified by our clients. In
contrast, with banner advertising, advertisers typically pay for a number
of impressions on Web sites, regardless of whether consumers click on, or
take any action in response to, the banner advertisement. Our
cost-per-action solution provides our clients with both a known cost per
yield for each advertising and marketing campaign, reducing customer
acquisition costs and risk.
- MEASURABLE RESULTS. Member actions in response to client marketing
messages are instantly recorded in our database, allowing clients to
measure the effectiveness of their advertising campaigns on an ongoing
basis. Clients are able to review and modify their campaigns at any time
to react to customer response rates.
- TARGETING CAPABILITY. By leveraging our proprietary member database, we
are able to provide customized, targeted campaigns for our clients. This
targeting capability enables our clients to focus on specific demographic
segments or groups of users that exhibit certain online behavioral
patterns. We believe that by focusing on a specific target audience, our
clients should increase response rates and reduce their customer
acquisition costs.
Member Benefits
- CASH REWARDS. Unlike other online incentive programs which reward the
customer with "points" redeemable for frequent flyer miles, specified
products or other non-cash rewards, we reward our members with cash. One
Cybergold dollar equals one U.S. dollar. The dollars our members earn are
accumulated in a Cybergold account and can be credited to their VISA
cards or bank accounts. We also offer a number of online spending
opportunities to our members, such as the ability to purchase digital
content, services and products, including software, music, games, credit
reporting services and original artistic works and publications.
- MEMBER CHOICE. Our online incentives programs provide two primary
benefits for members. First, members may choose to respond only to
advertising and marketing that interests them and provides a sufficient
reward to induce their participation. Second, members earn cash rewards
which they can choose to spend on online purchases or have credited to
their VISA cards or bank accounts. This enables members to pursue
advertising and marketing that interests them, increasing the quality of
their online experience.
Merchant Benefits
- NEW REVENUE OPPORTUNITY. Through our micropayments system, we afford
merchants who provide inexpensive digital content, services and products
an opportunity to participate in Internet commerce on a
pay-per-transaction basis. We offer these merchants an alternative
revenue source by providing them access to our members, who have cash
accounts that can be used for
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<PAGE> 42
inexpensive purchases of digital content, services and products. In
addition, if Cybergold members wish to purchase items that cost more than
the amount of Cybergold dollars in their accounts, they can deposit
additional funds into their Cybergold accounts from their VISA cards. Our
broad membership community gives merchants an established base of
potential customers.
- VALUE-ADDED SERVICES. We provide merchants with "non-hosted" and
"hosted" value-added services to sell inexpensive digital content,
products and services. In "non-hosted" solutions, our micropayment
transaction system enables merchants to sell inexpensive digital content,
services and products on their own Web sites. In "hosted" solutions, we
provide the merchants with a complete outsourced suite of Web site
hosting, systems administration, transaction processing and integration
services, and the merchant only provides the content.
STRATEGY
Our objective is to enhance our leadership position in online direct
marketing and incentives-based advertising. We intend to achieve our objective
through the following key strategies:
Increase Size of Membership Base. We intend to continue to expand our
membership base through membership acquisition activities such as
co-registration programs, co-marketing programs and advertising on third-party
Internet sites. We also plan to initiate offline branding and promotional
campaigns using broadcast, print and outdoor advertising in order to attract new
members. In addition, we intend to explore international opportunities,
including potential strategic alliances, in order to extend the reach of the
Cybergold brand.
Increase Number of Advertising and Marketing Clients. We are seeking to
broaden our advertising and marketing client base by increasing our direct and
indirect sales and marketing efforts. We plan to increase significantly the size
of our direct sales force and to open additional regional sales offices. In
addition, we are seeking to take advantage of existing distribution channels,
such as advertising networks, to expand the number of advertisers using our
incentive marketing system.
Increase Brand Awareness. We are focused on increasing brand awareness to
attract and retain members, advertising and marketing clients and merchants. We
intend to use a combination of online and offline advertising, direct marketing,
public relations and other marketing programs designed to promote the Cybergold
brand and build loyalty among our members, clients and merchants. We also intend
to develop promotional and media campaigns with well-known Internet companies
and offline marketers of branded consumer products and services.
Expand Earn & Spend Opportunities to Other Web Sites. Although we currently
are primarily a site-centric service, our micropayment technology enables our
Earn & Spend capabilities to function on third-party Web sites. To date, a
number of Web sites have installed the Cybergold Mint, our electronic commerce
payment software, on their servers. We are seeking to aggressively expand
Cybergold Mint installations on other Web sites to increase the number of
Internet users who are exposed to the Cybergold Earn & Spend Community and
establish additional sources of revenue. We are also pursuing strategic
relationships with electronic commerce infrastructure vendors to further expand
the distribution of the Cybergold Mint technology.
Enhance Cybergold Earn & Spend Community. We intend to continue to enhance
the Cybergold Earn & Spend Community by increasing the number and variety of
incentive offers provided and the breadth of online purchasing opportunities. We
are also actively developing a community store site where our members can sell
their own inexpensive digital content, services and products to other members.
We believe that the Cybergold Earn & Spend Community and our technology enable
individuals and businesses to sell inexpensive digital content, services and
products that were previously not cost-effective to offer online.
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Pursue Strategic Acquisitions and Relationships. We intend to continue to
enter into strategic relationships in order to build our Earn & Spend Community,
generate additional traffic to our Web site, increase membership and establish
additional sources of revenue. We have entered into strategic relationships with
the First National Bank of Omaha, MBNA America Bank, Earthlink Network, Inc.,
BuySafe.com and others which have enabled us to offer our clients and members a
broader selection of advertising opportunities, expanded content and more online
services. In addition, we intend to pursue strategic acquisitions of
complementary technologies and services in order to expand and enhance our
current offering of products and services.
CYBERGOLD SERVICES
Cybergold serves three main constituencies: advertising and marketing
clients, consumer members and merchants. Advertising and marketing clients use
Cybergold to cost-effectively acquire new customers with offers and cash
incentives. Consumer members use Cybergold to earn cash rewards for responding
to offers on our Web site, on third-party Web sites and through e-mail
campaigns. Merchants use Cybergold technology as a cost-effective means to sell
inexpensive digital content, services and products on a pay-per-transaction
basis to the Cybergold membership base.
Advertising and Marketing Client Services. We work closely with our
advertising and marketing clients to develop marketing campaigns that are
tailored to their customer acquisition needs. These programs include:
- incentives-based offers and promotions on the Cybergold Web site;
- targeted and untargeted e-mail campaigns conducted by us on behalf of our
advertising and marketing clients;
- programs introduced on our marketing clients' Web sites; and
- banner ads placed on various targeted Web sites.
Our membership database technology enables us to maintain and track
information about our members. We are able to track aspects of member online
activity, such as marketing programs in which specific members have participated
and online purchases initiated through Cybergold. In addition, we have access to
member information gathered by certain of our advertising and marketing clients.
We believe that our database of membership information allows us to carefully
tailor marketing campaigns to maximize their effectiveness for our clients.
Member Services. Internet users become Cybergold members at no cost by
completing a short online registration form on our Web site or on a co-marketer
or co-registration Web site. Our members earn cash rewards for completing
various desired actions, such as viewing an incentive offer, completing a survey
or registration form or downloading software. Members can also earn rebates and
incentives by purchasing a variety of products or services offered through our
Web site or third-party Web sites. In addition, to encourage members to visit
our Web site frequently, our members receive free services, including e-mail,
chat, stock quotes and news.
Existing members are notified of new programs and promotions through
periodic e-mail distributions. In contrast to other incentive programs, our
members have the opportunity not only to earn cash rewards that are transferable
to their VISA cards or bank accounts, but also to spend their Cybergold cash
rewards for a variety of goods and services. Cash is transferable to a member's
bank account in a minimum amount of $10.00 and to a VISA card in a minimum
amount of $5.00. Members are also able to transfer money from VISA cards to
their Cybergold accounts to enable them to use our micropayment system to
purchase additional digital content, goods and services from merchants.
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We are committed to maintaining the privacy and security of our members. We
keep all personal information about our members confidential. Cybergold is a
member of TRUSTe, a non-profit organization dedicated to the protection of user
privacy and promotion of security online.
Merchant Services. We offer merchants the ability to sell digital content,
products and services over the Internet in transactions of any size. By
eliminating the high transaction costs typically associated with very small
credit card transactions, we enable the cost-effective delivery of content such
as articles or music for cents rather than dollars. We believe that our
micropayment system enables new business models for merchants of digital
content, products and services. We offer merchants with two micropayment
environment options:
- Non-hosted -- a technology and marketing solution where the Cybergold
Mint, our electronic commerce payment software, is provided to merchants
for use on their own Web sites to sell inexpensive digital content,
services and products to online consumers.
- Hosted -- a full-service solution where we provide the customer with a
complete outsourced suite of Web site hosting, systems administration,
transaction processing and integration services while the merchant only
provides the content.
SALES AND MARKETING
Our primary sales strategy is to sell our services directly to advertisers,
direct marketers, ad agencies and electronic commerce merchants. We currently
sell our services in the United States through a direct sales organization, with
seven employees located in the San Francisco Bay Area, metropolitan Dallas and
metropolitan New York. Our sales force is dedicated to establishing and
maintaining relationships with advertising and marketing clients. Our sales
force uses industry directories, press, personal contacts, industry knowledge
and Internet search engines to seek likely sales prospects. Recently we have
begun to receive sales leads from advertising agencies that have recommended
Cybergold to clients.
Our marketing organization is composed of marketing communications, product
management, product marketing and membership marketing groups. In addition, we
also use consultants such as public relations agencies and graphic design firms
to assist with marketing activities. Marketing communications is responsible for
external public relations activities, managing relationships with the press and
industry analysts, and creating marketing collateral materials, such as sales
brochures. Product management is responsible for working with our engineering
department and our clients to define new products as well as enhancements to
existing products and services. Product management also contributes to
management development efforts, assists customers with special requirements, and
provides additional resources as needed throughout our company. Product
marketing is responsible for the content and graphics on our Web site, including
the production and implementation of advertising and merchant offers. Product
marketing also determines which additional services may be of interest to
members, clients and merchants.
Membership marketing is focused on expanding our membership base. We use a
variety of methods to generate new members, including e-mail campaigns,
advertising, and co-registration agreements with certain affiliate partners, as
well as referrals by current members and public relations. Currently, we attract
the majority of our members through co-registration agreements with online
partners, whereby registrants for those sites have the option to concurrently
sign up for the Cybergold Earn & Spend Community. We believe that the
convenience afforded by this co-registration capability is a significant factor
in attracting new members. Currently, we have a network of approximately 55
affiliate partners through which we can attract new members. In addition to
these online methods of increasing our membership base, we are currently
planning a range of offline marketing campaigns designed to attract new members.
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ADVERTISING AND MARKETING CLIENTS
Our advertising and marketing clients pay us commissions each time a member
takes an action defined by our clients in response to some online advertising or
promotion. Since inception, a total of 144 advertising and marketing clients
have offered incentives using our system. In 1997, no client accounted for more
than 10% of our revenue. In 1998, Qwest Communications International Inc. and
Interactive Coupon Network (CoolSavings) accounted for 22% and 16% of our
revenue, respectively. As of March 31, 1999, Qwest Communications International
Inc., autobytel.com inc., LifeMinders.com, Inc., Cendant Corporation (Netmarket)
and The Walt Disney Company (Disney Daily Blast, Disney Store Online) accounted
for 20%, 12%, 11%, 11% and 10% of our revenue, respectively. A representative
list of advertising and marketing clients who are using or have used our
services is set forth below:
<TABLE>
<S> <C> <C>
- @Backup Corporation - Consumer Info.com, Inc. - LifeMinders.com, Inc.
- Alexa Internet - The Walt Disney Company - New Media
- Ask Jeeves, Inc. (Disney Daily Blast, - Qwest Communications
- autobytel.com inc. Disney Store Online) International, Inc.
- Cendant Corporation - Earthlink Network, Inc. - First Premier Bank
(Netmarket) - GoTo.com, Inc. (Future Card)
- Interactive Coupon - Uproar (E-Pub Services Ltd.)
Network (Cool Savings)
</TABLE>
STRATEGIC RELATIONSHIPS
To date, we have entered into a number of strategic relationships to build
our Earn & Spend Community, generate additional traffic to our Web site,
increase our membership and generate additional revenue.
These strategic relationships include:
- The First National Bank of Omaha. Our relationship with the First
National Bank of Omaha enables consumers to directly credit their
personal VISA accounts with money earned through Cybergold and to credit
their Cybergold accounts with funds from their VISA accounts;
- MBNA America Bank. Together with MBNA America Bank, we launched the
co-branded Cybergold MBNA VISA card, which provides convenient and easy
Internet shopping, MBNA's state-of-the-art fraud protection, VISA
Platinum Plus cardholder benefits and the potential for cash incentives;
- Earthlink. We launched a private-label loyalty program with Earthlink
under which Earthlink will utilize our transaction processing and account
management technology to implement an incentives-based loyalty program
for its members that use their Earthlink credit cards for shopping both
on the Internet and offline; and
- BuySafe.com. Our relationship with BuySafe.com provides the Cybergold
Earn & Spend Community with certain private label merchandising and
fulfillment programs.
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TECHNOLOGY
We have developed a scaleable technology infrastructure that executes both
incentive reward transactions and online micropayments for consumer purchases.
There are two proprietary components to our infrastructure:
- The Cybergold Mint is our electronic commerce payment software which runs
on either our servers or the servers of our clients or merchants. The
Cybergold Mint executes both Cybergold incentive reward transactions and
online micropayments for consumer purchases. To make world-wide
distribution possible, the Cybergold Mint employs a cryptographic system
called HMAC-MD5 that offers full 128-bit security without export
controls.
- The Cybergold payment server is our real-time transaction processing
engine. This engine is optimized for high-volume financial transactions
and is designed to scale by simply adding additional hardware to our
system. The Cybergold payment server communicates with consumer browsers
using SSL, the industry-standard Web security protocol, to safeguard all
private user information.
Our payment server includes property modules for handling:
- interactive transactions;
- background transactions for off-line incentive programs;
- consumer account management and online statements;
- VISA and bank (ACH) transfers and charity donations;
- transaction reversal and dispute management;
- real-time risk management with velocity checking and fraud detection;
- context-sensitive help; and
- automated customer assistance with escalation to our separate Customer
Service system.
Typical Cybergold transactions begin when Internet users encounter
advertisements offering incentive and/or purchases on our Web site or on
third-party Web sites. The merchant Web servers use the Cybergold Mint to
generate rewards and payments. The transactions are sent over the Internet to
the Cybergold payment servers, which move incentive funds from merchant accounts
to member accounts, and move payment funds from member accounts to merchant
accounts. The payment servers incorporate a database of user, merchant and offer
information.
Our technology consists of proprietary programs integrated with third-party
hardware and software. Our third-party hardware includes Sybase SQL Servers, Sun
Solaris platforms and Apache Web servers, which members access with standard Web
browsers such as Netscape Navigator and Microsoft Internet Explorer. We do not
require consumers to download any software to process or store micropayments and
rewards.
We internally developed our systems for maintaining our Web site processing
transactions and maintaining member accounts. If, in the future, we cannot
modify these systems to accommodate increased traffic and an increased volume of
transactions and orders, we could suffer slower response time, problems with
customer service and delays in reporting accurate financial information. See
"Risk Factors -- If we fail to adapt to rapid change in our industry or our
internally developed systems cannot be modified properly for increased traffic
or volume."
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COMPETITION
The market for online direct advertising and marketing is extremely
competitive. In addition, while the market for services that facilitate
small-scale electronic commerce transactions is very new, we expect competition
in that area to increase dramatically in the near future. We cannot assure you
that we will compete successfully in this environment. Our ability to compete in
these marketplaces depends on many factors, some of which are beyond our
control. Please see "Risk Factors -- We face significant competition from other
online incentives-based advertising and marketing programs and providers of
micropayment systems" for a list of these factors. Our failure to compete in
these marketplaces could have a material adverse effect on our business, results
of operations and financial condition.
We believe that the principal competitive factors in the online
incentives-based advertising market are:
- brand recognition;
- breadth and depth of content and services;
- number and quality of advertising clients;
- size of membership base;
- ease of use;
- transaction speed and security;
- quality of service; and
- technical expertise.
We face significant competition from online incentives-based advertising
and marketing programs and providers of micropayment systems. We expect
competition to increase due to the lack of significant barriers to entry for
online business generally and for online incentives-based direct marketing
programs and micropayment transactions in particular. Currently, several
companies offer competitive online incentives programs, including MyPoints.com,
Inc. and Netcentives Inc. We may also face competition from established Internet
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. In addition, financial service organizations,
such as banks and credit card companies, or other large organizations may
develop competitive micropayment systems and incentives-based advertising and
marketing programs.
Some of our current and potential competitors have longer operating
histories, greater brand recognition, larger client and member bases and
significantly greater financial, technical and marketing resources than we do.
These advantages may enable them to respond more quickly to new or emerging
technologies and changes in customer preferences. These advantages may also
allow them to engage in more extensive research and development, undertake
extensive far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, strategic
partners and advertisers. As a result, it is possible that our existing
competitors or new competitors may rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margin and
loss of market share. We may not be able to compete successfully, and
competitive pressures may affect our business, results of operations and
financial condition.
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INTELLECTUAL PROPERTY
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our technology or business model.
Monitoring unauthorized use of our technology and business model is difficult
and we cannot be certain that the steps we have taken will prevent unauthorized
use of our technology and business model. In addition, our business activities
may infringe upon the proprietary rights of others, and, from time to time, we
have received, and may continue to receive, claims of infringement against us.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Litigation could subject us to significant
liability for damages and invalidation of our proprietary rights. These
lawsuits, regardless of their success, would likely be time consuming and
expensive to resolve and would divert management's time and attention away from
our business. Any potential intellectual property litigation could also force us
to do one or more of the following:
- make significant changes to the structure and operation of our business;
- 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 may not be possible. Accordingly, an adverse determination in any
litigation that we are a party to would have a material adverse effect on our
business, results of operations and financial condition.
Cybergold has two issued U.S. Patents covering its business model and
software architecture:
- Patent #5,794,210 covers Attention Brokerage, in which users are
compensated for paying attention online to advertisements, promotions,
and similar information, and Orthogonal Sponsorship, in which users can
apply their earned compensation to purchase digital content or other
intellectual property; and
- Patent #5,855,008, for Consumer Controlled Privacy Management, in which
users establish criteria by which their personal information is released
to others, those requesting access to personal data provide their
identity, intentions for using the personal data, and may offer
compensation to the user for access to the personal data, and the user or
an automated process decides whether to release the requested personal
data based on the user's criteria and the requester's information.
We also have U.S. and foreign pending patent applications. Cybergold is our
only registered trademark, although we have applied to register additional
trademarks in the United States. We cannot assure you that our patents or
trademarks will not be successfully challenged by others or invalidated. If our
trademark registrations are not approved because third parties own these
trademarks, our use of these trademarks would be restricted unless we entered
into arrangements with the third-party owners, which might not be possible on
reasonable terms.
We generally enter into confidentiality or license agreements with our
employees and consultants, and control access to and distribution of our
technologies, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights from unauthorized use or disclosure,
parties may attempt to disclose, obtain or use our solutions or technologies. We
cannot assure you that the steps we have taken will prevent misappropriation of
our solutions or technologies, particularly in foreign countries where laws or
law enforcement practices may not protect our proprietary rights as fully as in
the United States.
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EMPLOYEES
As of April 30, 1999, we had a total of 56 employees. Of those, 28 are in
sales and marketing, 19 are in engineering and nine are in general and
administrative. We believe that we have good relationships with our employees.
We have never had a work stoppage, and none of our employees is represented
under a collective bargaining agreement. We believe that our future success will
depend in part on our ability to attract, integrate and retain highly motivated
sales, marketing, production and technical personnel and upon the continued
service of our senior management. Competition for qualified personnel in our
industry and geographical locations is intense, and there can be no assurance
that we will be successful in attracting, integrating, retaining and motivating
a sufficient number of qualified personnel to conduct our business in the
future.
FACILITIES
The Company's current headquarters are located in approximately 6,400
square feet of office space we have leased at 2921 Adeline Street, Berkeley,
California. We are leasing this office space in a holdover capacity as our
original lease has expired. We have entered into a lease for approximately
15,200 square feet of office space at 436 14th Street, Oakland, California. The
lease extends through June 2004, and includes a right of first refusal on
additional space which may become available in the building where we will be
headquartered. We are in the process of moving our operations to the new
facility. During this move our technology system could be susceptible to
technical failures or other disruptive problems. Any such problems could
diminish or halt our ability to provide services to our customers, which could
harm our business, results of operations and financial condition. We believe the
office space in the new facility will be adequate to meet our needs for the next
six months, and we expect our growth for the next 24 to 36 months to be
accommodated by our right of first refusal on additional office space which may
become available in our building. We have sales personnel located in the
metropolitan areas of Dallas and New York. These personnel work out of
home-based offices, and do not receive any additional compensation for the use
of their home offices, other than reimbursement for direct expenses such as
telephone, office equipment and supplies. We anticipate adding additional field
personnel in the future; such personnel may or may not work out of home-based
offices, and therefore, we may or may not incur additional expenses relating to
the rental of additional office space.
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MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding our directors
and officers as of May 18, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
A. Nathaniel Goldhaber.................... 51 President, Chief Executive Officer and Chairman
of the Board
Steven M. Farber.......................... 40 Chief Operating Officer
John D. Steuart........................... 38 Chief Financial Officer
Gary Fitts................................ 53 Chief Technology Officer
Daniel W. Berger.......................... 40 Vice President, Sales
Michael Koifman........................... 50 Vice President, Engineering
Larry Weinstein........................... 52 Vice President, Strategic Relationships
Pieter Hartsook........................... 51 Vice President, Business Development
Christopher D. Alafi, Ph.D.(2)............ 35 Director
Jay Chiat(2).............................. 67 Director
Garrett P. Gruener(1)..................... 44 Director
Regis P. McKenna(2)....................... 59 Director
Alan Salzman(1)........................... 45 Director
Peter S. Sealey, Ph.D.(1)................. 58 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
A. Nathaniel Goldhaber has served as President, Chairman of the Board and
Chief Executive Officer since October 1994. Prior to joining Cybergold, Mr.
Goldhaber was self-employed as a venture capitalist. Prior to that Mr. Goldhaber
was the Chief Executive Officer of Kaleida Labs, Inc., a multimedia joint
venture between IBM and Apple Computer, and the Chief Executive Officer of
Centram Systems West, a developer of local area networks. Mr. Goldhaber is a
Member of the Executive Board of the University of California, Berkeley, College
of Letters and Sciences. Mr. Goldhaber received a B.A. from Maharishi
International University and an M.A. from the University of California,
Berkeley.
Steven M. Farber has served as Chief Operating Officer since August 1998.
Prior to joining Cybergold, Mr. Farber was the Chief Executive Officer of
Interwoven, a provider of open systems for enterprise Web production for
Internets and intranets, from March 1997 to March 1998. From 1996 to 1997, he
was self-employed as a consultant. From 1995 to 1996, Mr. Farber was a Vice
President of Summit Integration Group, a software consulting firm. Prior to
that, Mr. Farber served as a Vice President of The Vantive Corporation, a
customer relationship management software company. Mr. Farber received a B.S.
from Tufts University.
John D. Steuart has served as Chief Financial Officer since June 1996.
Prior to joining the Company, Mr. Steuart acted as the Chief Financial Officer
of Alafi Capital, a venture capital firm, from October 1988 to June 1996. He is
a member of the Board of Directors of a number of privately held companies. Mr.
Steuart received a B.A. in Economics from the University of California, Berkeley
and an M.S. in Business from Golden Gate University.
Gary Fitts has served as Chief Technology Officer since July 1995. Prior to
joining Cybergold, Mr. Fitts was self-employed as a consultant. He has also
served as the Directors of TOPS Technology for SunSelect, a personal computer
networking business unit of Sun Microsystems, Inc., and as Vice
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<PAGE> 51
President, Technology, of Sitka Corporation, a networking subsidiary of Sun
Microsystems, Inc. Mr. Fitts received a B.A. from Dartmouth College.
Daniel W. Berger has served as Vice President, Sales since November 1998.
From April 1998 to October 1998, Mr. Berger was Vice President, Sales, at
Conduct Software Technologies, Inc., a network software company. From April 1997
to March 1998 Mr. Berger was Vice President, Sales, at Make Systems, Inc., a
network design tool vendor. From August 1995 to March 1997, Mr. Berger was self-
employed as a software and Internet consultant. Prior to that Mr. Berger was
Vice President, Sales, at Seagate Software, a network software company. Mr.
Berger received a B.A. from Colby College.
Michael Koifman has served as Vice President, Engineering since November
1998. From October 1997 to November 1998, Mr. Koifman was Vice President of
Engineering at Blue Pumpkin Software, a developer of workforce management
software for call centers. From September 1996 to October 1997, Mr. Koifman
served as Manager of Advanced Applications at Siebel Systems, a sales force
automation company. Prior to that, Mr. Koifman was a Senior Principal at AMS, a
computer consulting company. Mr. Koifman holds an M.S. in Mathematics from St.
Petersburg University in St. Petersburg, Russia and an M.S.E.E. in Computer
Design from the Institute of Electrical Engineering in St. Petersburg, Russia.
Larry Weinstein has served as Vice President, Strategic Projects since
February 1999. From February 1998 to February 1999, Mr. Weinstein was the
Executive Vice President of Greenleaf Technologies, an encryption technology
company. From January 1996 to February 1998, Mr. Weinstein was self-employed as
a consultant. Prior to that Mr. Weinstein was a Producer for Frankfurt Balkind
Partners, a strategic communications agency.
Pieter Hartsook has served as Vice President, Business Development since
July 1998. From June 1997 to April 1998, Mr. Hartsook was Vice President,
Business Development, at IPT, Inc., a computer software firm. From November 1996
to April 1997, Mr. Hartsook was Vice President, Marketing Analysis, at Apple
Computer, Inc., a maker of personal computing products. Prior to joining Apple,
Mr. Hartsook was the President of the Hartsook Letter, a market research
consulting firm. Mr. Hartsook received a B.A. and an M.L.S. from the University
of California, Berkeley.
Christopher D. Alafi has served as one of our directors since July 1997.
Dr. Alafi is currently a general partner of Alafi Capital Co., a venture capital
firm. Prior to joining Alafi Capital in 1995, Dr. Alafi was a visiting scholar
in the Department of Chemistry at Stanford University. Dr. Alafi is currently a
member of the Board of Directors of a number of private companies. Dr. Alafi
received a B.A. from Pomona College and a Ph.D. in Biochemistry from the
University of Oxford.
Jay Chiat has served as one of our directors since May 1996. Since October
1998 Mr. Chiat has been the Chief Executive Officer of ScreamingMedia.net, an
Internet news service. From June 1968 to November 1996, Mr. Chiat served as the
Chief Executive Officer of Chiat/Day Advertising, an advertising firm. Mr. Chiat
is a member of the Board of Directors of Department 56, Inc., a designer,
importer and distributor of collectibles and giftware. Mr. Chiat received a B.S.
in Education from Rutgers University and an Executive M.B.A. from the Anderson
School at U.C.L.A.
Garrett P. Gruener has served as one of our directors since May 1998. Mr.
Gruener has been a general partner of Alta Partners L.P., a venture capital
firm, since February 1996. Since 1992, Mr. Gruener has been a general partner of
certain funds affiliated with Burr, Egan, Deleage & Co., a venture capital firm.
Mr. Gruener is a member of the Board of Directors of several private companies.
Mr. Gruener received a B.S. from the University of California, San Diego, and an
M.A. from the University of California, Berkeley.
Regis P. McKenna has served as one of our directors since May 1996. Mr.
McKenna has been Chairman of The McKenna Group, a Silicon Valley-based
management and marketing consulting firm,
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since 1970. Mr. McKenna serves on the board of the Economic Strategies Institute
and is a member of the Council on Competitiveness. Mr. McKenna also serves on
the advisory board to Stanford's Graduate School of Business. Mr. McKenna is a
trustee of Santa Clara University and is the Chairman of the Board of the Santa
Clara University Center for Science, Technology and Society. Mr. McKenna serves
as a member of the Board of Directors of Cylink Corporation, a supplier of
network information security products. Mr. McKenna received a B.A. from Duquesne
University.
Alan Salzman has served as one of our directors since May 1998. Mr. Salzman
is a founder and managing partner of VantagePoint Venture Partners, a venture
capital firm focused on the Internet, data networking and communications
services. Prior to joining VantagePoint in 1995, Mr. Salzman was a general
partner with Canaan Partners, a venture capital firm. Prior to that Mr. Salzman
was a partner with Brobeck, Phleger & Harrison, LLP, a law firm. Mr. Salzman
received a B.A. from the University of Toronto, a J.D. from Stanford Law School
and an L.L.M. from the University of Brussels.
Peter Sealey has served as one of our directors since May 1996. Dr. Sealey
has been a Lecturer and an Adjunct Professor of Marketing at the Haas School of
Business at the University of California, Berkeley since 1994. In addition, Dr.
Sealey has been self-employed as a management consultant, serving primarily
technology-oriented companies, during the same period. Prior to that, Dr. Sealey
was employed by the Coca-Cola Company for 24 years, where he held a series of
senior management positions, including Senior Vice President, Global Marketing.
Dr. Sealey serves on the board of directors of Autoweb.com, a consumer
automotive Internet service provider, and USWeb Corporation, an Internet
professional services and integrated marketing communications services company.
Dr. Sealey received a B.S. from the University of Florida, an M.I.A. from Yale
University and an M.A. and a Ph.D. from Claremont Graduate University.
Classified Board. Our certificate of incorporation provides for a
classified board of directors consisting of three classes of directors, each
serving staggered three-year terms. As a result, a portion of our board of
directors is elected each year. To implement the classified structure, prior to
the consummation of the offering, two of the nominees to the board of directors
were elected to one-year terms, two were elected to two-year terms, and three
were elected to three-year terms. Thereafter, directors will be elected for
three-year terms. Christopher D. Alafi and Jay Chiat have been designated Class
I directors whose term expires at the 2000 annual meeting of stockholders. A.
Nathaniel Goldhaber and Garrett D. Gruener have been designated Class II
directors whose term expires at the 2001 annual meeting of stockholders. Regis
P. McKenna, Alan Salzman and Peter Sealey have been designated Class III
directors whose term expires at the 2002 annual meeting of stockholders. See
"Description of Capital Stock -- Antitakeover Effects of Provisions of
Certificate of Incorporation, Bylaws and Delaware Law."
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
BOARD COMMITTEES
The board of directors has a compensation committee and an audit committee.
Compensation Committee. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding the
compensation and benefits provided to our key executive officers and directors,
including stock compensation and loans. In addition, the compensation committee
reviews policies regarding compensation arrangements and benefits for all of our
employees. As part of the foregoing, the compensation committee also administers
our 1999 Omnibus Equity Incentive Plan and 1999 Employee Stock Purchase Plan.
The current members of the compensation committee are Messrs. Alafi, Chiat and
McKenna.
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Audit Committee. The audit committee of the board of directors reviews and
monitors our internal accounting procedures and reviews the results and scope of
the annual audit and other services provided by our independent accountants. The
audit committee also consults with our management and our independent auditors
prior to the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee has the responsibility to consider and recommend
the appointment of, and to review fee arrangements with, our independent
auditors. The current members of the audit committee are Messrs. Gruener,
Salzman and Sealey.
DIRECTOR COMPENSATION
Our directors receive $5,000 for attendance at each Board meeting and
$2,500 for attendance at each board committee meeting. In addition, our
directors are reimbursed for all reasonable out-of-pocket expenses incurred in
connection with their attendance at board and board committee meetings. From
time to time, certain directors who are not employees of Cybergold have received
grants of options to purchase shares of our common stock. On June 25, 1996, we
granted Messrs. Chiat and McKenna each an option to purchase 70,000 shares of
our common stock and Mr. Sealey an option to purchase 25,000 shares of our
common stock at an exercise price of $0.01 per share. On November 11, 1996, we
also granted to Mr. Sealey an option to purchase 45,000 shares of our common
stock at an exercise price of $0.15 per share, and on June 19, 1998, we granted
him an option to purchase 30,000 shares of our common stock at an exercise price
of $0.50 per share. Following this offering, directors will receive automatic
option grants under our 1999 Omnibus Equity Incentive Plan. Please see "Stock
Plans -- 1999 Omnibus Equity Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Messrs. McKenna, Chiat and Alafi. No interlocking relationship exists between
any member of our board of directors or our compensation committee and any
member of the board of directors or compensation committee of any other company,
and no such interlocking relationship has existed in the past.
INDEMNIFICATION
In May 1999, the board of directors authorized us to enter into
indemnification agreements with each of our directors and executive officers.
The form of indemnification agreement provides that we will indemnify our
directors and executive officers against any and all of their expenses incurred
by reason of their status as a director or executive officer to the fullest
extent permitted by Delaware law, our certificate of incorporation and our
bylaws.
Our certificate of incorporation and bylaws each contain certain provisions
relating to the limitation of liability and indemnification of our directors and
officers. Our certificate of incorporation provides that our directors will not
be personally liable to Cybergold or our stockholders for monetary damages for
any breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to Cybergold or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- in respect of certain unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
- for any transaction from which the director derives any improper personal
benefit.
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<PAGE> 54
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended after approval by our stockholders of our certificate
of incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of our directors will be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law. The foregoing provisions of our certificate of incorporation
are not intended to limit the liability of our directors or officers for any
violation of applicable federal securities laws.
In addition, as permitted by Section 145 of the Delaware General
Corporation Law, our bylaws provide that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law;
- to the fullest extent permitted by the Delaware General Corporation Law,
we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding (subject to
certain exceptions);
- the rights conferred in the bylaws are not exclusive;
- we are authorized to enter into indemnification agreements with our
directors, officers, employees and agents; and
- we may not retroactively amend our bylaw provisions relating to
indemnification.
Our bylaws provide that we must indemnify our directors to the fullest
extent permitted by Delaware General Corporation Law, including in circumstances
in which indemnification is otherwise discretionary under Delaware General
Corporation Law.
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<PAGE> 55
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
the fiscal year ended December 31, 1998 paid by us for services by our Chief
Executive Officer and our two other highest-paid executive officers collectively
referred to below as the named executive officers, whose total salary and bonus
exceeded $100,000 for services rendered to Cybergold in all capacities during
1998. No executive officer who would otherwise have been included in this table
based on salary and bonus earned for fiscal year 1998 has resigned or otherwise
been terminated as of the date of this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
A. Nathaniel Goldhaber(1)................................ -- -- --
President and Chief Executive Officer
John D. Steuart.......................................... 93,940 -- 50,000
Chief Financial Officer
Gary Fitts............................................... 123,963 -- --
Chief Technology Officer
</TABLE>
- -------------------------
(1) Mr. Goldhaber's annual salary for fiscal year 1999 is $175,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1998 to each of the named executive officers. No
stock appreciation rights were granted to these individuals during such year.
Each of the options listed in the table is immediately exercisable. The
shares purchasable under the options may be repurchased by Cybergold at the
original exercise price paid per share if the optionee ceases service before
vesting in such shares. The repurchase right lapses and the optionee vests as to
25% of the option shares upon completion of 12 months of service from the
vesting start date and the balance in a series of equal monthly installments
over the next three years of service. The option shares will vest upon an
acquisition of Cybergold by merger or asset sale, unless our repurchase right
with respect to the unvested option shares is transferred to the acquiring
entity.
The exercise price was equal to the fair market value of our common stock
as valued by our board of directors on the date of grant. In determining this
fair market value, the board of directors took into account the purchase price
paid by investors for shares of our preferred stock (taking into account the
liquidation preferences and other rights, privileges and preferences associated
with such preferred stock) and an evaluation by the board of directors of our
revenues, operating history and prospects. The exercise price may be paid in
cash, in shares of our common stock valued at fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of the
purchased shares. We may also finance the option exercise by lending the
optionee sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.
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<PAGE> 56
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable value at 5% and 10% appreciation is calculated by assuming
that the estimated fair market value on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price. The initial public offering price is higher than the
estimated fair market value on the date of grant, and the potential realizable
value of the option grants would be significantly higher than the numbers shown
in the table if future stock prices were projected to the end of the option term
by applying the same annual rates of stock price appreciation to the initial
public offering price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE 5%($) 10%($)
---- ---------- --------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
A. Nathaniel Goldhaber..... -- -- -- -- -- --
John D. Steuart(2)......... 50,000 3.8 0.50 01/06/08 15,722 39,844
Gary Fitts................. -- -- -- -- -- --
</TABLE>
- -------------------------
(1) Based on a total of 1,313,950 options granted to our employees under our
1996 Stock Option Plan during the 12 months ended December 31, 1998.
(2) On May 10, 1999, we granted to Mr. Steuart an option for 200,000 shares of
our common stock at an exercise price of $2.60 per share. 100,000 of the
option shares vest over a two-year period, and the vesting is accelerated
for 50,000 of such shares upon the date of this offering. The remaining
100,000 option shares vest over a four-year period, with 25% of the shares
vesting upon the completion of one year of service and the balance vesting
upon the completion of each of the next 36 months of service.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth for each of the named executive officers the
number of options exercised during the fiscal year ended December 31, 1998 and
the number and value of securities underlying unexercised options that are held
by the named executive officers as of December 31, 1998. No options were
exercised by the named executive officers in fiscal year 1998. No stock
appreciation rights were exercised by the named executive officers in fiscal
year 1998, and no stock appreciation rights were outstanding at the end of that
year.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
FISCAL YEAR END(#)(1) FISCAL YEAR END($)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
A. Nathaniel Goldhaber.................... -- -- -- --
John D. Steuart........................... 50,000 -- 0 --
Gary Fitts................................ 350,000 -- 49,000 --
</TABLE>
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<PAGE> 57
- -------------------------
(1) The options are immediately exercisable for all of the option shares, but
any shares purchased under those options will be subject to repurchase by
Cybergold, at the original exercise price paid per share, if the optionee
ceases service with Cybergold before vesting in such shares.
(2) Based on the fair market value of our common stock as determined by our
board of directors at the end of 1998 of $0.15 per share, less the exercise
price payable or paid for such shares. The fair market value of our common
stock at the end of 1998 was estimated by the board of directors on the
basis of the purchase price paid by investors for shares of our preferred
stock (taking into account the liquidation preferences and other rights,
privileges and preferences associated with the preferred stock) and an
evaluation by the board of our revenues, operating history and prospects.
The initial public offering price is higher than the estimated fair market
value at fiscal year-end, and the value of unexercised options would be
higher than the numbers shown in the table if the value were calculated by
subtracting the exercise price from the initial public offering price.
STOCK PLANS
1999 OMNIBUS EQUITY INCENTIVE PLAN
Share Reserve. Our board of directors adopted our 1999 Omnibus Equity
Incentive Plan on May 18, 1999. Our stockholders will also approve this plan. We
have reserved 1,500,000 shares of our common stock for issuance under the 1999
Omnibus Equity Incentive Plan. Any shares not yet issued under our 1996 Stock
Option Plan as of the date of this offering will also be available for grant
under the 1999 Omnibus Equity Incentive Plan. On January 1 of each year,
starting with the year 2000, the number of shares in the reserve will
automatically increase by 5% of the total number of shares of common stock that
are outstanding at that time or, if less, by 1,500,000 shares. In general, if
options or shares awarded under the 1999 Omnibus Equity Incentive Plan or 1996
Stock Option Plan are forfeited, then those options or shares will again become
available for awards under the 1999 Omnibus Equity Incentive Plan. We have not
yet granted any options under the 1999 Omnibus Equity Incentive Plan.
Administration. The compensation committee of our board of directors
administers the 1999 Omnibus Equity Incentive Plan. The committee has the
complete discretion to make all decisions relating to the interpretation and
operation of our 1999 Omnibus Equity Incentive Plan. The committee has the
discretion to determine who will receive an award, what type of award it will
be, how many shares will be covered by the award, what the vesting requirements
will be (if any), and what the other features and conditions of each award will
be. The compensation committee may also reprice outstanding options and modify
outstanding awards in other ways.
Eligibility. The following groups of individuals are eligible to
participate in the 1999 Omnibus Equity Incentive Plan:
- Employees,
- Members of our board of directors who are not employees, and
- Consultants.
Types of Award. The 1999 Omnibus Equity Incentive Plan provides for the
following types of award:
- Incentive stock options to purchase shares of our common stock,
- Nonstatutory stock options to purchase shares of our common stock,
- Restricted shares of our common stock,
- Stock appreciation rights, and
- Stock units.
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<PAGE> 58
Options. An optionee who exercises an incentive stock option may qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code of
1986. On the other hand, nonstatutory stock options do not qualify for such
favorable tax treatment. The exercise price for incentive stock options granted
under the 1999 Omnibus Equity Incentive Plan may not be less than 100% of the
fair market value of our common stock on the option grant date. In the case of
nonstatutory stock options, the minimum exercise price is 85% of the fair market
value of our common stock on the option grant date. Optionees may pay the
exercise price by using:
- Cash,
- Shares of common stock that the optionee already owns,
- A full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash,
- An immediate sale of the option shares through a broker designated by us,
or
- A loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee.
In most cases, our options vest over the four-year period following the date of
grant. Options generally expire 10 years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
1999 Omnibus Equity Incentive Plan provides that no participant may receive
options covering more than 500,000 shares in the same year, except that a newly
hired employee may receive options covering up to 1,500,000 shares in the first
year of employment.
Restricted Shares. Restricted shares may be awarded under the 1999 Omnibus
Equity Incentive Plan in return for:
- Cash,
- A full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash,
- Services already provided to us, and
- In the case of treasury shares only, services to be provided to us in the
future.
Automatic Option Grants
Initial Grants. Only the non-employee members of our board of directors
will be eligible for option grants under the automatic option grant program.
Each non-employee director who first joins our board after the effective date of
this offering will receive an initial option for 15,000 shares. That grant will
occur when the director takes office. The initial options vest in full on the
first year anniversary of the date of grant.
Annual Grants. At the time of each of our annual stockholders' meetings,
beginning in 2000, each non-employee director who will continue to be a director
after that meeting will automatically be granted an annual option for 7,500
shares of our common stock. However, a new non-employee director who is
receiving the 15,000-share initial option will not receive the 7,500-share
annual option in the same calendar year. The annual options vest in full on the
first year anniversary of the date of grant.
The exercise price of each non-employee director's option will be equal to
the fair market value of our common stock on the option grant date. A director
may pay the exercise price by using cash, shares of common stock that the
director already owns, or an immediate sale of the option shares through a
broker designated by us. The non-employee directors' options have a 10-year
term, except that they expire one year after a director leaves the board (if
earlier). If a change in control of Cybergold occurs, a non-employee director's
option will become fully vested unless the accounting rules applicable to a
56
<PAGE> 59
pooling of interests preclude acceleration. Vesting also accelerates if the
optionee retires after age 65, dies or is disabled.
Stock Appreciation Rights. We may award stock appreciation rights under the
1999 Omnibus Equity Incentive Plan. Each agreement evidencing stock appreciation
rights will inform the holder when such rights may be exercised. Stock
appreciation rights may be exercised for shares of common stock, cash or a
combination of cash and shares. No participant may receive stock appreciation
rights for more than 500,000 shares in the same year, except that a newly hired
employee may receive stock appreciation rights for up to 1,000,000 shares.
Stock Units. We may award stock units under the 1999 Omnibus Equity
Incentive Plan. The stock units may be subject to vesting. Stock units may be
settled for shares of common stock, cash or a combination of cash and shares.
Buy Outs. In our sole discretion, we may offer to buy out for cash an
option or authorize an optionee to cash out an option that was previously
granted.
Deferral of Awards. We may permit a participant to have cash that would be
paid to the participant for exercise of a stock appreciation right or settlement
of a stock unit credited to a deferred compensation account. We may also permit
shares that would be delivered for exercise of an option or stock appreciation
right converted into an equal number of stock units or converted into amounts
that would be credited to a deferred compensation account.
Change in Control. If a change in control of Cybergold occurs, an option or
other award under the 1999 Omnibus Equity Incentive Plan will become fully
vested if the option or other award is not assumed by the surviving corporation
or its parent or if the surviving corporation or its parent does not substitute
another award on substantially the same terms. A change in control includes:
- A merger of Cybergold after which our own stockholders own 50% or less of
the surviving corporation or its parent company,
- A sale of all or substantially all of our assets,
- A proxy contest that results in the replacement of more than one-third of
our directors over a 24-month period, or
- An acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to Cybergold (such as a holding
company owned by our stockholders).
Amendments or Termination. Our board may amend or terminate the 1999
Omnibus Equity Incentive Plan at any time. If our board amends the plan, it does
not need to ask for stockholder approval of the amendment unless applicable law
requires it. The 1999 Omnibus Equity Incentive Plan will continue in effect
indefinitely, unless the board decides to terminate the plan earlier.
1999 EMPLOYEE STOCK PURCHASE PLAN
Share Reserve and Administration. Our board of directors adopted our 1999
Employee Stock Purchase Plan on May 18, 1999. Our stockholders will also approve
this plan. Our 1999 Employee Stock Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code. We have reserved 300,000 shares of our
common stock for issuance under the plan. On January 1 of each year, starting
with the year 2000, the number of shares in the reserve will be automatically
increased by 500,000 shares. Our compensation committee of our board of
directors administers the plan.
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<PAGE> 60
Eligibility. All of our employees are eligible to participate if they are
employed by us for more than 20 hours per week and for more than five months per
year. Eligible employees may begin participating in the 1999 Employee Stock
Purchase Plan at the start of any offering period. Each offering period lasts 24
months. Overlapping offering periods start on February 1 and August 1 of each
year. However, the first offering period will start on the effective date of
this offering and end on July 31, 2001.
Amount of Contributions. Our 1999 Employee Stock Purchase Plan permits each
eligible employee to purchase common stock through payroll deductions. Each
employee's payroll deductions may not exceed 15% of the employee's cash
compensation. Purchases of our common stock will occur on January 31 and July 31
of each year. Each participant may purchase up to 750 shares on any purchase
date (1,500 shares per year). But the value of the shares purchased in any
calendar year (measured as of the beginning of the applicable offering period)
may not exceed $25,000.
Purchase Price. The price of each share of common stock purchased under our
1999 Employee Stock Purchase Plan will be 85% of the lower of:
- The fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or
- The fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
- The price per share to the public in this offering, or
- The fair market value per share of common stock on the purchase date.
Other Provisions. Employees may end their participation in the 1999
Employee Stock Purchase Plan at any time. Participation ends automatically upon
termination of employment with Cybergold. If a change in control of Cybergold
occurs, our 1999 Employee Stock Purchase Plan will end and shares will be
purchased with the payroll deductions accumulated to date by participating
employees, unless the plan is assumed by the surviving corporation or its
parent. Our board of directors may amend or terminate the 1999 Employee Stock
Purchase Plan at any time. Our Chief Executive Officer may also amend the plan
in certain respects. If our board increases the number of shares of common stock
reserved for issuance under the plan (except for the automatic increases
described above), it must seek the approval of our stockholders.
CHANGE OF CONTROL ARRANGEMENTS
All options and other awards granted under our 1996 Stock Option Plan and
our 1999 Omnibus Equity Incentive Plan, including options granted to our named
executive officers, will become fully vested if a change in control of Cybergold
occurs, unless the options or awards are assumed by the surviving corporation or
its parent or if the surviving corporation or its parent substitutes comparable
options or awards for options or awards granted under our plans.
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<PAGE> 61
CERTAIN TRANSACTIONS
Since January 1, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we or any of our
subsidiaries was or is to be a party in which the amount involved exceeded or
will exceed $60,000 and in which any of our directors, executive officers,
holder of more than 5% of our Common Stock or any member of the immediate family
of such persons had or will have a direct or indirect material interest other
than (i) compensation agreements and other arrangements, which are described
where required in "Management," and (ii) the transactions described below.
In September 1996, we were a party to two agreements by which Mr. Goldhaber
sold 100,000 shares of common stock to each of Regis McKenna and Jay Chiat, two
of our directors, at a per share purchase price of $0.01, for an aggregate
purchase price of $2,000.
In May 1996 and January 1998, we entered into consulting agreements with
Peter Sealey, one of our directors. Under the May 1996 agreement, we made
commitments to issue Dr. Sealey 10,000 shares of common stock and grant him an
option to purchase an additional 15,000 shares of common stock. Under the
January 1998 agreement, we paid Dr. Sealey $15,000 and made a commitment to
grant him an option to purchase 10,000 shares of common stock.
In May 1999, we entered into an agreement with Steven Farber, one of our
executive officers, under which we agreed to grant Mr. Farber an option to
purchase 300,000 shares of common stock at an exercise price of $2.60 per share,
such option vesting upon the achievement of certain performance criteria or if
such milestones are not achieved, such option will vest in full five years from
the date of grant. 50,000 of these shares accelerate on the closing of this
offering.
We have issued, in private placement transactions, shares of our Preferred
Stock as follows: an aggregate of 3,000,000 shares of Series A Preferred Stock
in July and September of 1996 at a purchase price of $1.00 per share; 2,092,471
shares of Series B Preferred Stock in June 1997 at a purchase price of $2.00 per
share; 6,283,792 shares of Series C Preferred Stock in May and August of 1998 at
a purchase price of $0.91 per share; and in May 1999, 3,076,923 shares of Series
D Preferred Stock at a purchase price of $2.60 per share, and warrants to
purchase an aggregate of 576,925 shares of Series D Preferred Stock at an
exercise price of $3.00 per share. Each share of Preferred Stock is convertible
into one share of Common Stock, and all such shares of Preferred Stock shall be
converted into shares of Common Stock upon the closing of this offering.
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<PAGE> 62
The following table summarizes the shares of Preferred Stock purchased by
our named executive officers, directors and 5% stockholders, and entities
associated with them, in private placement transactions.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
INVESTOR(1) PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK(4)
----------- --------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
A. Nathaniel Goldhaber........ 1,270,000 488,662 -- 100,000
John D. Steuart............... 25,000 6,441 10,989 11,229
Jay Chiat..................... 180,000 66,337 100,000 50,001
Regis P. McKenna.............. 50,000 25,252 54,945 28,626
Peter S. Sealey............... -- 5,000 8,242 2,912
Alafi Capital Company......... 975,000 556,827 -- 405,412
Alta California Partners,
L.P.(2)..................... -- -- 3,296,703 872,498
Vantage Point Venture
Partners, 1996(3)........... -- -- 2,472,528 872,498
</TABLE>
- -------------------------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Includes shares held by Alta Embarcadero Partners, LLC. Garrett P. Gruener,
one of our directors, is a general partner of the general partner of Alta
California Partners, L.P. and a member of Alta Embarcadero Partners, LLC.
(3) Alan Salzman, one of our directors, is a managing partner of Vantage Point
Venture Partners, 1996.
(4) Includes warrants to purchase Series D Preferred Stock.
We believe that the transactions set forth above were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
All future transactions, including loans between us and our officers, directors,
principal stockholders and their affiliates will be approved by a majority of
the board of directors, and will continue to be on terms no less favorable to us
than could be obtained from unaffiliated third parties.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of May 18, 1999 and as adjusted to reflect the sale of the common stock
offered hereby for: (1) each person who is known by us to beneficially own more
than 5% of our common stock; (2) the chief executive officer and each of our
named executive officers, (3) each of our directors; and (4) all of our
directors and executive officers as a group. Except as otherwise indicated, we
believe that the beneficial owners of the common stock listed below, based on
information furnished by such owners, have sole voting and investment power with
respect to such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES -------------------------------
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY BEFORE AFTER
EXECUTIVE OFFICERS AND DIRECTORS OWNED OFFERING(1)(2) OFFERING(1)(2)
-------------------------------- ---------------- -------------- --------------
<S> <C> <C> <C>
A. Nathaniel Goldhaber(3).......................... 7,258,662 34.28%
Entities affiliated with Alta California Partners,
L.P.(4).......................................... 4,169,201 19.69%
VantagePoint Venture Partners, 1996(5)............. 3,345,026 15.80%
Alafi Capital Company(6)........................... 1,937,239 9.15%
Gary Fitts(7)...................................... 350,000 1.63%
John D. Steuart(8)................................. 478,659 2.23%
Christopher D. Alafi, Ph.D.(6)..................... 1,937,239 9.15%
Jay Chiat(9)....................................... 566,338 2.67%
Garrett P. Gruener(4).............................. 4,169,201 19.69%
Regis P. McKenna(10)............................... 328,823 1.55%
Alan Salzman(5).................................... 3,345,026 15.80%
Peter S. Sealey, Ph.D.(11)......................... 116,154 *
All directors and officers as a group (14 persons)
(12)............................................. 19,546,702 85.21%
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Percentage ownership is based on 21,173,629 shares outstanding as of May
18, 1999, including 14,453,186 shares of common stock issuable upon
conversion of all outstanding preferred stock at the closing of this
offering and the assumed exercise on a cash basis of 576,925 shares of
preferred stock issuable upon exercise of outstanding warrants that
terminate upon the closing of this offering. Shares of common stock subject
to options currently exercisable or exercisable within 60 days of May 18,
1999 are deemed outstanding for purposes of computing the percentage
ownership of the person holding such options but are not deemed outstanding
for purposes of computing the percentage ownership of any other person.
Except pursuant to the community property laws or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by such stockholder. Unless otherwise
indicated, the address of each of the individuals listed in the table is
c/o Cybergold, Inc., 2921 Adeline Street, Berkeley, CA 94703.
(2) Assumes the underwriters' option to purchase additional shares is not
exercised.
(3) Includes 23,077 shares of common stock issuable upon exercise of a warrant,
and 840,000 shares of common stock which Mr. Goldhaber has made commitments
to transfer to a family trust.
(4) Includes 4,076,079 shares beneficially owned by Alta California Partners,
L.P., and 93,122 shares beneficially owned by Alta Embarcadero Partners
LLC. Of these shares, a total of 201,346 are issuable upon exercise of
warrants. Garrett P. Gruener, one of our directors, is a general partner of
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<PAGE> 64
the general partner Alta California Partners, L.P. and a member of Alta
Embarcadero Partners LLC. The address of Alta California Partners, L.P. and Alta
Embarcadero Partners LLC is One Embarcadero Center, Suite 4050, San Francisco,
CA 94111. Mr. Gruener disclaims beneficial ownership of the shares held by
Alta California Partners, L.P. and Alta Embarcadero Partners LLC, except to
the extent of his pecuniary interest therein.
(5) Includes 201,346 shares of common stock issuable upon exercise of a
warrant. Alan Salzman, one of our directors, is a managing partner of
Vantage Point Venture Partners, 1996. The address of Vantage Point Venture
Partners, 1996 is 1001 Bayhill Drive, Suite 100, San Bruno, CA 94066. Mr.
Salzman disclaims beneficial ownership of the shares held by Vantage Point
Venture Partners, 1996, except to the extent of his pecuniary interest
therein.
(6) Includes 93,557 shares of common stock issuable upon exercise of a warrant.
Christopher Alafi, one of our directors, is a general partner of Alafi
Capital Company. The address of Alafi Capital Company is 9 Commodore Drive,
Suite 405, Emeryville, CA 94608. Dr. Alafi disclaims beneficial ownership
of the shares held by Alafi Capital Company, except to the extent of his
pecuniary interest therein.
(7) Includes 350,000 shares of common stock issuable upon exercise of
immediately exercisable options, none of which are subject to our right of
repurchase.
(8) Includes 250,000 shares of common stock issuable upon exercise of
immediately exercisable options, shares of which are subject
to our right of repurchase, and 2,591 shares of common stock issuable upon
exercise of a warrant.
(9) Includes 11,539 shares of common stock issuable upon exercise of a warrant.
(10) Includes 70,000 shares of common stock issuable upon exercise of
immediately exercisable options, none of which are subject to our right of
repurchase, and 6,606 shares of common stock issuable upon exercise of a
warrant.
(11) Includes 100,000 shares of common stock issuable upon exercise of
immediately exercisable options, 11,354 shares of which are subject to our
right of repurchase, and 672 shares of common stock issuable upon exercise
of a warrant.
(12) Includes 1,665,000 shares of common stock issuable upon exercise of
immediately exercisable options, shares of which are subject to
our right of repurchase, and 540,734 shares of common stock issuable upon
exercise of warrants.
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<PAGE> 65
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon consummation of this offering, our authorized capital stock will
consist of 75,000,000 shares of common stock, $0.0001 par value, and 5,000,000
shares of preferred stock, $0.0001 par value. The following summary of certain
provisions of the common stock and the preferred stock does not purport to be
complete and is subject to, and qualified in its entirety by, our certificate of
incorporation and bylaws and by the provisions of applicable law.
COMMON STOCK
As of May 18, 1999, there were 20,596,704 shares of common stock
outstanding that were held of record by approximately 60 stockholders. There
will be shares of Common Stock outstanding (assuming no
exercise of the underwriters' over-allotment option and assuming no exercise
after March 31, 1999, of outstanding options) after giving effect to the sale of
the shares of common stock to the public offered hereby and the conversion of
our preferred stock into common stock at a one-to-one ratio.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available therefor. See
"Dividend Policy." In the event of the liquidation, dissolution or winding up of
Cybergold, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock has no
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, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation authorizes 5,000,000 shares of preferred
stock. The board of directors has the authority to issue the preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of Cybergold without further action by the stockholders and
may adversely affect the voting and other rights of the holders of common stock.
The issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. At present, we have no plans to issue any of the
preferred stock.
WARRANTS
As of May 18, 1999,we had outstanding exercisable warrants to purchase an
aggregate of 250,000 shares of common stock at $0.15 per share; 22,500 shares of
Series B preferred stock at $2.00 per share; and 576,925 shares of Series D
preferred stock at $3.00 per share. All unexercised warrants to purchase Series
D preferred stock will be automatically exercised (pursuant to net exercise
provisions to the extent unexercised) upon the closing of this offering. The
warrants to purchase common stock and Series B
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<PAGE> 66
preferred stock, which remain outstanding after this offering, will expire
between July 28, 2000 and January 30, 2008.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
The certificate of incorporation provides that, effective upon the closing
of this offering, all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. In addition, we have a classified board
of directors such that approximately one-third of the members of the board of
directors are elected at each annual meeting of our stockholders. Our bylaws
provide that our stockholders may call a special meeting of stockholders only
upon a written request of stockholders owning at least 50% of our capital stock.
These provisions of the certificate of incorporation and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of Cybergold. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the board of directors and in the
policies formulated by the board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of
Cybergold. These provisions are designed to reduce the vulnerability of
Cybergold to an unsolicited acquisition proposal. The provisions also are
intended to discourage certain tactics that may be used in proxy fights.
However, such provisions could have the effect of discouraging others from
making tender offers for our shares and, as a consequence, they also may inhibit
fluctuations in the market price of our shares that could result from actual or
rumored takeover attempts. Such provisions also may have the effect of
preventing changes in our management. See "Risk Factors -- Antitakeover
provisions in our charter documents and Delaware law could prevent or delay a
change in control of our company."
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (1) by persons who are
directors and also officers and (2) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
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<PAGE> 67
Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of 15,302,611 shares of common stock will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of our agreement with the holders of
such registrable securities, if we proposed to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, such holders are entitled to
receive notice of such registration and are entitled to include shares of such
common stock therein. Additionally, holders of 15,280,111 shares of common stock
are entitled to certain demand registration rights pursuant to which they may
require us to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to use
our best efforts to effect such registration. Further, the holders of such
demand rights may require us to file additional registration statements on Form
S-1 or Form S-3. All of these registration rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in such registration and our
right not to effect a requested registration within six months following an
offering of our securities, including the offering made hereby.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
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<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have shares of
common stock outstanding, assuming the issuance of shares of
common stock offered hereby and no exercise of options after March 31, 1999. Of
these shares, the shares sold in the offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares held by our affiliates, as that term is defined under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 21,173,629 shares of common stock are deemed restricted
shares under Rule 144. The number of shares of common stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of such shares have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this prospectus without the prior written consent of SG Cowen
Securities Corporation. On the date of this prospectus, no shares other than the
shares offered hereby will be eligible for sale. Beginning 180
days after the date of this prospectus, or earlier with the consent of SG Cowen
Securities Corporation, 17,519,781 restricted shares will become available for
sale in the public market subject to certain limitations of Rule 144 of the
Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock
(approximately shares after giving effect to this offering) and
the average weekly trading volume of our common stock on the Nasdaq National
Market during the four calendar weeks preceding such sale. Sales under Rule 144
of the Securities Act are subject to certain restrictions relating to manner of
sale, notice and the availability of current public information about us. A
person who is not our affiliate at any time during the 90 days preceding a sale,
and who has beneficially owned shares for at least two years, would be entitled
to sell such shares immediately following this offering without regard to the
volume limitations, manner of sale provisions or notice or other requirements of
Rule 144 of the Securities Act. However, the transfer agent may require an
opinion of counsel that a proposed sale of shares comes within the terms of Rule
144 of the Securities Act prior to effecting a transfer of such shares.
Prior to this offering, there has been no public market for our common
stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional common stock will have on the
market price of our common stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
OPTIONS
As of March 31, 1999, there were a total of 1,958,364 shares of common
stock subject to outstanding options under our 1996 Stock Option Plan, of which
were vested, and shares of common stock subject to
outstanding options issued outside our 1996 Stock Option Plan, all of which were
vested. However, all of these shares are subject to lock-up agreements.
Rule 701 under the Securities Act provides that shares of common stock
acquired on the exercise of outstanding options may be resold by persons other
than our affiliates, beginning 90 days after the date of
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<PAGE> 69
this prospectus, subject only to the manner of sale provisions of Rule 144, and
by affiliates, beginning 90 days after the date of this prospectus, subject to
all provisions of Rule 144 except its one-year minimum holding period.
Immediately after the completion of the offering, Cybergold intends to file
registration statements on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under the 1996
Stock Option Plan, our 1999 Omnibus Equity Incentive Plan and our 1999 Employee
Stock Purchase Plan, as well as the shares of common stock subject to options
issued outside the 1996 Stock Option Plan. On the date 180 days after the
effective date of the offering, a total of shares of common stock subject
to outstanding options will be vested. After the effective dates of the
registration statements on Form S-8, shares purchased upon exercise of options
granted pursuant to the 1996 Stock Option Plan, 1999 Omnibus Equity Incentive
Plan, 1999 Employee Stock Purchase Plan and outside the 1996 Stock Option Plan
generally would be available for resale in the public market.
LOCK-UP AGREEMENTS
The officers, directors and stockholders of Cybergold have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of the offering. SG Cowen Securities Corporation, however, may in its
sole discretion, at any time without notice, release all or any portion of the
shares subject to lock-up agreements.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
, 1999, the underwriters named below, through their representatives
SG Cowen Securities Corporation, CIBC World Markets Corp. and Volpe Brown Whelan
& Company, LLC, have severally agreed to purchase from us the number of shares
of common stock set forth opposite their names at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
prospectus.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
SG Cowen Securities Corporation.............................
CIBC World Markets Corp.....................................
Volpe Brown Whelan & Company, LLC...........................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are conditional and may be terminated at their discretion based on
their assessment of the state of the financial markets and may also be
terminated upon the occurrence of the events specified in the underwriting
agreement. The underwriters are severally committed to purchase all of the
common stock being offered by Cybergold if any of such shares are purchased
(other than those covered by the over-allotment option described below).
The underwriters propose to offer the common stock directly to the public
at the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to certain dealers at that price less a
concession not in excess of $ per share. Dealers may reallow a concession
not in excess of $ per share to certain other dealers. After the shares of
the common stock are released for sale to the public, the underwriters may vary
the offering price and other selling terms from time to time.
We have granted to the underwriters an option, exercisable for up to 30
days after the date of this prospectus, to purchase up to
additional shares of common stock at the public offering price set forth on the
cover of this prospectus to cover over-allotments, if any. If the underwriters
exercise their over-allotment option, the underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of common stock to be purchased by each of
them, as shown in the foregoing table, bears to the common stock offered hereby.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make in respect thereof.
Cybergold, our directors and officers and existing stockholders who hold an
aggregate of shares, together with the holders of options to
purchase shares of common stock and holders of warrants to
purchase shares of common stock, have agreed that for a period
180 days following the date of this prospectus, without the prior written
consent of SG Cowen Securities Corporation, they will not: (1) directly or
indirectly, offer, sell, assign, transfer, pledge, contract to sell, or
otherwise dispose of, other than by operation of law, any shares of common stock
or any securities convertible into or exercisable or exchangeable for common
stock (including, without limitation, common stock which may be deemed to be
beneficially owned in accordance with the rules and regulations promulgated
under the Securities Act); or (2) request or demand registration pursuant to the
Securities Act of any shares of common stock owned by them; provided, however,
that this restriction shall not apply to any rights they may have to be included
in any Company initiated registration of its securities.
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<PAGE> 71
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934 (the
"Exchange Act"). Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the common stock originally sold by such syndicate member
is purchased in a syndicate covering transaction to cover syndicate short
positions. In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to certain limitations,
make bids for or purchases of the common stock until the time, if any, at which
a stabilizing bid is made. These stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock to be
higher than it would otherwise be in the absence of these transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales
in excess of 5% of the common stock offered hereby to any account over which
they exercise discretionary authority.
Prior to this offering, there has been no public market of the common
stock. Consequently, the initial public offering price will be determined by
negotiations between us and the underwriters. Among the factors considered in
these negotiations will be prevailing market conditions, the market
capitalizations and the stages of development of other companies that we and the
underwriters believe to be comparable to us, estimates of our business
potential, our results of operations in recent periods, the present state of our
development and other factors deemed relevant.
We estimate that our out of pocket expenses for this offering will be
approximately $ .
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, San
Francisco, California.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement, to the extent and for the periods indicated in their
report, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
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ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission, or SEC, Washington,
D.C. 20549, a registration statement on Form S-1 under the Securities Act with
respect to the shares of common stock offered hereby. This prospectus does not
contain all the information set forth in the registration statement and the
exhibits and schedules filed therewith. For further information with respect to
Cybergold and the common stock offered hereby, reference is made to the
registration statement and to the exhibits and schedules filed therewith.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and each such statement
is qualified in all respects by reference to the full text of such contract or
other document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedules filed therewith may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W. Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from such offices upon payment of the
fees prescribed by the SEC. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the regional
offices, public reference facilities and web site of the SEC referred to above.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheet as of December 31, 1997, 1998 and March 31,
1999...................................................... F-3
Statements of Operations for the three years in the period
ended December 31, 1998 and the three month periods ended
March 31, 1998 and 1999................................... F-4
Statements of Stockholders Equity (Deficit) for the three
years in the period ended December 31, 1998 and the three
month periods ended March 31, 1998 and 1999............... F-5
Statements of Cash Flows for the three years in the period
ended December 31, 1998 and the three month periods ended
March 31, 1998 and 1999................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
CyberGold, Inc.:
We have audited the accompanying balance sheets of CyberGold, Inc. (a
California corporation) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CyberGold, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
May 18, 1999
F-2
<PAGE> 75
CYBERGOLD, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999
-------------------------- ----------------------------
1997 1998 ACTUAL PRO FORMA
---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $1,239,510 $ 3,175,008 $ 2,280,033
Accounts receivable, less allowance for doubtful
accounts of $50,000, $30,000 and $30,000,
respectively................................... 161,165 390,701 112,650
Prepaid expenses and other current assets........ -- 26,347 10,600
---------- ------------ ------------
Total current assets...................... 1,400,675 3,592,056 2,403,283
PROPERTY AND EQUIPMENT, net........................ 371,619 407,066 414,583
DEPOSITS AND OTHER ASSETS.......................... 50,364 41,150 74,809
---------- ------------ ------------
Total assets.............................. $1,822,658 $ 4,040,272 $ 2,892,675
========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................. $ 142,070 $ 257,267 $ 122,437
Current maturities of long term obligations...... 81,791 136,639 154,404
Member payable................................... 382,203 800,255 912,159
Membership acquisition payable................... 69,775 175,653 287,469
Accrued liabilities.............................. 88,493 167,294 213,687
Deferred revenue................................. 43,134 175,543 217,914
---------- ------------ ------------
Total current liabilities................. 807,466 1,712,651 1,908,070
LONG TERM OBLIGATIONS, net of current maturities... 272,152 225,550 291,425
---------- ------------ ------------
Total liabilities......................... 1,079,618 1,938,201 2,199,495
---------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE REDEEMABLE PREFERRED STOCK, $.0001 par
value: 8,000,029 shares authorized; 6,283,792
issued and outstanding at December 31, 1998, and
March 31, 1999 (preference in liquidation of
$5,718,251)...................................... -- 6,378,679 6,671,480 --
---------- ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock, $.0001 par
value:
Authorized shares -- 3,185,000
Issued and outstanding shares -- 3,000,000,
3,000,000, 3,000,000 and 0 respectively..... 300 300 300 --
Preference in liquidation -- $3,000,000
Series B convertible preferred stock, $.0001 par
value:
Authorized shares -- 2,144,971
Issued and outstanding shares -- 2,067,471,
2,092,471, 2,092,471, and 0 respectively.... 207 209 209 --
Preference in liquidation -- $4,134,939,
4,184,942 and $4,184,942
Common stock, $.0001 par value:
Authorized shares -- 21,670,000
Issued and outstanding shares -- 6,018,063,
6,072,267, 6,109,017, and 17,485,280
respectively................................ 602 607 611 1,748
Additional paid-in capital......................... 7,210,077 8,914,716 8,916,025 15,586,877
Deferred compensation.............................. -- (1,459,423) (1,143,674) (1,143,674)
Retained (deficit)................................. (6,468,146) (11,733,017) (13,751,771) (13,751,771)
---------- ------------ ------------ ------------
Total stockholders' equity (deficit)...... 743,040 (4,276,608) (5,978,300) 693,180
---------- ------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit)............................... $1,822,658 $ 4,040,272 $ 2,892,675 $ 2,892,675
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 76
CYBERGOLD, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, -------------------------
--------------------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Transaction....................... $ 1,000 $ 457,074 $ 628,350 $ 107,408 $ 332,558
Custom marketing services and
other.......................... -- 74,342 376,583 -- 170,178
----------- ----------- ----------- ----------- -----------
Total revenues............ 1,000 531,416 1,004,933 107,408 502,736
COST OF REVENUES.................... 671 293,171 466,118 35,282 244,417
----------- ----------- ----------- ----------- -----------
Gross margin.............. 329 238,245 538,815 72,126 258,319
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Product development............... 1,093,433 1,190,047 1,700,421 375,273 484,249
Sales and marketing............... 840,586 2,162,413 2,694,601 792,196 967,189
General and administrative........ 645,298 614,816 641,837 119,837 227,671
Amortization of deferred
compensation................... -- -- 184,778 -- 315,749
----------- ----------- ----------- ----------- -----------
Total operating expenses..... 2,579,317 3,967,276 5,221,637 1,287,306 1,994,858
----------- ----------- ----------- ----------- -----------
Loss from operations......... (2,578,988) (3,729,031) (4,682,822) (1,215,180) (1,736,539)
INTEREST INCOME (EXPENSE), net...... 10,198 (15,292) 78,381 (4,913) 10,586
----------- ----------- ----------- ----------- -----------
Net loss.................. (2,568,790) (3,744,323) (4,604,441) (1,220,093) (1,725,953)
DIVIDEND ATTRIBUTABLE TO PREFERRED
STOCKHOLDERS...................... -- -- (660,430) -- (292,801)
----------- ----------- ----------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS...................... $(2,568,790) $(3,744,323) $(5,264,871) $(1,220,093) $(2,018,754)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON SHARE, Basic and
diluted........................... $ (0.46) $ (0.63) $ (0.87) $ (0.20) $ (0.33)
=========== =========== =========== =========== ===========
Pro forma basic and diluted....... $ (0.31) $ (0.10)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, Basic and diluted.... 5,618,411 5,969,233 6,030,590 6,019,514 6,079,042
=========== =========== =========== =========== ===========
Pro forma basic and diluted....... 14,914,618 17,395,777
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 77
CYBERGOLD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------------------------
SERIES A SERIES B COMMON STOCK ADDITIONAL
------------------- ------------------- ------------------- PAID IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ------ ---------- ------ ---------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995........ -- $ -- -- $ -- 5,600,000 $ 560 $ 63,465 $ --
Issuance of Series A preferred
stock.......................... 3,000,000 300 -- -- -- -- 2,999,700 --
Exercise of common stock
options........................ -- -- -- -- 70,000 7 693 --
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1996........ 3,000,000 300 -- -- 5,670,000 567 3,063,858 --
Issuance of Series B preferred
stock.......................... -- -- 2,067,471 207 -- -- 4,134,732 --
Exercise of common stock
options........................ -- -- -- -- 405,563 41 15,644 --
Repurchase of stock options...... -- -- -- -- (57,500) (6) (4,157) --
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1997........ 3,000,000 300 2,067,471 207 6,018,063 602 7,210,077 --
Issuance of Series B preferred
stock.......................... -- -- 25,000 2 -- -- 49,998 --
Accretion of Series C redemption
premium........................ -- -- -- -- -- -- -- --
Exercise of common stock
options........................ -- -- -- -- 92,641 9 10,820 --
Repurchase of stock options...... -- -- -- -- (38,437) (4) (380) --
Deferred compensation............ -- -- -- -- -- -- 1,644,201 (1,644,201)
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 184,778
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1998........ 3,000,000 300 2,092,471 209 6,072,267 607 8,914,716 (1,459,423)
Accretion of Series C
redemption..................... -- -- -- -- -- -- -- --
Exercise of common stock
options........................ -- -- -- -- 36,750 4 1,309 --
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 315,749
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, MARCH 31, 1999
(unaudited)...................... 3,000,000 $ 300 2,092,471 $ 209 6,109,017 $ 611 $ 8,916,025 $(1,143,674)
Conversion of Series A
preferred...................... (3,000,000) (300) -- -- 3,000,000 300 -- --
Conversion of Series B
preferred...................... -- -- (2,092,471) (209) 2,092,471 209 -- --
Conversion of Series C
preferred...................... -- -- -- -- 6,283,792 628 6,670,852 --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
PRO FORMA BALANCE, MARCH 31, 1999
(unaudited)...................... -- $ -- -- $ -- 17,485,280 $1,748 $15,586,877 $(1,143,674)
========== ===== ========== ===== ========== ====== =========== ===========
<CAPTION>
RETAINED
DEFICIT TOTAL
------------ -----------
<S> <C> <C>
BALANCE, DECEMBER 31, 1995........ $ (155,033) $ (91,008)
Issuance of Series A preferred
stock.......................... -- 3,000,000
Exercise of common stock
options........................ -- 700
Net loss......................... (2,568,790) (2,568,790)
------------ -----------
BALANCE, DECEMBER 31, 1996........ (2,723,823) 340,902
Issuance of Series B preferred
stock.......................... -- 4,134,939
Exercise of common stock
options........................ -- 15,685
Repurchase of stock options...... -- (4,163)
Net loss......................... (3,744,323) (3,744,323)
------------ -----------
BALANCE, DECEMBER 31, 1997........ (6,468,146) 743,040
Issuance of Series B preferred
stock.......................... -- 50,000
Accretion of Series C redemption
premium........................ (660,430) (660,430)
Exercise of common stock
options........................ -- 10,829
Repurchase of stock options...... -- (384)
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 184,778
Net loss......................... (4,604,441) (4,604,441)
------------ -----------
BALANCE, DECEMBER 31, 1998........ (11,733,017) 4,276,608
Accretion of Series C
redemption..................... (292,801) (292,801)
Exercise of common stock
options........................ -- 1,313
Amortization of deferred
compensation................... -- 315,749
Net loss......................... (1,725,953) (1,725,953)
------------ -----------
BALANCE, MARCH 31, 1999
(unaudited)...................... $(13,751,771) $(5,978,300)
Conversion of Series A
preferred...................... -- --
Conversion of Series B
preferred...................... -- --
Conversion of Series C
preferred...................... -- 6,671,480
------------ -----------
PRO FORMA BALANCE, MARCH 31, 1999
(unaudited)...................... $(13,751,771) $ 693,180
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 78
CYBERGOLD, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, -------------------------
--------------------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $(2,568,790) $(3,744,323) $(4,604,441) $(1,220,093) $(1,725,953)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation.................... 101,050 190,859 269,158 61,075 81,709
Amortization of deferred
compensation.................. -- -- 184,778 -- 315,749
Changes in assets and
liabilities:
Accounts receivable........... -- (161,165) (229,536) 63,421 278,051
Prepaid expenses and other
current assets............. (22,375) (27,989) (17,133) (8,507) (17,912)
Accounts payable.............. 148,310 (6,240) 115,197 71,222 (134,830)
Members payable............... -- 382,203 418,052 133,989 111,904
Membership acquisition
payable.................... -- 69,775 217,694 5,225 111,816
Accrued liabilities........... 38,392 50,101 (33,015) (39,785) 46,393
Deferred revenue.............. -- 43,134 132,409 13,495 42,371
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities............... (2,303,413) (3,203,645) (3,546,837) (919,958) (890,702)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and
equipment....................... (387,472) (57,564) (152,922) (23,185) (89,226)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease
obligations..................... -- (114,549) (143,437) (18,879) (40,084)
Proceeds from equipment
financing....................... -- -- -- -- 123,724
Proceeds from sale leaseback
transaction..................... -- 250,000 -- -- --
Proceeds from loans from
stockholders.................... -- 1,000,000 -- -- --
Repayments of advances from
stockholder..................... (91,008) -- -- -- --
Proceeds from issuance of preferred
stock........................... 3,000,000 3,134,939 5,768,249 99,796 --
Proceeds from exercise of stock
options, net of repurchases..... 700 11,522 10,445 -- 1,313
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities..... 2,909,692 4,281,912 5,635,257 80,917 84,953
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 218,807 1,020,703 1,935,498 (862,226) (894,975)
CASH AND CASH EQUIVALENTS:
Balance at beginning of period..... -- 218,807 1,239,510 1,239,510 3,175,008
=========== =========== =========== =========== ===========
Balance at end of period........... $ 218,807 $ 1,239,510 $ 3,175,008 $ 377,284 $ 2,280,033
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............. $ -- $ 35,800 $ 71,086 $ 16,261 $ 19,536
Acquisition of property and
equipment using capital
leases.......................... 120,600 97,892 151,683 61,970 --
Conversion of stockholder loans
into preferred stock............ -- 1,000,000 -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 79
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
CyberGold, Inc. (the Company) was incorporated in California in 1994. The
Company did not have any significant operations prior to 1996.
The Company is engaged in the business of providing on-line direct
marketing and cash based incentive advertising solutions for on-line advertisers
and marketers. Additionally, the Company provides custom marketing services
which include production and development of marketing programs, delivery of
targeted e-mail to CyberGold members, design of customer web sites and third
party engineering functions.
As of December 31, 1998, the Company had a retained deficit of
approximately $11.7 million and has continued to incur losses during 1999.
During May 1999, the Company issued redeemable convertible preferred stock, as
further discussed in Note 4, in the amount of $8 million. Management believes
that this financing will be sufficient for it to meet its obligations through at
least December 31, 1999.
The industry in which the Company operates is very specialized and is
subject to a number of industry-specific risk factors, including, but not
limited to, rapidly changing technologies, significant numbers of new entrants,
dependence on key individuals, competition from similar products and from larger
companies, customer preferences, the need for the continued successful
development, marketing and selling of its products and services, the need for
financing, and the need for positive cash flows from operations.
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements as of March 31, 1999 and for the
quarters ended March 31, 1998 and 1999 are unaudited, but in the opinion of
management, include all adjustments consisting of normal recurring adjustments
necessary for a fair presentation of results for the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted, although the Company believes that the disclosures included are
adequate to make the information presented not misleading. Results for the
quarter ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
UNAUDITED PRO FORMA PRESENTATION
The unaudited pro forma balance sheet and statement of stockholders' equity
(deficit) as of March 31, 1999 reflects the automatic conversion of all
outstanding shares of convertible preferred stock into 11,373,263 shares of
common stock which will occur upon the closing of the Company's proposed initial
public offering.
SIGNIFICANT CUSTOMERS
Two customers individually accounted for 22 and 16 percent, respectively,
of the Company's total revenue during the year ended December 31, 1998. No
individual customer exceeded 10 percent of total revenue during the year ended
December 31, 1997.
F-7
<PAGE> 80
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1998, one of these customers accounted for 78 percent of
accounts receivable. These amounts have been paid subsequent to December 31,
1998.
CASH EQUIVALENTS
For the statements of cash flows, the Company treats financial instruments
as cash equivalents if the original maturity of such instruments is three months
or less.
FINANCIAL INSTRUMENTS
Financial instruments consist of cash equivalents, accounts receivable,
accounts payable and debt. The estimated fair value of these financial
instruments approximates their carrying value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and for financial reporting
purposes, depreciation is computed using the straight-line method over estimated
useful lives of three years for all assets. Maintenance and repair expenditures
are charged to expense when incurred.
MEMBER ACQUISITION PAYABLE
Member acquisition payable represents amounts due to advertising partners
for new member sign-ups that are originated from a partner web site.
REVENUE RECOGNITION AND COST OF REVENUES
The Company earns revenue from certain member transactions and from custom
marketing and other services. Transaction revenues are earned each time a member
either earns or spends incentive rewards within the system and for micropayment
transactions. Transaction revenues are recognized as revenue upon completion of
the specific action related to the transaction fee.
Custom marketing services and other revenues include production and
development fees received for customization of marketing programs, fees received
for delivering targeted e-mail to the Company's members and fees received for
other advertising and marketing services. Production and development fees
represent HTML design services, graphic services, engineering and database
development and related services. Revenue is recognized as these services are
performed.
Prepayments by advertising or marketing clients for transaction fees or
custom marketing services are included in deferred revenue on the accompanying
balance sheets.
The cost of revenues associated with our transaction revenues represent
cash rewards paid to our members for completing transactions.
The cost of revenues associated with custom advertising and marketing
services and other revenues primarily consist of costs for production and
development personnel and independent contractors.
Any unpaid rewards due to members are recorded in members payable in the
accompanying balance sheets.
F-8
<PAGE> 81
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PRODUCT DEVELOPMENT
Product development costs include expenses related to the development and
enhancement of the Company's product offerings. Product development costs are
expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Actual results could differ from those estimates.
NET LOSS PER SHARE
Basic net loss per share is calculated by dividing net loss by the weighted
average common shares outstanding during the period. Diluted income per share is
calculated by dividing the net income by the weighted average common shares
outstanding adjusted for all potential common shares, which includes shares
issuable upon the exercise of outstanding common stock options, warrants and
other contingent issuances of common stock. The Company has losses for all
periods presented and, accordingly, such potential common shares are excluded
from the computation of diluted net loss per share, as their effect is
antidilutive.
Potentially dilutive securities include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Options to purchase common stock.... 1,018,063 1,184,500 1,866,602 1,875,957
Warrants to purchase common stock... 250,000 250,000 250,000 250,000
Warrants to purchase preferred
stock............................. -- 220,000 207,500 207,500
---------- ---------- ----------- ----------
Series A preferred stock............ 3,000,000 3,000,000 3,000,000 3,000,000
Series B preferred stock............ -- 2,067,471 2,092,471 2,092,471
Redeemable preferred stock.......... -- -- 6,283,792 6,283,792
========== ========== =========== ==========
Total..................... 4,268,063 6,721,971 13,700,365 13,709,720
========== ========== =========== ==========
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
The calculation of pro forma net loss per share assumes that all series of
convertible shares have been converted into common stock as of the original
issuance date.
NEW ACCOUNTING STANDARDS
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." The Company has no other comprehensive income amounts for any of the
periods presented.
The Company also adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." As of December 31, 1998, management has
concluded that the Company only operates in one segment and exclusively in the
United States.
In March 1998, the American Institute of Certified Public Accountants
issued SOP No. 98-1, "Software for Internal Use." The Company does not expect
the adoption of SOP No. 98-1 to have a material impact on its financial
statements.
F-9
<PAGE> 82
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is not expected to have a
material impact on the Company's financial position or results of operations.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Computer equipment and software............ $ 625,610 $ 923,127 $ 979,576
Furniture and fixtures..................... 25,817 30,465 63,145
Leasehold improvements..................... 12,101 14,541 14,541
--------- --------- ----------
663,528 968,133 1,057,262
Accumulated depreciation................... (291,909) (561,067) (642,679)
--------- --------- ----------
$ 371,619 $ 407,066 $ 414,583
========= ========= ==========
</TABLE>
Depreciation expense for property and equipment was $101,050, $190,859, and
$269,158 for the years ended December 31, 1996, 1997, and 1998, respectively.
Included in property and equipment at December 31, 1997 and 1998 are depreciated
amounts of approximately $372,000 and $278,000, respectively, related to assets
acquired under capital leases.
3. INCOME TAXES:
Significant components of net deferred tax assets as of December 31 were:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards..................... $ 1,997,200 $ 3,744,037
R&D credit carryforward.............................. 147,482 274,163
Other................................................ 5,347 25,028
----------- -----------
Gross deferred tax assets.................. 2,150,029 4,043,228
Deferred tax valuation allowance..................... (2,150,029) (4,043,228)
----------- -----------
Net deferred tax asset..................... $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1998, the Company had tax net operating loss
carryforwards of approximately $9,360,000 for federal and state income tax
purposes. These carryforwards begin to expire in 2011 and 2005, respectively. In
addition, the Company has research and development tax credit carryforwards of
$156,821 and $117,342 for federal and state income tax purposes, respectively,
which begin to expire in 2011. A valuation allowance has been provided to offset
gross deferred tax assets due to the uncertainty surrounding the realizability
of such assets.
F-10
<PAGE> 83
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards and research and development credits available to
be used in any given year should certain events occur, including the sale of
equity securities and other changes in ownership. There can be no assurance that
the Company will be able to utilize net operating loss carryforwards and credits
before expiration.
4. CONVERTIBLE REDEEMABLE PREFERRED STOCK:
During 1998 and 1999, the Company amended and restated its articles of
incorporation to allow for the issuance of 8,000,029 shares of Series C
Convertible Redeemable Preferred Stock (Series C Stock) and 3,850,000 shares of
Series D Convertible Redeemable Preferred Stock (Series D Stock). During the
period from May 1998 through August 1998, the Company issued 6,283,792 shares of
Series C Stock at $0.91 per share. During May 1999, the Company issued 3,076,923
shares of Series D Stock at $2.60 per share.
The holders of Series C Stock and Series D Stock shall be entitled to
receive noncumulative dividends of $.0455 per annum and $.13 per annum,
respectively, as declared by the Board of Directors.
The Series C Stock and Series D Stock has preference in liquidation over
common stock and Series A and B Preferred (see Note 5) equal to a liquidation
value of $0.91 and $2.60 per share, respectively.
Each share of Series C Stock and Series D Stock is convertible, at the
option of the holder, into a share of common stock at the Initial Conversion
Price, as defined. Each share will automatically convert into shares of common
stock at the Initial Conversion Price upon the earlier of (a) the Company's sale
of its common stock in a firm commitment underwritten initial public offering,
the public offering price of which was not less than $6.50 per share and
$15,000,000 in the aggregate or (b) the date specified by written consent of 67
percent of the holders of the then outstanding shares of preferred stock.
At any time after May 15, 2003, the holders of not less than 67 percent of
the then outstanding Series C Stock and Series D Stock may request for the
redemption of the Series C Stock and Series D Stock at $1.82 per share and $5.20
per share, respectively. This related redemption premium is being accreted over
the period from the issuance of the respective stock through May 15, 2003. For
the year ended December 31, 1998, and for the quarter ended March 31, 1999, the
accretion charged to retained deficit was $660,430 and $292,801, respectively.
In connection with the issuance of Series D Stock, the Company also issued
warrants to purchase 576,923 warrants of Series D Stock an exercise price of
$3.00.
5. STOCKHOLDERS EQUITY:
COMMON STOCK
The holders of common stock are entitled to one vote per share. Subject to
preferences on outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors. In the event of liquidation, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock. The common stock has no
preemptive, conversion or other subscription rights.
F-11
<PAGE> 84
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PREFERRED STOCK
Pursuant to the Company's Series A preferred stock agreement entered into
in May 1996, 3,000,000 shares of Series A preferred stock were sold to the
existing stockholder and other investors at a price of $1.00 per share in July
1996. Upon liquidation, merger or acquisition of the Company, provided
sufficient assets are available, Series A preferred stockholders would receive
$1.00 per share plus any declared but unpaid dividends.
On June 28, 1996, the Company issued to one of the new Series A investors a
warrant to purchase 250,000 shares of common stock at $0.15 per share. The value
of this warrant at June 28, 1996, was determined not to be material.
Pursuant to the Company's Series B preferred stock agreement entered into
in June 1997, 2,067,471 shares of Series B preferred stock were sold to the
existing stockholders and other investors at a price of $2.00 per share. Of the
total number of shares sold, 515,421 shares were issued upon the conversion of
stockholder notes (the Notes). The Notes were entered into in early 1997 by the
existing stockholders as bridge financing. The Notes accrued interest at 8
percent. Upon liquidation, merger or acquisition of the Company, provided
sufficient assets are available, Series B preferred stockholders would receive
$2.00 per share plus any declared but unpaid dividends.
Conversion of Series A preferred stock and Series B preferred stock into
common stock is at the option of the preferred stockholders. Each share of
preferred stock is convertible into such number of shares of common stock
determined by dividing the issuance price by the conversion price, which is
determined at the time of the conversion. The conversion price for Series A and
Series B preferred stock was initially set at $1.00 and $2.00 per share,
respectively. This conversion price is subject to adjustment upon the occurrence
of certain events. Conversion of the preferred stock is automatic upon the
earlier of (a) the Company's sale of its common stock in a firm commitment
underwritten initial public offering, the offering price of which is not less
than $2.73 and the proceeds of which are greater than $15,000,000; or (b) the
date specified by written consent of the holders of the then outstanding shares
of Series A, Series B, Series C and Series D stock, acting together as a single
class.
In connection with the capital leases described in Note 6, the Company
issued warrants to the lessor to purchase 17,500 shares of Series A preferred
stock at $1.00 per share, 5,000 shares of Series B preferred stock at $2.00 per
share. The value of these warrants at the grant dates was determined not to be
material, based on the Black-Scholes pricing model.
At December 31, 1998, 15,000,029 shares of common stock, equivalent to the
number of shares of preferred stock authorized, were reserved for issuance upon
conversion of preferred stock.
Each share of preferred stock conveys the right to the stockholder of one
vote.
6. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company entered into a sale leaseback transaction during 1997 related
to the leasing of certain computer equipment. No gain or loss was recognized on
this sale. During 1999, the Company moved its headquarters to Oakland,
California and entered into an operating lease that expires in June 2004.
F-12
<PAGE> 85
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1998, future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASE LEASE
PAYMENTS PAYMENTS
---------- ---------
<S> <C> <C>
1999.................................................... $ 217,790 $ 196,013
2000.................................................... 341,100 166,456
2001.................................................... 370,800 83,498
2002.................................................... 407,700 15,414
2003.................................................... 427,500 --
Thereafter.............................................. 180,000 --
---------- ---------
Total......................................... $1,944,890 461,381
==========
Less: Interest component................................ (99,192)
---------
Present value of minimum lease payments................. 362,189
Less: Current maturities................................ (136,639)
---------
Long-term capital obligations........................... $ 225,550
=========
</TABLE>
Interest expense on capital leases amounted to $0, $35,800 and $71,086 for
the years ended December 31, 1996, 1997, and 1998 respectively. Rent expense for
the years ended December 31, 1996, 1997, and 1998, was $103,529, $150,730 and
$139,749, respectively.
EMPLOYMENT AGREEMENTS
During 1998, the Company entered into employment agreements with three
officers that provide for minimum annual base salaries, bonus entitlements and
issuance of common stock options upon the achievement of certain objectives.
Should these objectives not be achieved, these options vest over five years. The
employment agreements were effective as of the hire date of each respective
officer and may be terminated by either party. As of December 31, 1998, the
Company accrued approximately $32,000 in the accompanying balance sheet for
accrued bonuses in relation to these agreements.
EQUIPMENT CREDIT LINE
During February 1999, the Company entered into an equipment credit line
agreement. This credit line is to be used solely for capital expenditures.
Maximum borrowings under this line are $400,000. Interest of approximately 18
percent and principal are payable monthly, over a three year period. At March
31, 1999, the Company had amounts outstanding under this line of $115,196. Of
this amount, $4,760 is included in current maturities of long-term obligations
in the accompanying balance sheet with the remainder included in long-term
obligations, net of current maturities.
7. STOCK OPTION PLAN:
Under the terms of the Company's Employee Stock Option Plan (the Plan)
adopted in June 1996, options to purchase shares of the Company's common stock
are granted to employees, consultants and directors. Options currently
outstanding vest at 25 percent on the first anniversary of the grant date and
1/36 per month thereafter. Each option shall terminate 10 years after the date
of grant. In addition, the option holder is entitled to exercise prior to the
option's vesting as long as he or she is still an employee.
F-13
<PAGE> 86
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Should the employee subsequently leave, the Company has the right to repurchase
the shares that had not vested at the departure date. At December 31, 1998 and
March 31, 1999, 85,157 and 81,251 shares of common stock were subject to
repurchase, respectively, under this provision.
A summary of the status of the Company's stock option plan at December 31,
1998 and changes during the years ended December 1996, 1997, and 1998, and three
months ended March 31, 1999, are presented in the table below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
OPTIONS OUTSTANDING AVERAGE AVERAGE
-------------------------- EXERCISE FAIR VALUE OF
QUALIFYING NONQUALIFYING TOTAL PRICE OPTIONS GRANTED
---------- ------------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995...... -- -- -- $ --
Granted....................... 1,371,500 12,500 1,384,000 0.04 $0.04
Canceled...................... (295,937) -- (295,937) 0.03
Exercised..................... (57,500) (12,500) (70,000) 0.01
--------- -------- ---------
Balance, December 31, 1996...... 1,018,063 -- 1,018,063 0.04
Granted....................... 501,500 160,000 661,500 0.23 $0.05
Canceled...................... (147,000) -- (147,000) 0.10
Exercised..................... (348,063) -- (348,063) 0.04
--------- -------- ---------
Balance, December 31, 1997...... 1,024,500 160,000 1,184,500 0.13
Granted....................... 1,013,600 300,350 1,313,950 0.31 $0.68
Canceled...................... (485,977) (91,667) (577,644) 0.40
Exercised..................... (52,604) (1,600) (54,204) 0.19
--------- -------- ---------
Balance, December 31, 1998...... 1,499,519 367,083 1,866,602 0.19
Granted....................... 78,000 112,500 190,500 0.15 $1.88
Canceled...................... (54,395) (90,000) (144,395) 0.40
Exercised..................... (30,000) (6,750) (36,750) 0.04
--------- -------- ---------
Balance, March 31, 1999......... 1,575,531 382,833 1,875,957 0.19
========= ======== =========
</TABLE>
Options outstanding, exercisable, and vested by price range at December 31,
1998, are as follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE NUMBER REMAINING NUMBER NUMBER
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE VESTED
- --------- ----------- ---------------- ----------- --------
<S> <C> <C> <C> <C>
0.$50... 389,852 9.0 389,852 205,558
0.01 478,000 7.4 478,000 454,895
0.15 998,750 9.5 998,750 159,986
--------- -------- --------
1,866,602 1,866,602 820,439
========= ======== ========
</TABLE>
During 1997, the Company entered into agreements that granted options to
purchase 185,000 shares of Series A preferred stock to consultants at $1.00 per
share. The options were fully vested at December 31, 1998. The value of these
options at the grant date (as determined using the Black-Scholes model), was not
material.
In connection with the granting of certain stock options to employees,
directors and consultants during 1998, the Company recorded deferred
compensation of $1,644,201. This deferred compensation is
F-14
<PAGE> 87
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
being amortized over the expected service periods of the grantees, generally
four years. Amortization of deferred compensation for the year ended December
31, 1998, was $184,778.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation expense for the Plan
been determined based on the fair value at the grant dates, as prescribed in
SFAS No. 123, the Company's net loss and net loss per share would have been as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss:
As reported.............. $(2,568,790) $(3,744,323) $(5,264,871) $(1,220,093) $(2,018,754)
Pro forma................ (2,582,025) (3,779,438) (5,349,881) (1,220,093) (2,018,754)
Basic and diluted net loss
per common share:
As reported.............. $ (0.46) $ (0.63) $ (0.87) $ (0.20) $ (0.33)
Pro forma................ (0.46) (0.63) (0.89) (0.20) (0.33)
</TABLE>
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for the
grants: expected dividend yield of 0 percent in all periods; expected volatility
of 0 percent in all periods; weighted average risk-free interest rates ranging
from 4.45 percent to 6.28 percent for all periods presented in the table above;
and expected lives of four years for all periods.
8. COMPENSATION AND RETIREMENT PLANS:
On May 18, 1999, the Board of Directors adopted the following plans:
1999 OMNIBUS EQUITY INCENTIVE PLAN -- The Company has reserved 1,500,000
shares of common stock for issuance under this plan. Options may be granted
under this plan to employees, directors and consultants and will not be granted
at less than 100 percent of the fair market value of the common stock on the
option grant date. These options will generally vest over four years and expire
ten years after the date of grant. At May 18, 1999, no options were outstanding
under this plan.
1999 EMPLOYEE STOCK PURCHASE PLAN -- The Company has reserved 300,000
shares of common stock for issuance under this plan and only employees are
eligible. Employees can purchase stock through payroll deductions which may not
exceed 15 percent of the employee's cash compensation. The purchase price per
share of common stock will be no less than 85 percent of the fair market value
of the stock at the date of grant. At May 18, 1999, no purchases had been made
under this plan.
401(K) DEFINED CONTRIBUTION PLAN -- The Company also sponsors a defined
contribution 401(k) retirement plan for all employees who have completed at
least 30 days of service. Participants may elect to defer up to 15 percent of
their current annual salary, not to exceed $10,000. The Company does not match
contributions.
9. RELATED PARTIES:
During the years ended December 31, 1996, 1997, and 1998, the president of
the Company and majority common stockholder was not paid a salary.
F-15
<PAGE> 88
[BACK INSIDE COVER
Description: 15 color photographs of Cybergold members, laid out in a staggered
pattern. (See attached layout). Each photo approx. 1.5 inches x 1.5 inches. Each
photograph is captioned with name and occupation. Cybergold logo, approximately
1 inch x 2 inches, in center of page.
<TABLE>
<S> <C>
CAPTIONS:
Carrie Applebaum Marketing Manager/Hebrew Teacher
Stacey Trask Waitress
Glenn Randle Graphic Designer
Ian Dalec Field Engineer
Chris Trim Police Officer/Mountain Biker
Jonathan Peacock Tech Support Engineer/Skier
Voltaire Moise Artist
Jessica Burrows Media Planner
Frank Siegel Software Developer
Devora Kanter Nonprofit Volunteer
Dick Kerner Financial Planner
Roxanne Castillo Paralegal
Ryan Dadasovich QA Manager/Musician
Nicole Ylagan Supply Technician/Singer
Colette Sandstedt Filmmaker]
</TABLE>
<PAGE> 89
- ------------------------------------------------------
- ------------------------------------------------------
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 THE
PROSPECTUS OR ANY SALE OF THE COMMON STOCK.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 6
Forward-Looking Statements........... 19
Use of Proceeds...................... 20
Dividend Policy...................... 20
Capitalization....................... 21
Dilution............................. 22
Selected Financial Data.............. 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
Business............................. 36
Management........................... 48
Certain Transactions................. 59
Principal Stockholders............... 61
Description of Capital Stock......... 63
Shares Eligible for Future Sale...... 66
Underwriting......................... 68
Legal Matters........................ 69
Experts.............................. 69
Additional Information............... 71
Index to Financial Statements........ F-1
</TABLE>
---------------------------
UNTIL , 1999 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
SG COWEN
CIBC WORLD MARKETS
VOLPE BROWN
WHELAN & COMPANY
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 12,788
NASD fee.................................................... $ 5,100
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses.................................. $ 3,000
Transfer agent fees.........................................
Miscellaneous fees and expenses.............................
--------
Total.............................................
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers, including reimbursement for expenses incurred, in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VI, Section 6.1, of the Registrant's Bylaws provides
for mandatory indemnification of its directors and permissible indemnification
of officers and employees to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Certificate of Incorporation provides
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty as directors to the Company
and its stockholders. This provision in the Certificate of Incorporation does
not eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Registrant has entered into Indemnification Agreements with its officers and
directors, a form of which is attached as Exhibit 10.1 hereto and incorporated
herein by reference. The Indemnification Agreements provide the Registrant's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. Reference is made to Section
7 of the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities.
II-1
<PAGE> 91
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1996, the Company has issued and sold the following
unregistered securities pursuant to the exemption from the registration
requirements of the Securities Act of 1933 as amended (the "Act"), provided by
Sections 3(a)(10) or 4(2) of the Act or Rule 701 of the Act:
(1) On May 18, 1999, CyberGold, Inc., a California corporation ("Cybergold
California") incorporated a wholly-owned subsidiary, Cybergold, Inc., a
Delaware corporation (Cybergold Delaware) for purposes of reincorporating
into Delaware. In connection with the reincorporation, Cybergold Delaware
will issue shares of its common stock to the holders of common stock of
Cybergold California, such that the holders of common stock of CyberGold
California will receive a proportionate interest in Cybergold Delaware
common stock. The issuance of the securities and such reincorporation will
be exempt from the registration requirements of the Act, due to the
exemptions from registration provided by Sections 3(a)(10) and 4(2) thereof.
(2) In July and September of 1996, we issued 3,000,000 shares of Series A
preferred stock to a group of private accredited investors for an aggregate
consideration of $3,000,000 pursuant to Section 4(2) of the Act.
(3) In July 1996, we issued a warrant to purchase 250,000 shares of common stock
to a private accredited investor at an exercise price of $0.15 pursuant to
Section 4(2) of the Act.
(4) In June 1997, we issued 2,092,471 shares of Series B preferred stock to a
group of private accredited investors for an aggregate consideration of
$4,234,942 pursuant to Section 4(2) of the Act.
(5) In March 1997, we issued warrants to an equipment lessor to purchase 22,500
shares of Series B preferred stock at an exercise price of $2.00 pursuant to
Section 4(2) of the Act.
(6) In May and August 1998, we issued 6,283,792 shares of Series C preferred
stock to a group of private accredited investors for an aggregate
consideration of $5,655,750 pursuant to Section 4(2) of the Act.
(7) On May 18, 1999, we issued 3,076,923 shares of Series D preferred stock to a
group of private accredited investors for an aggregate consideration of
$7,999,999.80 pursuant to Section 4(2) of the Act.
(8) On May 18, 1999, we issued warrants to purchase a total of 576,925 shares of
Series D preferred stock at an exercise price of $3.00 to a group of private
accredited investors pursuant to Section 4(2) of the Act.
(9) Since 1996, we have issued options to purchase common stock to employees,
directors and consultants pursuant to Section 4(2) and Rule 701 of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (preliminary form).
3.1 Registrant's Certificate of Incorporation
3.2 Registrant's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of the
offering
3.3 Registrant's Bylaws
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2* Specimen Common Stock Certificate
</TABLE>
II-2
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.3 Amended and Restated Investors' Rights Agreement, dated May
18, 1999
5.1* Opinion of Gunderson Dettmer Stough Franklin Villeneuve &
Hachigian, LLP
10.1 Form of Indemnification Agreement
10.2* 1996 Stock Plan
10.3* 1999 Omnibus Equity Incentive Plan
10.4* 1999 Employee Stock Purchase Plan
10.5* Standard Office Lease, by and between Central Building LLC
and the Registrant, dated March 25, 1999.
10.6* Commercial Lease, by and between Weilman Treloar & Co. and
the Registrant, dated December 20, 1995.
10.7* Merchant Transaction Processing Agreement between the First
National Bank of Omaha and the Registrant, as amended July
21, 1997.
10.8* Letter of Agreement between Earthlink Network, Inc. and the
Registrant, dated August 10, 1998.
10.9* Master Lease Agreement, between the Registrant and LINC
Capital, Inc., dated March 17, 1997.
10.10* Senior Loan and Security Agreement No. 6209, between the
Registrant and Phoenix Leasing Incorporated, dated December
10, 1998.
10.11* Agreement, between the Registrant and Audits & Surveys
Worldwide, Inc., dated March 17, 1997.
10.12* Affinity Agreement between the Registrant and MBNA America
Bank, N.A., dated November 20, 1998.
10.13* Digital Assistant Memorandum of Understanding, between the
Registrant and Qwest Communications Corporation, as amended
November 25, 1998.
23.1 Independent Auditors' Consent.
23.2 Consent of Counsel (See Exhibit 5.1).
24.1 Power of Attorney (See Page II-5).
27.1 Financial Data Schedule (Fiscal 1998 and three months ended
March 31, 1999).
</TABLE>
- ---------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has 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 the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a
II-3
<PAGE> 93
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Berkeley,
State of California, on this 21st day of May, 1999.
CYBERGOLD, INC.
By: /s/ A. NATHANIEL GOLDHABER
------------------------------------
A. Nathaniel Goldhaber
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints A. Nathaniel Goldhaber and John Steuart,
and each of them, his true and lawful attorneys-in-fact and agents with full
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 and 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 said 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 HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF
OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ A. NATHANIEL GOLDHABER President, Chief Executive May 21, 1999
- --------------------------------------------------- Officer (Principal Executive
A. Nathaniel Goldhaber Officer)
and Director
/s/ JOHN STEUART Chief Financial Officer May 21, 1999
- --------------------------------------------------- (Principal Financial and
John Steuart Accounting Officer)
/s/ CHRISTOPHER ALAFI Director May 21, 1999
- ---------------------------------------------------
Christopher Alafi
/s/ JAY CHIAT Director May 21, 1999
- ---------------------------------------------------
Jay Chiat
</TABLE>
II-5
<PAGE> 95
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GARRETT GRUENER Director May 21, 1999
- ---------------------------------------------------
Garrett Gruener
/s/ REGIS MCKENNA Director May 21, 1999
- ---------------------------------------------------
Regis McKenna
/s/ ALAN SALZMAN Director May 21, 1999
- ---------------------------------------------------
Alan Salzman
/s/ PETER SEALEY Director May 21, 1999
- ---------------------------------------------------
Peter Sealey
</TABLE>
II-6
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (preliminary form).
3.1 Registrant's Certificate of Incorporation
3.2 Registrant's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of the
offering
3.3 Registrant's Bylaws
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2* Specimen Common Stock Certificate
4.3 Amended and Restated Investors' Rights Agreement, dated May
18, 1999
5.1* Opinion of Gunderson Dettmer Stough Franklin Villeneuve &
Hachigian, LLP
10.1 Form of Indemnification Agreement
10.2* 1996 Stock Plan
10.3* 1999 Omnibus Equity Incentive Plan
10.4* 1999 Employee Stock Purchase Plan
10.5* Standard Office Lease, by and between Central Building LLC
and the Registrant, dated March 25, 1999.
10.6* Commercial Lease, by and between Weilman Treloar & Co. and
the Registrant, dated December 20, 1995.
10.7* Merchant Transaction Processing Agreement between the First
National Bank of Omaha and the Registrant, as amended July
21, 1997.
10.8* Letter of Agreement between Earthlink Network, Inc. and the
Registrant, dated August 10, 1998.
10.9* Master Lease Agreement, between the Registrant and LINC
Capital, Inc., dated March 17, 1997.
10.10* Senior Loan and Security Agreement No. 6209, between the
Registrant and Phoenix Leasing Incorporated, dated December
10, 1998.
10.11* Agreement, between the Registrant and Audits & Surveys
Worldwide, Inc., dated March 17, 1997.
10.12* Affinity Agreement between the Registrant and MBNA America
Bank, N.A., dated November 20, 1998.
10.13* Digital Assistant Memorandum of Understanding, between the
Registrant and Qwest Communications Corporation, as amended
November 25, 1998.
23.1 Independent Auditors' Consent.
23.2 Consent of Counsel (See Exhibit 5.1).
24.1 Power of Attorney (See Page II-5).
27.1 Financial Data Schedule (Fiscal 1998 and three months ended
March 31, 1999).
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 1.1
_____________ SHARES
CYBERGOLD, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
[DATE]
SG COWEN SECURITIES CORPORATION
CIBC WORLD MARKETS
VOLPE BROWN WHELAN & COMPANY
As Representatives of the several Underwriters
c/o SG Cowen Securities Corporation
Financial Square
New York, New York 10005
Dear Sirs:
1. INTRODUCTORY. Cybergold, Inc., a Delaware corporation (the "Company"),
proposes to sell, pursuant to the terms of this Agreement, to the several
underwriters named in Schedule A hereto (the "Underwriters," or, each, an
"Underwriter"), an aggregate of ____ shares of Common Stock, $____ par value
(the "Common Stock") of the Company. The aggregate of ____ shares so proposed to
be sold is hereinafter referred to as the "Firm Stock". The Company also
proposes to sell to the Underwriters, upon the terms and conditions set forth in
Section 3 hereof, up to an additional ______ shares of Common Stock (the
"Optional Stock"). The Firm Stock and the Optional Stock are hereinafter
collectively referred to as the "Stock". SG Cowen Securities Corporation ("SG
Cowen"), CIBC World Markets and Volpe Brown Whelan & Company are acting as
representatives of the several Underwriters and in such capacity are hereinafter
referred to as the "Representatives."
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the several Underwriters that:
a. A registration statement on Form S-1 (File No. 333-__) (the
"Initial Registration Statement") in respect of the Stock has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Securities Act") and
the rules and regulations (the "Rules and Regulations") of the Commission
thereunder, which became effective upon filing, no other document with respect
to the Initial Registration Statement has heretofore been filed with the
Commission; and no stop
1
<PAGE> 2
order suspending the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration Statement, if
any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the Rules and Regulations, is hereinafter called a "Preliminary Prospectus");
the various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act and deemed by virtue of Rule
430A under the Securities Act to be part of the Initial Registration Statement
at the time it was declared effective, each as amended at the time such part of
the Initial Registration Statement became effective or such part of the Rule
462(b) Registration Statement, if any, became or hereafter becomes effective,
are hereinafter collectively called the "Registration Statements"; and such
final prospectus, in the form first filed pursuant to Rule 424(b) under the
Securities Act, is hereinafter called the "Prospectus." No document has been or
will be prepared or distributed in reliance on Rule 434 under the Securities
Act. No order preventing or suspending the use of any Preliminary Prospectus has
been issued by the Commission.
b. The Registration Statement conforms (and the Rule 462(b)
Registration Statement, if any, the Prospectus and any amendments or supplements
to either of the Registration Statements or the Prospectus, when they become
effective or are filed with the Commission, as the case may be, will conform) in
all material respects to the requirements of the Securities Act and the Rules
and Regulations and do not and will not, as of the applicable effective date (as
to the Registration Statements and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or supplement
thereto) contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the foregoing representations
and warranties shall not apply to information contained in or omitted from the
Registration Statements or the Prospectus or any such amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein.
c. The Company and each of its subsidiaries (as defined in Section
15) have been duly incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing as foreign corporations
in each jurisdiction in which their respective ownership or lease of property or
the conduct of their respective businesses requires such qualification, and have
all power and authority necessary to own or hold their respective properties and
to conduct the businesses in which they are engaged, except where the failure to
so qualify or have such power or authority would not have, singularly or in the
aggregate, a material adverse effect on the condition (financial or otherwise),
results of operations, business or prospects of the Company and its subsidiaries
taken as a whole (a "Material Adverse Effect"). The Company owns or controls,
directly or indirectly, only the following corporations, associations or other
entities: _______.
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d. This Agreement has been duly authorized executed and delivered
by the Company.
e. The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be duly and validly
issued, fully paid and nonassessable and free of any preemptive or similar
rights and will conform to the description thereof contained in the Prospectus.
f. The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus.
g. All the outstanding shares of capital stock of each subsidiary
of the Company have been duly authorized and validly issued, are fully paid and
nonassessable and, except to the extent set forth in the Prospectus, are owned
by the Company directly or indirectly through one or more wholly-owned
subsidiaries, free and clear of any claim, lien, encumbrance, security interest,
restriction upon voting or transfer or any other claim of any third party.
h. The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws of the Company or any of
its subsidiaries or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties or assets.
i. Except for the registration of the Stock under the Securities
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and applicable state
securities laws in connection with the purchase and distribution of the Stock by
the Underwriters, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is required for
the execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby.
j. Arthur Andersen LLP, who have expressed their opinions on the
audited financial statements [and related schedules] included in the
Registration Statements and the Prospectus are independent public accountants as
required by the Securities Act and the Rules and Regulations.
k. The financial statements, together with the related notes [and
schedules], included in the Prospectus and in each Registration Statement fairly
present the financial position and the results of operations and changes in
financial position of the Company at the respective dates or
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for the respective periods therein specified. Such statements and related notes
[and schedules] have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis except as may be set forth
in the Prospectus.
l. Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since such date, there
has not been any change in the capital stock or long-term debt of the Company or
any of its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the business,
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries taken as a whole, otherwise
than as set forth or contemplated in the Prospectus.
m. Except as set forth in the Prospectus, there is no legal or
governmental proceeding pending to which the Company or any of its subsidiaries
is a party or of which any property or assets of the Company or any of its
subsidiaries is the subject which, singularly or in the aggregate, if determined
adversely to the Company or any of its subsidiaries, might have a Material
Adverse Effect or would prevent or adversely affect the ability of the Company
to perform its obligations under this Agreement; and to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
n. Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any respect, and no
event has occurred which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any term, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which it is a party or by which it is bound or
to which any of its property or assets is subject or (iii) is in violation in
any respect of any law, ordinance, governmental rule, regulation or court decree
to which it or its property or assets may be subject except any violations or
defaults which, singularly or in the aggregate, would not have a Material
Adverse Effect.
o. The Company and each of its subsidiaries possess all licenses,
certificates, authorizations and permits issued by, and have made all
declarations and filings with, the appropriate state, federal or foreign
regulatory agencies or bodies which are necessary or desirable for the ownership
of their respective properties or the conduct of their respective businesses as
described in the Prospectus except where any failures to possess or make the
same, singularly or in the aggregate, would not have a Material Adverse Effect,
and the Company has not received notification of any revocation or modification
of any such license, authorization or permit and has no reason to believe that
any such license, certificate, authorization or permit will not be renewed.
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<PAGE> 5
p. Neither the Company nor any of its subsidiaries is or, after
giving effect to the offering of the Stock and the application of the proceeds
thereof as described in the Prospectus will become an "investment company"
within the meaning of the Investment Company Act of 1940, as amended and the
rules and regulations of the Commission thereunder.
q. Neither the Company nor any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any action designed
or intended to stabilize or manipulate the price of any security of the Company,
or which caused or resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any security of the Company.
r. The Company and its subsidiaries own or possess the right to use
all patents, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets and
rights described in the Prospectus as being owned by them for the conduct of
their respective businesses, and the Company is not aware of any claim to the
contrary or any challenge by any other person to the rights of the Company and
its subsidiaries with respect to the foregoing. The Company's business as now
conducted and as proposed to be conducted does not and will not infringe or
conflict with any patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses or other intellectual property or franchise right of any
person. Except as described in the Prospectus, no claim has been made against
the Company alleging the infringement by the Company of any patent, trademark,
service mark, trade name, copyright, trade secret, license in or other
intellectual property right or franchise right of any person.
s. The Company and each of its subsidiaries have good and
marketable title in fee simple to, or have valid rights to lease or otherwise
use, all items of real or personal property which are material to the business
of the Company and its subsidiaries taken as a whole, in each case free and
clear of all liens, encumbrances, claims and defects that may result in a
Material Adverse Effect.
t. No labor disturbance by the employees of the Company or any of
its subsidiaries exists or, to the best of the Company's knowledge, is imminent
which might be expected to have a Material Adverse Effect. The Company is not
aware that any key employee or significant group of employees of the Company or
any subsidiary plans to terminate employment with the Company or any such
subsidiary.
u. No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or Section 4975
of the Internal Revenue Code of 1986, as amended from time to time (the "Code"))
or "accumulated funding deficiency" (as defined in Section 302 of ERISA) or any
of the events set forth in Section 4043(b) of ERISA (other than events with
respect to which the 30-day notice requirement under Section 4043 of ERISA has
been waived) has occurred with respect to any employee benefit plan which could
have a Material Adverse Effect; each employee benefit plan is in compliance in
all material respects with applicable law, including ERISA and the Code; the
Company has not incurred and does not
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<PAGE> 6
expect to incur liability under Title IV of ERISA with respect to the
termination of, or withdrawal from, any "pension plan"; and each "pension plan"
(as defined in ERISA) for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which could cause the loss of such qualification.
v. There has been no storage, generation, transportation, handling,
treatment, disposal, discharge, emission, or other release of any kind of toxic
or other wastes or other hazardous substances by, due to, or caused by the
Company or any of its subsidiaries (or, to the best of the Company's knowledge,
any other entity for whose acts or omissions the Company or any of its
subsidiaries is or may be liable) upon any of the property now or previously
owned or leased by the Company or any of its subsidiaries, or upon any other
property, in violation of any statute or any ordinance, rule, regulation, order,
judgment, decree or permit or which would, under any statute or any ordinance,
rule (including rule of common law), regulation, order, judgment, decree or
permit, give rise to any liability, except for any violation or liability which
would not have, singularly or in the aggregate with all such violations and
liabilities, a Material Adverse Effect; there has been no disposal, discharge,
emission or other release of any kind onto such property or into the environment
surrounding such property of any toxic or other wastes or other hazardous
substances with respect to which the Company or any of its subsidiaries have
knowledge, except for any such disposal, discharge, emission, or other release
of any kind which would not have, singularly or in the aggregate with all such
discharges and other releases, a Material Adverse Effect.
w. The Company and its subsidiaries each (i) have filed with all
necessary federal, state and foreign income and franchise tax returns, (ii) have
paid all federal sate, local and foreign taxes due and payable for which it is
liable, and (iii) do not have any tax deficiency or claims outstanding or
assessed or, to the best of the Company's knowledge, proposed against it which
could reasonably be expected to have a Material Adverse Effect.
x. The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar businesses in
similar industries.
y. The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
z. The minute books of the Company and each of its subsidiaries
have been made available to the Underwriters and counsel for the Underwriters,
and such books (i) contain a
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<PAGE> 7
complete summary of all meetings and actions of the directors and shareholders
of the Company and each of its subsidiaries since the time of its respective
incorporation through the date of the latest meeting and action, and (ii)
accurately in all material respects reflect all transactions referred to in such
minutes.
aa. There is no franchise, lease, contract, agreement or document
required by the Securities Act or by the Rules and Regulations to be described
in the Prospectus or to be filed as an exhibit to the Registration Statements
which is not described or filed therein as required; and all descriptions of any
such franchises, leases, contracts, agreements or documents contained in the
Registration Statements are accurate and complete descriptions of such documents
in all material respects.
bb. No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders, customers or
suppliers of the Company on the other hand, which is required to be described in
the Prospectus and which is not so described.
cc. No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statements or otherwise, except for persons
and entities who have expressly waived such right or who have been given proper
notice and have failed to exercise such right within the time or times required
under the terms and conditions of such right.
dd. Neither the Company nor any of its subsidiaries own any "margin
securities" as that term is defined in Regulations G and U of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), and none
of the proceeds of the sale of the Stock will be used, directly or indirectly,
for the purpose of purchasing or carrying any margin security, for the purpose
of reducing or retiring any indebtedness which was originally incurred to
purchase or carry any margin security or for any other purpose which might cause
any of the Securities to be considered a "purpose credit" within the meanings of
Regulation G, T, U or X of the Federal Reserve Board.
ee. Neither the Company nor any of its subsidiaries is a party to
any contract, agreement or understanding with any person that would give rise to
a valid claim against the Company or the Underwriters for a brokerage
commission, finder's fee or like payment in connection with the offering and
sale of the Stock.
ff. No forward-looking statement (within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act) contained in the
Prospectus has been made or reaffirmed without a reasonable basis or has been
disclosed other than in good faith.
gg. The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its subsidiaries will be
affected by the Year 2000 Problem. As a result of such review, the Company has
no reason to believe, and does not believe, that the Year 2000 Problem will have
a Material Adverse Effect. The "Year 2000 Problem" as used herein means any
significant risk that computer hardware or
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<PAGE> 8
software used in the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of dates or
time periods occurring after December 31, 1999, function at least as effectively
as in the case of dates or time periods occurring prior to January 1, 2000.
hh. The Stock has been approved for listing subject to notice of
issuance on the NASDAQ Stock Market's National Market.
3. PURCHASE SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees, to sell to each
Underwriter, and each Underwriter agrees, severally and not jointly, to purchase
from the Company that number of shares of Firm Stock (rounded up or down, as
determined by SG Cowen in its discretion, in order to avoid fractions) obtained
by multiplying ___ shares of Firm Stock by a fraction the numerator of which is
the number of shares of Firm Stock set forth opposite the name of such
Underwriter in Schedule A hereto and the denominator of which is the total
number of shares of Firm Stock.
The purchase price per share to be paid by the Underwriters to the
Company for the Stock will be $_____ per share (the "Purchase Price").
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or prior
to 12:00 Noon, New York time, on the second full business day preceding the
First Closing Date (as defined below) against payment of the aggregate Purchase
Price therefor by wire transfer to an account at a bank acceptable to SG Cowen,
payable to the order of the Company. Time shall be of the essence, and delivery
at the time and place specified pursuant to this Agreement is a further
condition of the obligations of each Underwriter hereunder. The time and date of
the delivery and closing shall be at 10:00 A.M., New York time, on ________,
1999, in accordance with Rule 15c6-1 of the Exchange Act. The time and date of
such payment and delivery are herein referred to as the "First Closing Date".
The First Closing Date and the location of delivery of, and the form of payment
for, the Firm Stock may be varied by agreement between the Company and SG Cowen.
The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters in New York, New
York at least twenty-four hours prior to the First Closing Date.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Underwriters may purchase all or less than all of the Optional Stock. The price
per share to be paid for the Optional Stock shall be the Purchase Price. The
Company agrees to sell to the Underwriters the number of shares of Optional
Stock specified in the written notice by SG Cowen described below and the
Underwriters agree, severally and not jointly, to purchase such shares of
Optional Stock. Such
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<PAGE> 9
shares of Optional Stock shall be purchased for the account of each Underwriter
in the same proportion as the number of shares of Firm Stock set forth opposite
such Underwriter's name bears to the total number of shares of Firm Stock
(subject to adjustment by SG Cowen to eliminate fractions). The option granted
hereby may be exercised as to all or any part of the Optional Stock at any time,
and from time to time, not more than thirty (30) days subsequent to the date of
this Agreement. No Optional Stock shall be sold and delivered unless the Firm
Stock previously has been, or simultaneously is, sold and delivered. The right
to purchase the Optional Stock or any portion thereof may be surrendered and
terminated at any time upon notice by SG Cowen to the Company.
The option granted hereby may be exercised by written notice being given
to the Company by SG Cowen setting forth the number of shares of the Optional
Stock to be purchased by the Underwriters and the date and time for delivery of
and payment for the Optional Stock. Each date and time for delivery of and
payment for the Optional Stock (which may be the First Closing Date, but not
earlier) is herein called the "Option Closing Date" and shall in no event be
earlier than two (2) business days nor later than five (5) business days after
written notice is given. (The Option Closing Date and the First Closing Date are
herein called the "Closing Dates".)
The Company will deliver the Optional Stock to the Underwriters (in the
form of definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice in writing to the Company given at
or prior to 12:00 Noon, New York time, on the second full business day preceding
the Option Closing Date against payment of the aggregate Purchase Price therefor
in federal (same day) funds by certified or official bank check or checks or
wire transfer to an account at a bank acceptable to SG Cowen payable to the
order of the Company. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligations of each Underwriter hereunder. The Company shall make the
certificates for the Optional Stock available to the Representatives for
examination on behalf of the Underwriters in New York, New York not later than
10:00 A.M., New York Time, on the business day preceding the Option Closing
Date. The Option Closing Date and the location of delivery of, and the form of
payment for, the Optional Stock may be varied by agreement between the Company
and SG Cowen.
The several Underwriters propose to offer the Stock for sale upon the
terms and conditions set forth in the Prospectus.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters that:
a. The Company will prepare the Rule 462(b) Registration Statement,
if necessary, in a form approved by the Representatives and file such Rule
462(b) Registration Statement with the Commission on the date hereof; prepare
the Prospectus in a form approved by the Representatives and file such
Prospectus pursuant to Rule 424(b) under the Securities Act not later than the
second business day following the execution and delivery of this Agreement; make
no further amendment or any supplement to the Registration Statements or to the
Prospectus to
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which the Representatives shall reasonably object by notice to the Company after
a reasonable period to review; advise the Representatives, promptly after it
receives notice thereof, of the time when any amendment to either Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof; advise the Representatives, promptly after
it receives notice thereof, of the issuance by the Commission of any stop order
or of any order preventing or suspending the use of any Preliminary Prospectus
or the Prospectus, of the suspension of the qualification of the Stock for
offering or sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statements or the Prospectus or
for additional information; and, in the event of the issuance of any stop order
or of any order preventing or suspending the use of any Preliminary Prospectus
or the Prospectus or suspending any such qualification, use promptly its best
efforts to obtain its withdrawal.
b. If at any time prior to the expiration of nine months after the
effective date of the Initial Registration Statement when a prospectus relating
to the Stock is required to be delivered any event occurs as a result of which
the Prospectus as then amended or supplemented would include any untrue
statement of a material fact, or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Securities Act, the Company will promptly notify the
Representatives thereof and upon their request will prepare an amended or
supplemented Prospectus which will correct such statement or omission or effect
such compliance. The Company will furnish without charge to each Underwriter and
to any dealer in securities as many copies as the Representatives may from time
to time reasonably request of such amended or supplemented Prospectus; and in
case any Underwriter is required to deliver a prospectus relating to the Stock
nine months or more after the effective date of the Initial Registration
Statement, the Company upon the request of the Representatives and at the
expense of such Underwriter will prepare promptly an amended or supplemented
Prospectus as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Securities Act.
c. To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of each of the Registration
Statements as originally filed with the Commission, and each amendment thereto
filed with the Commission, including all consents and exhibits filed therewith.
d. To deliver promptly to the Representatives in New York City such
number of the following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statements as originally filed
with the Commission and each amendment thereto (in each case excluding
exhibits), (ii) each Preliminary Prospectus, (iii) the Prospectus (not later
than 10:00 A.M., New York time, of the business day following the execution and
delivery of this Agreement) and any amended or supplemented Prospectus (not
later than 10:00 A.M., New York City time, on the business day following the
date of such amendment or supplement).
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e. To make generally available to its shareholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the
Securities Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Securities Act
and the Rules and Regulations (including, at the option of the Company, Rule
158).
f. The Company will promptly take from time to time such actions as
the Representatives may reasonably request to qualify the Stock for offering and
sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives may designate and to continue such qualifications in effect for
so long as required for the distribution of the Stock; provided that the Company
and its subsidiaries shall not be obligated to qualify as foreign corporations
in any jurisdiction in which they are not so qualified or to file a general
consent to service of process in any jurisdiction;
g. During the period of five years from the date hereof, the
Company will deliver to the Representatives and, upon request, to each of the
other Underwriters, (i) as soon as they are available, copies of all reports or
other communications furnished to shareholders and (i) as soon as they are
available, copies of any reports and financial statements furnished or filed
with the Commission pursuant to the Exchange Act or any national securities
exchange or automatic quotation system on which the Stock is listed or quoted.
h. The Company will not directly or indirectly offer, sell, assign,
transfer, pledge, contract to sell, or otherwise dispose of any shares of Common
Stock or securities convertible into or exercisable or exchangeable for Common
Stock for a period of 180 days from the date of the Prospectus without the prior
written consent of SG Cowen other than the Company's sale of the Stock hereunder
and the issuance of shares pursuant to employee benefit plans, qualified stock
option plans or other employee compensation plans existing on the date hereof or
pursuant to currently outstanding options, warrants or rights. The Company will
cause each officer, director and shareholder listed in Schedule B to furnish to
the Representatives, prior to the First Closing Date, a letter, substantially in
the form of Exhibit I hereto, pursuant to which each such person shall agree not
to directly or indirectly offer, sell, assign, transfer, pledge, contract to
sell, or otherwise dispose of any shares of Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock for a period of
180 days from the date of the Prospectus, without the prior written consent of
SG Cowen.
i. The Company will supply the Representatives with copies of all
correspondence to and from, and all documents issued to and by, the Commission
in connection with the registration of the Stock under the Securities Act.
j. Prior to each of the Closing Dates, the Company will furnish to
the Representatives, as soon as they have been prepared, copies of any unaudited
interim consolidated financial statements of the Company for any periods
subsequent to the periods covered by the financial statements appearing in the
Registration Statement and the Prospectus.
k. Prior to each of the Closing Dates, the Company will not issue
any press release or other communication directly or indirectly or hold any
press conference with respect to the
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Company, its condition, financial or otherwise, or earnings, business affairs or
business prospects (except for routine oral marketing communications in the
ordinary course of business and consistent with the past practices of the
Company and of which the Representatives are notified), without the prior
written consent of the Representatives, unless in the judgment of the Company
and its counsel, and after notification to the Representatives, such press
release or communication is required by law.
l. In connection with the offering of the Stock, until SG Cowen
shall have notified the Company of the completion of the resale of the Stock,
the Company will not, and will cause its affiliated purchasers (as defined in
Regulation M under the Exchange Act) not to, either alone or with one or more
other persons, bid for or purchase, for any account in which it or any of its
affiliated purchasers has a beneficial interest, any Stock, or attempt to induce
any person to purchase any Stock; and not to, and to cause its affiliated
purchasers not to, make bids or purchase for the purpose of creating actual, or
apparent, active trading in or of raising the price of the Stock.
m. The Company will not take any action prior to the Option Closing
Date which would require the Prospectus to be amended or supplemented pursuant
to Section 4(b);
n. The Company will apply the net proceeds from the sale of the
Stock as set forth in the Prospectus under the heading "Use of Proceeds".
5. PAYMENT OF EXPENSES. The Company agrees with the Underwriter to pay (a)
the costs incident to the authorization, issuance, sale, preparation and
delivery of the Stock and any taxes payable in that connection; (b) the costs
incident to the Registration of the Stock under the Securities Act; (c) the
costs incident to the preparation, printing and distribution of the Registration
Statement, Preliminary Prospectus, Prospectus any amendments and exhibits
thereto, the costs of printing, reproducing and distributing the "Agreement
Among Underwriters" between the Representatives and the Underwriters, the Master
Selected Dealers' Agreement, the Underwriters' Questionnaire and this Agreement
by mail, telex or other means of communications; (d) the fees and expenses
(including related fees and expenses of counsel for the Underwriters) incurred
in connection with filings made with the National Association of Securities
Dealers; (e) any applicable listing or other fees; (f) the fees and expenses of
qualifying the Stock under the securities laws of the several jurisdictions as
provided in Section 4(f) and of preparing, printing and distributing Blue Sky
Memoranda and Legal Investment Surveys (including related fees and expenses of
counsel to the Underwriters); (g) all fees and expenses of the registrar and
transfer agent of the Stock; and (h) all other costs and expenses incident to
the performance of the obligations of the Company under this Agreement
(including, without limitation, the fees and expenses of the Company's counsel
and the Company's independent accountants); provided that, except as otherwise
provided in this Section 5 and in Section 9, the Underwriters shall pay their
own costs and expenses, including the fees and expenses of their counsel, any
transfer taxes on the Stock which they may sell and the expenses of advertising
any offering of the Stock made by the Underwriters.
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<PAGE> 13
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations of
the several Underwriters hereunder are subject to the accuracy, when made and on
each of the Closing Dates, of the representations and warranties of the Company
contained herein, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of their obligations hereunder, and to each of the following additional
terms and conditions:
a. No stop order suspending the effectiveness of either the
Registration Statements shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the Commission, and any
request for additional information on the part of the Commission (to be included
in the Registration Statements or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives. The Rule
462(b) Registration Statement, if any, and the Prospectus shall have been timely
filed with the Commission in accordance with Section 4(a).
b. None of the Underwriters shall have discovered and disclosed to
the Company on or prior to the Closing Date that the Registration Statement or
the Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of counsel for the Underwriters, is
material or omits to state any fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
c. All corporate proceedings and other legal matters incident to
the authorization, form and validity of each of this Agreement, the Stock, the
Registration Statement and the Prospectus and all other legal matters relating
to this Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the Underwriters, and the
Company shall have furnished to such counsel all documents and information that
they may reasonably request to enable them to pass upon such matters.
d. Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
shall have furnished to the Representatives such counsel's written opinion, as
counsel to the Company, addressed to the Underwriters and dated the Closing
Date, in form and substance reasonably satisfactory to the Representatives, to
the effect that:
(i) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, are duly qualified to
do business and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of property or the
conduct of their respective businesses requires such qualification, and have all
power and authority necessary to own or hold their respective properties and to
conduct the businesses in which they are engaged, except where the failure to so
qualify or have such power or authority would not have, singularly or in the
aggregate, a Material Adverse Effect.
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock of the
Company, including the Stock
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being delivered on the Closing Date, have been duly and validly authorized and
issued, are fully paid and non-assessable and conform to the description thereof
contained in the Prospectus.
(iii) All the outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued, are
fully paid and nonassessable and, except to the extent set forth in the
Prospectus, are owned by the Company directly or indirectly through one or more
wholly-owned subsidiaries, free and clear of any claim, lien, encumbrance,
security interest, restriction upon voting or transfer or any other claim of any
third party.
(iv) There are no preemptive or other rights to subscribe for
or to purchase, nor any restriction upon the voting or transfer of, any shares
of the Stock pursuant to the Company's charter or by-laws or any agreement or
other instrument known to such counsel.
(v) This Agreement has been duly authorized, executed and
delivered by the Company.
(vi) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to such counsel
after reasonable investigation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound or to
which any of the properties or assets of the Company or any of its subsidiaries
is subject, nor will such actions result in any violation of the Charter or
by-laws of the Company or of any of its subsidiaries or any statute or any
order, rule or regulation of any court or governmental agency or body or court
having jurisdiction over the Company or any of its subsidiaries or any of their
properties or assets.
(vii) Except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and applicable state
securities laws in connection with the purchase and distribution of the Stock by
the Underwriters, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is required for
the execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby.
(viii) The description in the Registration Statement and
Prospectus of statutes, legal or governmental proceedings and contracts and
other documents are accurate in all material respects; and to the best of such
counsel's knowledge, there are no statutes, legal or governmental proceedings,
contracts or other documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described or filed as required.
(ix) To the best of such counsel's knowledge, neither the
Company nor any of its subsidiaries (i) is in violation of its charter or
by-laws, (ii) is in default, and no event has occurred, which, with notice or
lapse of time or both, would constitute a default, in the due performance or
observance of any term, covenant or condition contained in any agreement or
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<PAGE> 15
instrument to which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is in violation of any law, ordinance,
governmental rule, regulation or court decree to which it or its property or
assets may be subject or has failed to obtain any license, permit, certificate,
franchise or other governmental authorization or permit necessary to the
ownership of its property or to the conduct of its business except, in the case
of clauses (ii) and (iii), for those defaults, violations or failures which,
either individually or in the aggregate, would not have a Material Adverse
Effect.
(x) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or of which
any property or asset of the Company or any of its subsidiaries is the subject
which, singularly or in the aggregate, if determined adversely to the Company or
any of its subsidiaries, might have a Material Adverse Effect or would prevent
or adversely affect the ability of the Company to perform its obligations under
this Agreement; and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others.
(xi) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such opinion, the Rule
462(b) Registration Statement, if any, was filed with the Commission on the date
specified therein, the Prospectus was filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and Regulations specified in such
opinion on the date specified therein and no stop order suspending the
effectiveness of the Registration Statement has been issued and, to the
knowledge of such counsel, no proceeding for that purpose is pending or
threatened by the Commission.
(xii) The Registration Statements, as of the respective
effective dates and the Prospectus, as of its date, and any further amendments
or supplements thereto, as of their respective dates, made by the Company prior
to the Closing Date (other than the financial statements and other financial
data contained therein, as to which such counsel need express no opinion)
complied as to form in all material respects with the requirements of the
Securities Act and the Rules and Regulations (other than the financial
statements and related schedules therein, as to which such counsel need express
no opinion) when they were filed with the Commission complied as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
(xiii) To the best of such counsel's no person or entity has
the right to require registration of shares of Common Stock or other securities
of the Company because of the filing or effectiveness of the Registration
Statements or otherwise, except for persons and entities who have expressly
waived such right or who have been given proper notice and have failed to
exercise such right within the time or times required under the terms and
conditions of such right.
(xiv) Neither the Company nor any of its subsidiaries is an
"investment company" within the meaning of the Investment Company Act and the
rules and regulations of the Commission thereunder.
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<PAGE> 16
Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and dated the
Closing Date, in form and substance satisfactory to the Representatives, to the
effect that (x) such counsel has acted as counsel to the Company in connection
with the preparation of the Registration Statements (y) based on such counsel's
examination of the Registration Statements and such counsel's investigations
made in connection with the preparation of the Registration Statements and
"conferences with certain officers and employees of and with auditors for and
counsel to the Company," such counsel has no reason to believe that the
Registration Statements, as of the respective effective dates, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectus contains any untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading when they were filed
with the Commission; it being understood that such counsel need express no
opinion as to the financial statements or other financial data contained in the
Registration Statement or the Prospectus.
The foregoing opinion and statement may be qualified by a statement to
the effect that such counsel has not independently verified the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus and takes no responsibility therefor except to the
extent set forth in the opinion described in clause (viii) above.
e. Patent Counsel to the Company shall have furnished to the
Representatives such counsel's written opinion, as counsel to the Company,
addressed to the Underwriters and dated the Closing Date, in the form
substantially similar to that attached as Exhibit A.
f. The Representatives shall have received from Brobeck, Phleger &
Harrison LLP, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date, with respect to such matters as the Underwriters may reasonably
require, and the Company shall have furnished to such counsel such documents as
they request for enabling them to pass upon such matters.
g. At the time of the execution of this Agreement, the
Representatives shall have received from Arthur Andersen LLP a letter, addressed
to the Underwriters and dated such date, in form and substance satisfactory to
the Representatives (i) confirming that they are independent certified public
accountants with respect to the Company and its subsidiaries within the meaning
of the Securities Act and the Rules and Regulations and (ii) stating the
conclusions and findings of such firm with respect to the financial statements
and certain financial information contained or incorporated by reference in the
Prospectus.
h. On the Closing Date, the Representatives shall have received a
letter (the "bring-down letter") from Arthur Andersen LLP addressed to the
Underwriters and dated the Closing Date confirming, as of the date of the
bring-down letter (or, with respect to matters involving changes or developments
since the respective dates as of which specified financial information is given
in the Prospectus as of a date not more than three business days prior to the
date of the bring-down letter), the conclusions and findings of such firm with
respect to the financial
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<PAGE> 17
information and other matters covered by its letter delivered to the
Representatives concurrently with the execution of this Agreement pursuant to
Section 6(g).
i. The Company shall have furnished to the Representatives a
certificate, dated the Closing Date, of its Chairman of the Board, its President
or a Vice President and its chief financial officer stating that (i) such
officers have carefully examined the Registration Statements and the Prospectus
and, in their opinion, the Registration Statements as of their respective
effective dates and the Prospectus, as of each such effective date, did not
include any untrue statement of a material fact and did not omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) since the effective date of the Initial
Registration Statement no event has occurred which should have been set forth in
a supplement or amendment to the Registration Statements or the Prospectus,
(iii) to the best of their knowledge after reasonable investigation, as of the
Closing Date, the representations and warranties of the Company in this
Agreement are true and correct and the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date, and (iv) subsequent to the date of the most
recent financial statements in the Prospectus, there has been no material
adverse change in the financial position or results of operation of the Company
and its subsidiaries, or any change, or any development including a prospective
change, in or affecting the condition (financial or otherwise), results of
operations, business or prospects of the Company and its subsidiaries taken as a
whole, except as set forth in the Prospectus.
j. Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus (ii) since such date there shall not
have been any change in the capital stock or long-term debt of the Company or
any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the business, general affairs, management,
financial position, stockholders' equity or results of operations of the Company
and its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause (i) or
(ii), is, in the judgment of the Representatives, so material and adverse as to
make it impracticable or inadvisable to proceed with the sale or delivery of the
Stock on the terms and in the manner contemplated in the Prospectus.
k. No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental agency
or body which would, as of the Closing Date, prevent the issuance or sale of the
Stock; and no injunction, restraining order or order of any other nature by any
federal or state court of competent jurisdiction shall have been issued as of
the Closing Date which would prevent the issuance or sale of the Stock.
l. Subsequent to the execution and delivery of this Agreement (i)
no downgrading shall have occurred in the rating accorded the Company's debt
securities by any "nationally recognized statistical rating organization," as
that term is defined by the Commission for
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<PAGE> 18
purposes of Rule 436(g)(2) of the Rules and Regulations and (ii) no such
organization shall have publicly announced that it has under surveillance or
review (other than an announcement with positive implications of a possible
upgrading), its rating of any of the Company's debt securities.
m. Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market, or trading in any securities of the Company on any
exchange or in the over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment of
the Representatives, impracticable or inadvisable to proceed with the sale or
delivery of the Stock on the terms and in the manner contemplated in the
Prospectus.
n. The Nasdaq National Market System shall have approved the Stock
for listing, subject only to official notice of issuance and evidence of
satisfactory distribution.
o. SG Cowen shall have received the written agreements,
substantially in the form of Exhibit B hereto, of the officers, directors and
shareholders of the Company listed in Schedule B to this Agreement.
p. All opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
7. INDEMNIFICATION AND CONTRIBUTION.
a. The Company shall indemnify and hold harmless each Underwriter,
its officers, employees, representatives and agents and each person, if any, who
controls any Underwriter within the meaning of the Securities Act (collectively
the "Underwriter Indemnified Parties" and each an "Underwriter Indemnified
Party") against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which that Underwriter Indemnified Party may
become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of or is based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Preliminary Prospectus, either of the Registration Statements or the Prospectus
or in any amendment or supplement thereto; (ii) the omission or alleged omission
to state in any Preliminary Prospectus, either of the Registration Statements or
the Prospectus or in any amendment or supplement thereto a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (iii) any act or failure to act, or any alleged act or failure to
act, by any Underwriter in connection with, or relating in any
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<PAGE> 19
manner to, the Stock or the offering contemplated hereby, and which is included
as part of or referred to in any loss, claim, damage, liability or action
arising out of or based upon matters covered by clause (i) or (ii) above,
(provided that the Company shall not be liable in the case of any matter covered
by this clause (iii) to the extent that it is determined in a final judgement by
a court of competent jurisdiction that such loss, claim, damage, liability or
action resulted directly from any such act or failure to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or wilful
misconduct) and shall reimburse each Underwriter Indemnified Party promptly upon
demand for any legal or other expenses reasonably incurred by that Underwriter
Indemnified Party in connection with investigating or preparing to defend or
defending against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon (i) an untrue statement or alleged untrue statement in or omission
or alleged omission from the Preliminary Prospectus, either of the Registration
Statements or the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically for use
therein, which information the parties hereto agree is limited to the
Underwriter's Information (as defined in Section 17). This indemnity agreement
is not exclusive and will be in addition to any liability which the Company
might otherwise have and shall not limit any rights or remedies which may
otherwise be available at law or in equity to each Underwriter Indemnified
Party.
b. Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers, employees, representatives and agents,
each of its directors and each person, if any, who controls the Company within
the meaning of the Securities Act (collectively the "Company Indemnified
Parties" and each a "Company Indemnified Party") against any loss, claim, damage
or liability, joint or several, or any action in respect thereof, to which the
Company Indemnified Parties may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of or is based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Preliminary Prospectus, either of the
Registration Statements or the Prospectus or in any amendment or supplement
thereto or (ii) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company through
the Representatives by or on behalf of that Underwriter specifically for use
therein, and shall reimburse the Company Indemnified Parties for any legal or
other expenses reasonably incurred by such parties in connection with
investigating or preparing to defend or defending against or appearing as third
party witness in connection with any such loss, claim, damage, liability or
action as such expenses are incurred; provided that the parties hereto hereby
agree that such written information provided by the Underwriters consists solely
of the Underwriter's Information. This indemnity agreement is not exclusive and
will be in addition to any liability which the Underwriters might otherwise have
and shall not limit any rights or remedies which may otherwise be available at
law or in equity to the Company Indemnified Parties.
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<PAGE> 20
c. Promptly after receipt by an indemnified party under this
Section 7 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent it has
been materially prejudiced by such failure; and, provided, further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 7.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
any indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
employment thereof has been specifically authorized by the indemnifying party in
writing, (ii) such indemnified party shall have been advised by such counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the indemnifying party and in the
reasonable judgment of such counsel it is advisable for such indemnified party
to employ separate counsel or (iii) the indemnifying party has failed to assume
the defense of such action and employ counsel reasonably satisfactory to the
indemnified party, in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party,
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for all such indemnified
parties, which firm shall be designated in writing by SG Cowen, if the
indemnified parties under this Section 7 consist of any Underwriter Indemnified
Party, or by the Company if the indemnified parties under this Section 7 consist
of any Company Indemnified Parties. Each indemnified party, as a condition of
the indemnity agreements contained in Sections 7(a) and 7(b), shall use all
reasonable efforts to cooperate with the indemnifying party in the defense of
any such action or claim. Subject to the provisions of Section 7(d) below, no
indemnifying party shall be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
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<PAGE> 21
d. If at any time an indemnified party shall have requested that an
indemnifying party reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by this Section 7 effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the request for reimbursement, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
e. If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under Section
7(a) or 7(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other from the offering of the Stock or if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Underwriters on
the other with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Stock purchased under this Agreement (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters with respect to the Stock purchased
under this Agreement, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on the
other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission; provided that the parties hereto agree that the written information
furnished to the Company through the Representatives by or on behalf of the
Underwriters for use in any Preliminary Prospectus, either of the Registration
Statements or the Prospectus consists solely of the Underwriter's Information.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 7(e) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 7(e) shall be
deemed to include, for purposes of this Section 7(e), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7(e), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Stock
underwritten by it and distributed to the public were offered to the public less
the amount of any damages which such Underwriter has otherwise paid
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<PAGE> 22
or become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
f. The Underwriters' obligations to contribute as provided in this
Section 7(f) are several in proportion to their respective underwriting
obligations and not joint.
8. TERMINATION. The obligations of the Underwriters hereunder may be
terminated by SG Cowen, in its absolute discretion by notice given to and
received by the Company prior to delivery of and payment for the Firm Stock if,
prior to that time, any of the events described in Sections 6(j), 6(l) or 6(m)
have occurred or if the Underwriters shall decline to purchase the Stock for any
reason permitted under this Agreement.
9. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) this Agreement shall
have been terminated pursuant to Section 8 or 10, (b) the Company shall fail to
tender the Stock for delivery to the Underwriters for any reason permitted under
this Agreement, or (c) the Underwriters shall decline to purchase the Stock for
any reason permitted under this Agreement, the Company shall reimburse the
Underwriters for the fees and expenses of their counsel and for such other
out-of-pocket expenses as shall have been reasonably incurred by them in
connection with this Agreement and the proposed purchase of the Stock, and upon
demand the Company shall pay the full amount thereof to the SG Cowen. If this
Agreement is terminated pursuant to Section 10 by reason of the default of one
or more Underwriters, the Company shall not be obligated to reimburse any
defaulting Underwriter on account of those expenses.
10. SUBSTITUTION OF UNDERWRITERS.
a. If any Underwriter or Underwriters shall default in its or their
obligations to purchase shares of Stock hereunder and the aggregate number of
shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed ten percent (10%) of the total number of shares
underwritten, the other Underwriters shall be obligated severally, in proportion
to their respective commitments hereunder, to purchase the shares which such
defaulting Underwriter or Underwriters agreed but failed to purchase. If any
Underwriter or Underwriters shall so default and the aggregate number of shares
with respect to which such default or defaults occur is more than ten percent
(10%) of the total number of shares underwritten and arrangements satisfactory
to the Representatives and the Company for the purchase of such shares by other
persons are not made within forty-eight (48) hours after such default, this
Agreement shall terminate.
b. If the remaining Underwriters or substituted Underwriters are
required hereby or agree to take up all or part of the shares of Stock of a
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the Closing Dates for a period of not
more than five (5) full business days in order that the Company may effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may
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<PAGE> 23
thereby be made necessary, and (ii) the respective numbers of shares to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve any defaulting Underwriter of
its liability to the Company or the other Underwriters for damages occasioned by
its default hereunder. Any termination of this Agreement pursuant to this
Section 10 shall be without liability on the part of any non-defaulting
Underwriter or the Company, except expenses to be paid or reimbursed pursuant to
Sections 5 and 9 and except the provisions of Section 7 shall not terminate and
shall remain in effect.
11. SUCCESSORS; PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of and be binding upon the several Underwriters, the
Company and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations, warranties,
covenants, agreements and indemnities of the Company contained in this Agreement
shall also be for the benefit of the Underwriter Indemnified Parties, and the
indemnities of the several Underwriters shall also be for the benefit of the
Company Indemnified Parties.
12. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company or any person controlling any of them and
shall survive delivery of ad payment for the Stock.
13. NOTICES. All statements, requests, notices and agreements hereunder
shall be in writing, and:
a. if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to SG Securities Corporation, Attention:
_______________ (Fax: (212) ____________;
b. if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to Cybergold, Inc., Attention: _________ (Fax: (510)
845-5257);
14. DEFINITION OF CERTAIN TERMS. For purposes of this Agreement, (a)
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading and (b) "subsidiary" has the meaning set forth in Rule 405 of the
Rules and Regulations.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. UNDERWRITERS' INFORMATION. The parties hereto acknowledge and agree
that, for all purposes of this Agreement, the Underwriters' Information consists
solely of the following
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<PAGE> 24
information in the Prospectus: the statements concerning the Underwriters
contained in the first three paragraphs, the table and the seventh and eighth
paragraphs under the heading "Underwriting."
17. AUTHORITY OF THE REPRESENTATIVES. In connection with this Agreement, you
will act for and on behalf of the several Underwriters, and any action taken
under this Agreement by the Representatives will be binding on all the
Underwriters.
18. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
19. GENERAL. This Agreement constitutes the entire agreement of the parties
to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. In this Agreement, the masculine, feminine and neuter
genders and the singular and the plural include one another. The section
headings in this Agreement are for the convenience of the parties only and will
not affect the construction or interpretation of this Agreement. This Agreement
may be amended or modified, and the observance of any term of this Agreement may
be waived, only by a writing signed by the Company and the Representatives.
20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
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<PAGE> 25
If the foregoing is in accordance with your understanding of the
agreement between the Company and the several Underwriters, kindly indicate your
acceptance in the space provided for that purpose below.
Very truly yours,
CYBERGOLD, INC.
By:
-------------------------------------
Name:
Title:
Accepted as of
the date first above written:
SG COWEN SECURITIES CORPORATION
CIBC WORLD MARKETS
VOLPE BROWN WHELAN & COMPANY
Acting on their own behalf and as
Representatives of several Underwriters
referred to in the foregoing Agreement.
By: SG COWEN SECURITIES CORPORATION
By:
--------------------------------
Name:
Title:
25
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
Number of Number of
Firm Shares Optional
to be Shares to
Name Purchased be Purchased
---- --------- ------------
<S> <C> <C>
SG Cowen Securities Corporation __________ __________
CIBC World Markets __________ __________
Volpe Brown Whelan & Company __________ __________
Total __________ __________
========== ==========
</TABLE>
26
<PAGE> 27
SCHEDULE B
[LIST OF SHAREHOLDERS SUBJECT TO SECTION 4(H)]
27
<PAGE> 28
EXHIBIT A
PATENT OPINION
28
<PAGE> 29
EXHIBIT B
LOCK-UP AGREEMENT
5/6/99
SG Cowen Securities Corporation
Volpe Brown Whelan & Company
CIBC World Markets
As representatives of the
several Underwriters
c/o SG Cowen Securities Corporation
Financial Square
New York, New York 10005
Re: Cybergold, Inc. Initial Public Offering
Dear Sirs:
The undersigned is a shareholder of Cybergold, Inc., a California
corporation. Cybergold, Inc. plans to reincorporate in Delaware as Cybergold,
Inc. (the "Company") prior to its initial public offering (the "Offering"). In
order to induce SG Cowen Securities Corporation ("SG Cowen"), Volpe Brown Whelan
& Company and CIBC World Markets (together with SG Cowen, the
"Representatives"), to enter in to a certain underwriting agreement with
Company, with respect to the public offering of shares of the Company's Common
Stock, par value $0.001 per share ("Common Stock"), the undersigned hereby
agrees that for a period of 180 days following the date of the final prospectus
filed by the Company with the Securities and Exchange Commission in connection
with such public offering, the undersigned will not, without the prior written
consent of SG Cowen, directly or indirectly, offer, sell, assign, transfer,
pledge, contract to sell, or otherwise dispose of any shares of Common Stock
(including, without limitation, Common Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations promulgated under the Securities Act of 1933, as the same may be
amended or supplemented from time to time (such shares, the "Beneficially Owned
Shares")) or securities convertible into or exercisable or exchangeable in
Common Stock.; provided, however, that such restriction shall not apply to any
securities purchased after the Offering.
In addition, the undersigned hereby waives, from the date hereof until
the expiration of the 180 day period following the date of the Company's final
Prospectus, any and all right, if any, to request or demand registration
pursuant to the Securities Act of any shares of Common Stock that are registered
in the name of the undersigned or that are Beneficially Owned Shares;
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<PAGE> 30
provided, however, that this waiver shall not apply to any right the undersigned
may have to be included in any Company-initiated registration of its securities.
Anything contained herein to the contrary notwithstanding, any person to
whom shares of Common Stock or Beneficially Owned Shares are transferred from
the undersigned shall be bound by the terms of this Agreement.
The undersigned hereby consent to the placing of legends and/or stop
transfer orders with the transfer agent of the Common Stock with respect to any
shares of Common Stock or Beneficially owned Shares.
[SIGNATORY]
By:
-------------------------------------
Name:
Title:
30
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF CYBERGOLD, INC.
ARTICLE I
The name of this corporation is Cybergold, Inc.
ARTICLE II
A. The address of the registered office of this corporation in
the State of Delaware is 15 E. North Street, in the City of Dover, County of
Kent. The name of its registered agent at such address is Incorporating
Services, Ltd.
B. The name and mailing address of the incorporator of this
corporation is:
Frank Grant
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Dr., Menlo Park, California 94025
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is forty-two million seven hundred thousand (42,700,000) shares. Twenty-five
million five hundred twenty thousand (25,520,000) shares shall be Common Stock,
par value $0.001 per share. Seventeen million one hundred eighty thousand
(17,180,000) shares shall be Preferred Stock, par value $0.001 per share, of
which three million one hundred eighty-five thousand (3,185,000) shares shall be
designated Series A Preferred Stock, two million one hundred forty-four thousand
nine hundred seventy-one (2,144,971) shares shall be designated Series B
Preferred Stock, eight million twenty-nine (8,000,029) shares shall be
designated Series C Preferred Stock and three million eight hundred fifty
thousand (3,850,000) shares shall be designated Series D Preferred Stock.
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Certificate of Incorporation may be issued
from time to time in one or more series. The rights, preferences, privileges and
restrictions granted to and imposed on the
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<PAGE> 2
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock and the Series D Preferred Stock, are as follows:
1. Dividend Provisions. The holders of shares of Series A,
Series B, Series C and Series D Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock of
this corporation) on the Common Stock of this corporation, at the rate of (i) in
the case of the Series A Preferred Stock, $.05 per share per annum, (ii) in the
case of the Series B Preferred Stock, $.10 per share per annum, (iii) in the
case of the Series C Preferred Stock, $.0455 per share per annum, and (iv) in
the case of the Series D Preferred Stock, $.13 per share per annum, or, if
greater (as determined on a per annum basis and on an as converted basis for the
Series A, Series B, Series C and Series D Preferred Stock), an amount equal to
that paid on any other outstanding shares of this corporation, payable when, as
and if declared by the Board of Directors. Such dividends shall not be
cumulative.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding
up of this corporation, either voluntary or involuntary, the holders of Series C
Preferred Stock and Series D Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of this corporation
to the holders of the Series A Preferred Stock, the holders of the Series B
Preferred Stock or the holders of the Common Stock by reason of their ownership
thereof, (i) in the case of the Series C Preferred Stock, an amount per share
equal to the sum of (A) $0.91 for each outstanding share of Series C Preferred
Stock (the "Original Series C Issue Price") and (B) an amount equal to declared
but unpaid dividends on such share (subject to adjustment of such fixed dollar
amounts for any stock splits, stock dividends, combinations, recapitalizations
or the like), and (ii) in the case of the Series D Preferred Stock, an amount
per share equal to the sum of (A) $2.60 for each outstanding share of Series D
Preferred Stock (the "Original Series D Issue Price") and (B) an amount equal to
declared but unpaid dividends on such share (subject to adjustment of such fixed
dollar amounts for any stock splits, stock dividends, combinations,
recapitalizations or the like). If upon the occurrence of such event, the
remaining assets and funds thus distributed among the holders of the Series C
Preferred Stock and Series D Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the corporation legally available for distribution
shall be distributed ratably among the holders of the Series C Preferred Stock
and Series D Preferred Stock in proportion to full preferential amount each such
holder is otherwise entitled to receive under this subsection (a).
(b) Upon completion of the distribution required by
subsection (a) of this Section 2, if assets remain in this corporation, the
holders of Series A Preferred Stock and Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of this corporation to the holders of the Common Stock by reason of their
ownership thereof, (i) in the case of the Series A Preferred Stock, an amount
per
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<PAGE> 3
share equal to the sum of (A) $1.00 for each outstanding share of Series A
Preferred Stock (the "Original Series A Issue Price") and (B) an amount equal to
declared but unpaid dividends on such share (subject to adjustment of such fixed
dollar amounts for any stock splits, stock dividends, combinations,
recapitalizations or the like), and (ii) in the case of the Series B Preferred
Stock, an amount per share equal to the sum of (A) $2.00 for each outstanding
share of Series B Preferred Stock (the "Original Series B Issue Price") and (B)
an amount equal to declared but unpaid dividends on such share (subject to
adjustment of such fixed dollar amounts for any stock splits, stock dividends,
combinations, recapitalizations or the like). If upon the occurrence of such
event, the remaining assets and funds thus distributed among the holders of the
Series A Preferred Stock and Series B Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire assets and funds of the corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock and Series B Preferred Stock in proportion to full preferential
amount each such holder is otherwise entitled to receive under this subsection
(b).
(c) Upon completion of the distributions required by
subsections (a) and (b) of this Section 2, all of the remaining assets of the
corporation available for distribution to stockholders shall be distributed
among the holders of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Common Stock pro rata based on
the number of shares of Common Stock held by each (assuming full conversion of
all such Preferred Stock).
(d) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include, (A) the acquisition of the corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) that results in the
transfer of fifty percent (50%) or more of the outstanding voting power of this
corporation; or (B) a sale of all or substantially all of the assets of the
corporation.
(ii) In any of such events, if the consideration
received by the corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such exchange over the thirty
(30)-day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30)-day period ending three (3) days
prior to the closing; and
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<PAGE> 4
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject
to investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this
subsection 2(d) are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until
such time as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 2(d)(iv) hereof.
(iv) The corporation shall give each holder of
record of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and/or Series D Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the stockholders' meeting
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 2, and the corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after the corporation has given
the first notice provided for herein or sooner than ten (10) days after the
corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting power
of all then outstanding shares of such Preferred Stock.
3. Redemption.
(a) At any time after May 15, 2003, but within ninety
(90) days after the receipt by this corporation of a written request from the
holders of not less than sixty-seven percent (67%) of the then outstanding
Series C Preferred Stock and Series D Preferred Stock (voting together as a
single class and not as separate series, and on an as-converted basis) that all
or, if less than all, a specified percentage of such holders' shares of Series C
Preferred
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<PAGE> 5
Stock and Series D Preferred Stock (which percentage of Series C Preferred Stock
and Series D Preferred Stock shall be equal for such holder) be redeemed, and
concurrently with surrender by such holders of the certificates representing
such shares, this corporation shall, to the extent it may lawfully do so, redeem
in three (3) equal annual installments (each payment date being referred to
herein as a "Redemption Date") the shares specified in such request by paying in
cash therefor (i) $1.82 per share of Series C Preferred Stock (as adjusted for
any stock splits, stock dividends, recapitalizations or the like) (the "Series C
Redemption Price") and (ii) $5.20 per share of Series D Preferred Stock (as
adjusted for any stock splits, stock dividends, recapitalizations or the like)
(the "Series D Redemption Price"). The number of shares of Series C Preferred
Stock and Series D Preferred Stock that this corporation shall be required to
redeem on any one Redemption Date shall be equal to the amount determined by
dividing (x) the aggregate number of shares of Series C Preferred Stock and
Series D Preferred Stock outstanding immediately prior to such Redemption Date
that have been requested to be redeemed pursuant to this Section 3(a) by (y) the
number of remaining Redemption Dates (including the Redemption Date to which
such calculation applies).
(b) At least fifteen (15) but no more than thirty (30)
days prior to each Redemption Date, written notice shall be mailed, first class
postage prepaid, to each holder of record (at the close of business on the
business day next preceding the day on which notice is given) of the Series C
Preferred Stock and Series D Preferred Stock to be redeemed, at the address last
shown on the records of this corporation for such holder, notifying such holder
of the redemption to be effected on the applicable Redemption Date, specifying
the number of shares to be redeemed from such holder, the Redemption Date, the
applicable Redemption Price, the place at which payment may be obtained and
calling upon such holder to surrender to this corporation, in the manner and at
the place designated, his, her or its certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). Except as provided in
subsection (3)(c), on or after each Redemption Date, each holder of Series C
Preferred Stock and Series D Preferred Stock to be redeemed on such Redemption
Date shall surrender to this corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Series C Redemption Price and Series D
Redemption Price, as the case may be, of such shares shall be payable to the
order of the person whose name appears on such certificate or certificates as
the owner thereof and each surrendered certificate shall be canceled. In the
event less than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares.
(c) From and after each Redemption Date, unless there
shall have been a default in payment of the Series C Redemption Price or Series
D Redemption Price, all rights of the holders of shares of Series C Preferred
Stock or Series D Preferred Stock designated for redemption on such Redemption
Date in the Redemption Notice as holders of Series C Preferred Stock or Series D
Preferred Stock (except the right to receive the Series C Redemption Price or
Series D Redemption Price without interest upon surrender of their certificate
or certificates) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of this corporation or be deemed to
be outstanding for any purpose whatsoever. If the funds of this corporation
legally available for redemption of shares of Series C Preferred Stock and
Series D Preferred Stock on a Redemption Date are insufficient to redeem the
total number of shares of Series C Preferred Stock and Series D Preferred Stock
to be
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<PAGE> 6
redeemed on such date, those funds that are legally available will be used
to redeem the maximum possible number of such shares ratably among the holders
of such shares to be redeemed such that each holder of shares of Series C
Preferred Stock or Series D Preferred Stock receives the same percentage of the
Series C Redemption Price or the Series D Redemption Price, as the case may be.
The shares of Series C Preferred Stock and Series D Preferred Stock not redeemed
shall remain outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of this corporation are
legally available for the redemption of shares of Series C Preferred Stock or
Series D Preferred Stock, such funds will immediately be used to redeem the
balance of the shares that this corporation has become obliged to redeem on any
Redemption Date but that it has not redeemed.
4. Conversion. The holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share with respect to the Series A Preferred
Stock or Series B Preferred Stock and, with respect to the Series C Preferred
Stock or Series D Preferred Stock, at any time after the date of issuance of
such share of Series C Preferred Stock or Series D Preferred Stock and on or
prior to the fifth day prior to the Redemption Date, if any, as may have been
fixed in any Redemption Notice with respect to such share of Series C Preferred
Stock or Series D Preferred Stock, at the office of this corporation or any
transfer agent for such stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Original Series A Issue
Price, the Original Series B Issue Price, the Original Series C Issue Price or
the Original Series D Issue Price, as applicable, by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share for shares of Series A Preferred Stock shall be the Original Series A
Issue Price, the initial Conversion Price per share of Series B Preferred Stock
shall be the Original Series B Issue Price, the initial Conversion Price per
share of Series C Preferred Stock shall be the Original Series C Issue Price and
the initial Conversion Price per share of Series D Preferred Stock shall be the
Original Series D Issue Price; provided, however, that the Conversion Price for
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock shall be subject to adjustment as set forth in
subsection 4(d).
(b) Automatic Conversion. Each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such series immediately upon the
earlier of (i) the corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on Form S-1
under the Securities Act of 1933, as amended, the public offering price of which
was not less than $6.50 per share (as adjusted to reflect subsequent stock
dividends, stock splits, combinations or recapitalization) and $15,000,000 in
the aggregate or (ii) the date specified by written consent or agreement of the
holders of sixty-seven percent (67%) of the then outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, acting together as a single class.
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<PAGE> 7
(c) Mechanics of Conversion. Before any holder of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock, and shall give written notice to this corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. This corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, the conversion may, at the option of any holder
tendering Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock for conversion, be conditioned upon the
closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock shall not be deemed to have
converted such Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock until immediately prior to the
closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock
for Certain Dilutive Issuances, Splits and Combinations. The Conversion Price of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) (A) (1) If the corporation shall issue,
after the date upon which any shares of Series D Preferred Stock were first
issued (the "Series D Purchase Date") any Additional Stock (as defined below)
without consideration or for a consideration per share less than the Conversion
Price for the Series C Preferred Stock in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for each of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
in effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance (including shares of Common Stock deemed to be issued pursuant to
subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of Common Stock that
the aggregate consideration received by the corporation for such issuance would
purchase at the Conversion Price then in effect for the Series C Preferred
Stock; and the denominator of which
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<PAGE> 8
shall be the number of shares of Common Stock outstanding immediately prior to
such issuance (including shares of Common Stock deemed to be issued pursuant to
subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of such Additional
Stock. Consequently, in the event that this corporation issues any Additional
Stock for a per share price below the Original Series A Issue Price or the
Original Series B Issue Price but for a per share price at or above the Original
Series C Issue Price, there shall be no adjustment of the applicable Conversion
Price of such series of Preferred Stock.
(2) If the corporation shall issue,
after the Series D Purchase Date any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for the Series D Preferred Stock in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for the Series D Preferred Stock in
effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance (including shares of Common Stock deemed to be issued pursuant to
subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of Common Stock that
the aggregate consideration received by the corporation for such issuance would
purchase at the Conversion Price then in effect for the Series D Preferred
Stock; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issuance (including shares of Common
Stock deemed to be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the
number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price
for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock shall be made in an amount less than one cent
per share, provided that any adjustments which are not required to be made by
reason of this sentence shall be carried forward and shall be either taken into
account in any subsequent adjustment made prior to three (3) years from the date
of the event giving rise to the adjustment being carried forward, or shall be
made at the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 4(d)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.
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<PAGE> 9
(E) In the case of the issuance (whether
before, on or after the Series D Purchase Date) of options to purchase or rights
to subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 4 (d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options, rights or securities were issued
and for a consideration equal to the consideration (determined in the manner
provided in subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by the
corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights (without taking into account
potential antidilution adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of, or in exchange (assuming
the satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking into
account potential antidilution adjustments) for, any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the corporation (without
taking into account potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the
number of shares of Common Stock deliverable or in the consideration payable to
this corporation upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities, including, but
not limited to, a change resulting from the antidilution provisions thereof
(unless such options or rights or convertible or exchangable securities were
merely deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), the Conversion Price of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
to the extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change; provided, however, that
no further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities and provided further
that no additional adjustment shall be made with respect to any change in the
number of shares of Common Stock deliverable
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or in the consideration payable to this corporation resulting from application
of the antidilution provisions of subsection 4(d)(i)(E) hereof.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
to the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities (unless such options,
rights or securities were merely deemed to be included in the numerator and
denominator for purposes of determining the number of shares of Common Stock
outstanding for purposes of subsection 4(d)(i)(A)), shall be recomputed to
reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities that remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor pursuant to
subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares
of Common Stock issued (or deemed to have been issued pursuant to subsection
4(d)(i)(E)) by this corporation after the Series D Purchase Date other than:
(A) shares of Common Stock issued
pursuant to a transaction described in subsection 4(d)(iii) hereof;
(B) up to 511,600 shares of Common
Stock issuable or issued to employees, consultants, directors or vendors (if in
transactions with primarily non-financing purposes) of this corporation directly
or pursuant to a stock option plan or restricted stock plan approved by the
Board of Directors of this corporation;
(C) shares of Common Stock issued on
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock;
(D) up to an aggregate of 185,000 shares
of Series A Preferred Stock issuable or issued to consultants and employees upon
the exercise of options;
(E) up to 22,500 shares of Series B
Preferred Stock issuable or issued to LINC Capital Management upon the exercise
of warrants;
(F) up to 250,000 shares of Common Stock
issuable or issued upon the exercise of warrants dated July 2, 1996;
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(G) shares of Common Stock issuable or
issued pursuant to the execution of lease line or other credit agreements;
(H) shares of Common Stock issuable or
issued in connection with a bona fide business acquisition of or by the Company,
whether by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise; or
(I) shares of Common Stock issued or
issuable (1) in a public offering before or in connection with which all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock will be converted to Common Stock
or (2) upon exercise of warrants or rights granted to underwriters in connection
with such a public offering.
(iii) In the event the corporation should at
any time or from time to time after the Series D Purchase Date fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock
outstanding at any time after the Series D Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this
corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in 4(d)(i),
then, in each such case for the purpose of this subsection 4(e), the holders of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of the corporation into which their shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or
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Series D Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the corporation entitled to
receive such distribution.
(f) Recapitalizations. If at any time or from
time to time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2) provision shall be made so that the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock the number of shares
of stock or other securities or property of the Company or otherwise, to which a
holder of Common Stock deliverable upon conversion would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 4 with respect to the rights
of the holders of the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock against
impairment.
(h) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
and the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment
or readjustment of the Conversion Price of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock pursuant
to this Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock a certificate setting forth
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<PAGE> 13
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (A)
such adjustment and readjustment, (B) the Conversion Price for such series of
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock.
(i) Notices of Record Date. In the event of any
taking by this corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon
Conversion. This corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock, in addition to such other remedies as shall
be available to the holder of such Preferred Stock, this corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite stockholder approval of any
necessary amendment to this Certificate of Incorporation.
(k) Notices. Any notice required by the
provisions of this Section 4 to be given to the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address appearing
on the books of this corporation.
5. Voting Rights.
(a) General Voting Rights. The holder of each
share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock shall have the right to one vote for each
share of Common Stock into which such
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Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock could then be converted, and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
(b) Voting for the Election of Directors. As long
as two million (2,000,000) or more of the shares of Series C Preferred Stock
originally issued remain outstanding (subject to appropriate adjustment for any
stock split, reverse stock split, stock dividend, recapitalization or similar
transaction), the holders of such shares of Series C Preferred Stock shall be
entitled to elect two (2) members of the Board of Directors of this corporation
at each annual (or special) election of directors. As long as seven hundred
fifty thousand (750,000) or more of the shares of Series D Preferred Stock
originally issued remain outstanding (subject to appropriate adjustment for any
stock split, reverse stock split, stock dividend, recapitalization or similar
transaction), the holders of such shares of Series D Preferred Stock shall be
entitled to elect one (1) member of the Board of Directors of this corporation
at each annual (or special) election of directors. The remaining members of the
Board of Directors of this corporation shall be elected at each annual (or
special) election of directors as follows: (i) the holders of outstanding shares
of Series A Preferred Stock, Series B Preferred Stock and Common Stock (voting
together as a single class and not as a separate series, and, with respect to
the Series A Preferred Stock and Series B Preferred Stock, on an as-converted
basis) shall be entitled to elect two (2) members of the Board of Directors of
this corporation at each annual (or special) election of directors; and (ii)
each additional member of the Board of Directors, if any, shall be elected by
the vote of the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Common Stock (voting
together as a single class and not as a separate series, and, with respect to
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, on an as-converted basis).
In the case of any vacancy (other than a vacancy caused by
removal) in the office of a director occurring among the directors elected by
the holders of a class or series of stock pursuant to this Section 5(b), the
remaining directors so elected by that class or series may by affirmative vote
of a majority thereof, elect a successor or successors to hold office for the
unexpired term of the director or directors whose place or places shall be
vacant. Any director who shall have been elected by the holders of a class or
series of stock or by any directors so elected as provided in the immediately
preceding sentence hereof may be removed during the aforesaid term of office,
either with or without cause, by, and only by, the affirmative vote of the
holders of the shares of the class or series of stock entitled to elect such
director or directors, given either at a special meeting of such stockholders
duly called for that purpose or pursuant to a written consent of stockholders,
and any vacancy thereby created may be filled by the holders
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of that class or series of stock represented at the meeting or pursuant to
unanimous written consent.
6. Protective Provisions. So long as any shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, voting together as a single class and not as separate series,
and on an as-converted basis:
(a) sell, convey, or otherwise dispose of or encumber all
or substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
(b) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over the Series D
Preferred Stock with respect to dividends, liquidation, redemption or voting;
(c) increase the size of the Board of Directors from eight
(8) members; or
(d) redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any share or shares of Common
Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the corporation or any
subsidiary pursuant to agreements under which the corporation has the option to
repurchase such shares at cost upon the occurrence of certain events, such as
the termination of employment.
In addition, and even if authorized by the foregoing, this
corporation shall not alter or change the rights, preferences or privileges of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock so as to adversely affect the rights, preferences or
privileges of shares of any of such series without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of any such series so adversely
affected.
7. Status of Converted Stock. In the event any shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock shall be redeemed or converted pursuant to Section 3 or
Section 4 hereof, the shares so converted shall be canceled and shall not be
issuable by the corporation. The Certificate of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
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C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders
of all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution
or winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article IV hereof.
3. Redemption. The Common Stock does not have a right of
redemption.
4. Voting Rights. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
Except as otherwise provided in this Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the corporation.
ARTICLE VI
The number of directors of the corporation shall be fixed from
time to time by a Bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders. A director appointed by the Board of Directors
to fill a vacancy shall serve for the remainder of the term of the vacated
directorship he or she is filling.
ARTICLE VII
Elections of directors need not be by written ballot unless the
Bylaws of the corporation shall so provide. At all elections of directors, the
stockholders of this corporation shall be entitled to cumulative voting in such
election of directors in accordance with Section 214 of the General Corporation
Law and the Bylaws of this corporation.
ARTICLE VIII
Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision
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contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the corporation.
ARTICLE IX
Any action required to be taken or that may be taken at any
annual or special meeting of the stockholders of this corporation may be taken
without a meeting.
ARTICLE X
A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Certificate of Incorporation to authorize
corporation action further eliminating or limiting the personal liability of
directors then liability of a director of the corporation shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law
as so amended.
Any repeal or modification of the foregoing provisions of this
Article X by the stockholders of the corporation shall not adversely affect any
right or protection of a director of the corporation existing at the time of
such repeal or modification.
ARTICLE XI
To the fullest extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this corporation to provide indemnification) through Bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law of
the State of Delaware, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any repeal or modification of any foregoing provisions of this
Article XI shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
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ARTICLE XII
This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for
the purpose of forming a corporation to do business both within and without the
State of Delaware and in pursuance of the General Corporation Law of Delaware,
does make and file this Certificate, hereby declaring and certifying that the
facts herein stated are true, and accordingly has hereunto set his hand this
17th day of May, 1999.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
of Incorporation on this 17th day of May, 1999.
-----------------------------
Frank Grant
Incorporator
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EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CYBERGOLD, INC.
A DELAWARE CORPORATION
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
Cybergold, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "General Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated on May
17, 1999, pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of the
Corporation, declaring said amendment and restatement to be advisable and in the
best interests of the Corporation and its stockholders, and authorizing the
appropriate officers of the Corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of the
Corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of the corporation is Cybergold, Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the
State of Delaware is 15 East North Street, in the City of Dover, County of Kent.
The name of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is
Seventy-Five Million (75,000,000), par value $0.001 per share, and the number of
Preferred Stock authorized to be issued is Five Million (5,000,000), par value
$0.001 per share.
The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of Directors is
hereby authorized, in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any wholly unissued series of Preferred
Stock, within the limitations and restrictions stated in this Amended and
Restated Certificate of Incorporation (the "Restated Certificate"), to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them, and to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from
time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors.
The Board of Directors shall be and is divided into three
classes, Class I, Class II and Class III. Such classes shall be as nearly equal
in number of directors as possible. Each director shall serve for a term ending
on the third annual meeting following the annual meeting at which such director
was elected; provided, however, that the directors first elected to Class I
shall serve for a term ending on the annual meeting of stockholders for fiscal
year 2000, the directors first elected to Class II shall serve for a term ending
on the annual meeting of stockholders for fiscal year 2001, and the directors
first elected to Class III shall serve for a term ending on the annual meeting
of stockholders for fiscal year 2002. The foregoing notwithstanding, each
director shall serve until his successor shall have been duly elected and
qualified, unless he shall resign, become disqualified, disabled or shall
otherwise be removed.
At each annual election, directors chosen to succeed those whose
terms then expire shall be of the same class as the directors they succeed,
unless by reason of any
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<PAGE> 3
intervening changes in the authorized number of directors, the Board shall
designate one or more directorships whose term then expires as directorships of
another class in order more nearly to achieve equality of number of directors
among the classes.
Notwithstanding the rule that the three classes shall be as
nearly equal in number of directors as possible, in the event of any change in
the authorized number of directors each director then continuing to serve as
such shall nevertheless continue as a director of the class of which he is a
member until the expiration of his current term, or his prior death, resignation
or removal. If any newly created directorship may, consistently with the rule
that the three classes shall be as nearly equal in number of directors as
possible, be allocated to either class, the Board shall allocate it to that of
the available class whose term of office is due to expire at the earliest date
following such allocation.
ARTICLE VII
Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Amended and Restated
Certificate, any action required or permitted to be taken by the stockholders of
the Corporation must be effected at an annual or special meeting of the
stockholders of the Corporation, and no action required to be taken or that may
be taken at any annual or special meeting of the stockholders of the Corporation
may be taken by written consent.
ARTICLE IX
A director of the Corporation shall, to the fullest extent
permitted by the General Corporation Law as it now exists or as it may hereafter
be amended, not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended, after approval by the stockholders of this Article,
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the
adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article IX, by the stockholders of the
Corporation shall not apply to or adversely affect any right or protection of a
director of the Corporation existing at the time of such amendment, repeal,
modification or adoption.
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<PAGE> 4
ARTICLE X
In addition to any vote of the holders of any class or series of
the stock of the Corporation required by law or by this Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of a majority
of the voting power of all of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal any provision
of this Amended and Restated Certificate of Incorporation not specified in the
preceding sentence.
ARTICLE XI
To the fullest extent permitted by applicable law, the
Corporation is authorized to provide indemnification of (and advancement of
expenses to) agents of the Corporation (and any other persons to which General
Corporation Law permits the Corporation to provide indemnification) through
bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
General Corporation Law, subject only to limits created by applicable General
Corporation Law (statutory or non-statutory), with respect to actions for breach
of duty to the Corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions
of this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
* * * *
THIRD: The foregoing amendment and restatement was approved by
the holders of the requisite number of shares of said corporation in accordance
with Section 228 of the General Corporation Law.
FOURTH: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.
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<PAGE> 5
IN WITNESS WHEREOF, the undersigned has signed this Certificate
this ____ day of __________, 1999.
-------------------------------------
A. Nat Goldhaber
Chief Executive Officer and President
ATTEST:
- --------------------------------------
John Steuart
Assistant Secretary
<PAGE> 1
EXHIBIT 3.3
BYLAWS OF
CYBERGOLD, INC.,
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I OFFICE AND RECORDS................................................................1
Section 1.1 Delaware Office........................................................1
Section 1.2 Other Offices..........................................................1
Section 1.3 Books and Records......................................................1
ARTICLE II STOCKHOLDERS.....................................................................1
Section 2.1 Annual Meeting.........................................................1
Section 2.2 Special Meeting........................................................1
Section 2.3 Place of Meeting.......................................................1
Section 2.4 Notice of Meeting......................................................2
Section 2.5 Quorum and Adjournment.................................................2
Section 2.6 Proxies................................................................2
Section 2.7 Notice of Stockholder Business and Nominations.........................2
Section 2.8 Procedure for Election of Directors....................................5
Section 2.9 Inspectors of Elections; Opening and Closing the Polls.................5
Section 2.10 Consent of Stockholders in Lieu of Meeting.............................5
ARTICLE III BOARD OF DIRECTORS..............................................................6
Section 3.1 General Powers.........................................................6
Section 3.2 Number, Tenure and Qualifications......................................6
Section 3.3 Regular Meetings.......................................................6
Section 3.4 Special Meetings.......................................................6
Section 3.5 Notice.................................................................6
Section 3.6 Conference Telephone Meetings..........................................7
Section 3.7 Quorum.................................................................7
Section 3.8 Vacancies..............................................................7
Section 3.9 Committee..............................................................7
Section 3.10 Removal................................................................8
ARTICLE IV OFFICERS.........................................................................8
Section 4.1 Elected Officers.......................................................8
Section 4.2 Election and Term of Office............................................8
Section 4.3 Chairman of the Board..................................................8
Section 4.4 President and Chief Executive Officer..................................8
Section 4.5 Secretary..............................................................8
Section 4.6 Treasurer..............................................................9
Section 4.7 Removal................................................................9
Section 4.8 Vacancies..............................................................9
ARTICLE V STOCK CERTIFICATES AND TRANSFERS..................................................9
Section 5.1 Stock Certificates and Transfers.......................................9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI INDEMNIFICATION.................................................................10
Section 6.1 Right to Indemnification...............................................10
Section 6.2 Prepayment of Expenses.................................................10
Section 6.3 Claims.................................................................10
Section 6.4 Nonexclusivity of Rights...............................................11
Section 6.5 Amendment or Repeal....................................................11
Section 6.6 Other Indemnification and Prepayment of Expenses.......................11
ARTICLE VII MISCELLANEOUS PROVISIONS.......................................................11
Section 7.1 Fiscal Year............................................................11
Section 7.2 Dividends..............................................................11
Section 7.3 Seal...................................................................11
Section 7.4 Waiver of Notice.......................................................11
Section 7.5 Audits.................................................................11
Section 7.6 Resignations...........................................................11
Section 7.7 Contracts..............................................................12
Section 7.8 Proxies................................................................12
ARTICLE VIII AMENDMENTS....................................................................12
Section 8.1 Amendments.............................................................12
</TABLE>
<PAGE> 4
ARTICLE I
OFFICES AND RECORDS
Section 1.1 Delaware Office. The registered office of the
Corporation in the State of Delaware shall be located in the City of Dover,
County of Kent.
Section 1.2 Other Offices. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
Section 1.3 Books and Records. The books and records of the
Corporation may be kept at the Corporation's headquarters in Berkeley,
California or at such other locations outside the State of Delaware as may from
time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1 Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held at such date, place and/or time as may be fixed by
resolution of the Board of Directors.
Section 2.2 Special Meeting.
A. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least ten
percent (10%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
B. Notwithstanding the above provisions of this Section 2.2(A),
effective upon a closing of an initial public offering of the Corporation's
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, a special meeting of the stockholders of the corporation
may be called only by the President, the Chairman of the Board or by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of directors which the Corporation would have if there were no vacancies (the
"Whole Board"), or at the request in writing of stockholders owning at least
fifty percent (50%) in amount of the entire capital stock of the corporation
issued and outstanding and entitled to vote.
Section 2.3 Place of Meeting. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office of
the Corporation.
<PAGE> 5
Section 2.4 Notice of Meeting. Written or printed notice, stating the
place, day and hour of the meeting and the purposes for which the meeting is
called, shall be prepared and delivered by the Corporation not less than ten
days nor more than sixty days before the date of the meeting, either personally,
or by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at his
address as it appears on the stock transfer books of the Corporation. Such
further notice shall be given as may be required by law. Meetings may be held
without notice if all stockholders entitled to vote are present (except as
otherwise provided by law), or if notice is waived by those not present. Any
previously scheduled meeting of the stockholders may be postponed and (unless
the Certificate of Incorporation otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given prior to the time previously scheduled for such meeting of
stockholders.
Section 2.5 Quorum and Adjournment. Except as otherwise provided by
law or by the Certificate of Incorporation, the holders of a majority of the
voting power of the outstanding shares of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders,
except that when specified business is to be voted on by a class or series
voting separately as a class or series, the holders of a majority of the voting
power of the shares of such class or series shall constitute a quorum for the
transaction of such business. The chairman of the meeting or a majority of the
shares of Voting Stock so represented may adjourn the meeting from time to time,
whether or not there is such a quorum (or, in the case of specified business to
be voted on by a class or series, the chairman or a majority of the shares of
such class or series so represented may adjourn the meeting with respect to such
specified business). No notice of the time and place of adjourned meetings need
be given except as required by law. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Section 2.6 Proxies. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing by the stockholder or as may be permitted
by law, or by his duly authorized attorney-in-fact. Such proxy must be filed
with the Secretary of the Corporation or his representative at or before the
time of the meeting.
Section 2.7 Notice of Stockholder Business and Nominations.
A. Annual Meeting of Stockholders.
(1) Nominations of persons for election to the Board
of Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders: (a) pursuant
to the Corporation's notice of meeting delivered pursuant to Section 2.4 of
these Bylaws; (b) by or at the direction of the Chairman of the Board or the
Board of Directors; or (c) by any stockholder of the Corporation who is entitled
to vote at the meeting, who has complied with the notice procedures set forth in
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<PAGE> 6
clauses (2) and (3) of this paragraph (A) of this Bylaw and who was a
stockholder of record at the time such notice was delivered to the Secretary of
the Corporation.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to a clause (c) of
paragraph (A)(1) of this Bylaw, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than seventy days nor more than
ninety days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than twenty days, or delayed by more than seventy
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the ten day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder, including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner. In no event shall the public announcement of an adjournment of
an annual meeting commence a new time period for the giving of a stockholder's
notice as described above.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least eighty days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Bylaw shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
3
<PAGE> 7
B. Special Meetings of Stockholders. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting
pursuant to Section 2.4 of these Bylaws. Nominations of persons for election to
the Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) by any stockholder of
the Corporation who is entitled to vote at the meeting, who complies with the
notice procedures set forth in this Bylaw and who is a stockholder of record at
the time such notice is delivered to the Secretary of the Corporation. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as are specified in the Corporation's Notice of Meeting, if the
stockholder's notice as required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the ninetieth day prior to such special meeting and not later
than the close of business on the later of the seventieth day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
C. General.
(1) Only persons who are nominated in accordance with
the procedures set forth in this Bylaw shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Bylaw, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Bylaw, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
4
<PAGE> 8
Section 2.8 Procedure for Election of Directors. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by written ballot, and, except as otherwise set forth in the
Certificate of Incorporation with respect to the right of the holders of any
series of Preferred Stock or any other series or class of stock to elect
additional directors under specified circumstances, a plurality of the votes
cast thereat shall elect directors. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all matters other than the
election of directors submitted to the stockholders at any meeting shall be
decided by the affirmative vote of a majority of the voting power of the
outstanding Voting Stock present in person or represented by proxy at the
meeting and entitled to vote thereon.
Section 2.9 Inspectors of Elections; Opening and Closing the Polls.
A. The Board of Directors by resolution shall appoint one
or more inspectors, which inspector or inspectors may include individuals who
serve the Corporation in other capacities, including, without limitation, as
officers, employees, agents or representatives of the Corporation, to act at the
meeting and make a written report thereof. One or more persons may be designated
as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate has been appointed to act, or if all inspectors or
alternates who have been appointed are unable to act, at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by the General Corporation Law of
the State of Delaware.
B. The chairman of the meeting shall fix and announce at
the meeting the date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting.
Section 2.10 Consent of Stockholders in Lieu of Meeting.
A. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any written consent may be
revoked by a writing received by the Secretary of the Corporation prior to the
time that written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
B. Notwithstanding the above provisions of this Section
2.10(A), effective upon a closing of an initial public offering of the
Corporation's securities pursuant to a registration statement filed under the
Securities Act of 1933, as amended, the stockholders of
5
<PAGE> 9
the Corporation may not take action by written consent without a meeting but
must take any such actions at a duly called annual or special meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, by the
Certificate of Incorporation or by these Bylaws required to be exercised or done
by the stockholders.
Section 3.2 Number, Tenure and Qualifications. Subject to the
rights of the holders of any series of Preferred Stock, or any other series or
class of stock as set forth in the Certificate of Incorporation, to elect
directors under specified circumstances, the number of directors shall initially
be seven and shall be fixed from time to time thereafter by a majority of the
Board of Directors.
Section 3.3 Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, each annual meeting of stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
Section 3.5 Notice. Notice of any special meeting shall be given to
each director at his business or residence in writing or by telegram or by
telephone communication. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least five days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company at least twenty-four hours before such meeting. If by
facsimile transmission, such notice shall be transmitted at least twenty-four
hours before such meeting. If by telephone, the notice shall be given at least
twelve hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these Bylaws as provided under Section 8.1 of Article VIII hereof.
A meeting may be held at any time without notice if all the directors are
present (except as otherwise provided by law) or if those not present waive
notice of the meeting in writing, either before or after such meeting.
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<PAGE> 10
Section 3.6 Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 3.7 Quorum. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 3.8 Vacancies. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth in
the Certificate of Incorporation, to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors, and directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
Section 3.9 Committee.
A. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
B. Unless the Board of Directors otherwise provides, each
committee designated by the Board of Directors may make, alter and repeal rules
for the conduct of its business. In the absence of such rules each committee
shall conduct its business in the same manner as the Board of Directors conducts
its business pursuant to these Bylaws.
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<PAGE> 11
Section 3.10 Removal. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth in
the Certificate of Incorporation, to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, with or without cause, only by the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66 2/3 %) of the
voting power of the then outstanding Voting Stock, voting together as a single
class.
ARTICLE IV
OFFICERS
Section 4.1 Elected Officers. The elected officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary, a
Treasurer, and such other officers as the Board of Directors from time to time
may deem proper. The Chairman of the Board shall be chosen from the directors.
All officers chosen by the Board of Directors shall each have such powers and
duties as generally pertain to their respective offices, subject to the specific
provisions of this Article IV. Such officers shall also have powers and duties
as from time to time may be conferred by the Board of Directors or by any
committee thereof.
Section 4.2 Election and Term of Office. The elected officers of
the Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
4.7 of these Bylaws, each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign.
Section 4.3 Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board.
Section 4.4 President and Chief Executive Officer. The President
and Chief Executive Officer shall be the general manager of the Corporation,
subject to the control of the Board of Directors, and as such shall preside at
all meetings of shareholders, shall have general supervision of the affairs of
the Corporation, shall sign or countersign or authorize another officer to sign
all certificates, contracts, and other instruments of the Corporation as
authorized by the Board of Directors, shall make reports to the Board of
Directors and shareholders, and shall perform all such other duties as are
incident to such office or are properly required by the Board of Directors. If
the Board of Directors creates the office of Chief Executive Officer as a
separate office from President, the President shall be the chief operating
officer of the corporation and shall be subject to the general supervision,
direction, and control of the Chief Executive Officer unless the Board of
Directors provides otherwise.
Section 4.5 Secretary. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors and all other
notices required by law or by these Bylaws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the Chairman of the Board or the President, or by the
Board
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<PAGE> 12
of Directors, upon whose request the meeting is called as provided in these
Bylaws. He shall record all the proceedings of the meetings of the Board of
Directors, any committees thereof and the stockholders of the Corporation in a
book to be kept for that purpose, and shall perform such other duties as may be
assigned to him by the Board of Directors, the Chairman of the Board or the
President. He shall have custody of the seal of the Corporation and shall affix
the same to all instruments requiring it, when authorized by the Board of
Directors, the Chairman of the Board or the President, and attest to the same.
Section 4.6 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate receipts and
disbursements in books belonging to the Corporation. The Treasurer shall deposit
all moneys and other valuables in the name and to the credit of the Corporation
in such depositaries as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors the Chairman of the Board, or the President, taking proper
vouchers for such disbursements. The Treasurer shall render to the Chairman of
the Board, the President and the Board of Directors, whenever requested, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond for the faithful discharge of his duties in such amount
and with such surety as the Board of Directors shall prescribe.
Section 4.7 Removal. Any officer elected by the Board of Directors
may be removed by the Board of Directors whenever, in their judgment, the best
interests of the Corporation would be served thereby. No elected officer shall
have any contractual rights against the Corporation for compensation by virtue
of such election beyond the date of the election of his successor, his death,
his resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or an employee plan.
Section 4.8 Vacancies. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1 Stock Certificates and Transfers.
A. The interest of each stockholder of the Corporation
shall be evidenced by certificates for shares of stock in such form as the
appropriate officers of the Corporation may from time to time prescribe. The
shares of the stock of the Corporation shall be transferred on the books of the
Corporation by the holder thereof in person or by his attorney, upon surrender
for cancellation of certificates for the same number of shares, with an
assignment and power of transfer endorsed thereon or attached thereto, duly
executed, and with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require.
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<PAGE> 13
B. The certificates of stock shall be signed,
countersigned and registered in such manner as the Board of Directors may by
resolution prescribe, which resolution may permit all or any of the signatures
on such certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Right to Indemnification. The Corporation shall
indemnify and hold harmless, to the fullest extent permitted by applicable law
as it presently exists or may hereafter be amended, any person (an "Indemnitee")
who was or is made or is threatened to be made a party or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director or officer of the
Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the
preceding sentence, except as otherwise provided in Section 6.3, the Corporation
shall be required to indemnify an Indemnitee in connection with a proceeding (or
part thereof) commenced by such Indemnitee only if the commencement of such
proceeding (or part thereof) by the Indemnitee was authorized by the Board of
Directors of the Corporation.
Section 6.2 Prepayment of Expenses. The Corporation shall pay the
expenses (including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise.
Section 6.3 Claims. If a claim for indemnification or payment of
expenses under this Article VI is not paid in full within sixty days after a
written claim therefor by the Indemnitee has been received by the Corporation,
the Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
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<PAGE> 14
Section 6.4 Nonexclusivity of Rights. The rights conferred on any
Indemnitee by this Article VI shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise.
Section 6.5 Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 6.6 Other Indemnification and Prepayment of Expenses. This
Article VI shall not limit the right of the Corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Indemnitees when and as authorized by appropriate corporate action.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of April and end on the thirty-first day of March of each
year.
Section 7.2 Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
Section 7.3 Seal. The corporate seal shall have inscribed the name
of the Corporation thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 7.4 Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders of the Board of Directors need be
specified in any waiver of notice of such meeting.
Section 7.5 Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be made
annually.
Section 7.6 Resignations. Any director or any officer, whether
elected or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the President or the Secretary, and
such resignation shall be deemed to be effective
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<PAGE> 15
as of the close of business on the date said notice is received by the Chairman
of the Board, the President, or the Secretary or at such later date as is stated
therein. No formal action shall be required of the Board of Directors or the
stockholders to make any such resignation effective.
Section 7.7 Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, any contracts or other instruments
may be executed and delivered in the name and on the behalf of the Corporation
by such officer or officers of the Corporation as the Board of Directors may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Corporation. Subject
to any restrictions imposed by the Board of Directors or the Chairman of the
Board, the President or any Vice President of the Corporation may delegate
contractual powers to others under his jurisdiction, it being understood,
however, that any such delegation of power shall not relieve such officer of
responsibility with respect to the exercise of such delegated power.
Section 7.8 Proxies. Unless otherwise provided by resolution
adopted by the Board of Directors, the Chairman of the Board, the President or
any Vice President may from time to time appoint any attorney or attorneys or
agent or agents of the Corporation, in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be entitled to cast as
the holder of stock or other securities in any other corporation or other
entity, any of whose stock or other securities may be held by the Corporation,
at meetings of the holders of the stock and other securities of such other
corporation or other entity, or to consent in writing, in the name of the
Corporation as such holder, to any action by such other corporation or other
entity, and may instruct the person or persons so appointed as to the manner of
casting such votes or giving such consent, and may execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal or otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
Section 8.1 Amendments. These Bylaws may be amended, altered, added
to, rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given no less than twenty-four hours prior to the meeting; provided, however,
that, notwithstanding any other provisions of these Bylaws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
stock required by law, the Certificate of Incorporation or these Bylaws, the
affirmative vote of the holders of at least 80 percent of the voting power of
the then outstanding Voting Stock, voting together as a single class, shall be
required in order for stockholders to alter, amend or repeal any provision of
these Bylaws or to adopt any additional bylaw.
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<PAGE> 16
CERTIFICATE OF SECRETARY OF
CYBERGOLD, inc.
The undersigned, A. Nathaniel Goldhaber, hereby certifies that he
is the duly elected and acting Secretary of Cybergold, Inc., a Delaware
corporation (the "Corporation"), and that the Bylaws attached hereto constitute
the Bylaws of said Corporation as duly adopted by the Directors on May 17, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
name this 17th day of May, 1999.
---------------------------------
A. Nathaniel Goldhaber
Secretary
<PAGE> 1
EXHIBIT 4.3
CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
MAY 18, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Registration Rights......................................................................1
1.1 Definitions.....................................................................1
1.2 Request for Registration........................................................2
1.3 Company Registration............................................................4
1.4 Obligations of the Company......................................................4
1.5 Furnish Information.............................................................5
1.6 Expenses of Registration........................................................5
1.7 Underwriting Requirements.......................................................6
1.8 Delay of Registration...........................................................7
1.9 Indemnification.................................................................7
1.10 Reports Under Securities Exchange Act of 1934..................................9
1.11 Assignment of Registration Rights..............................................9
1.12 Market Stand-Off Agreement....................................................10
1.13 Form S-3 Registration.........................................................10
1.14 Termination of Registration Rights............................................11
2. Covenants of the Company................................................................11
2.1 Delivery of Financial Statements...............................................12
2.2 Inspection.....................................................................12
2.3 Termination of Information and Inspection Covenants............................12
2.4 Right of First Offer...........................................................13
2.5 Board of Directors.............................................................14
2.6 Sales by Founder...............................................................16
2.7 Key-Man Insurance..............................................................18
2.8 Observer Rights................................................................19
2.9 Restrictions on Future Issuance of Stock.......................................19
2.10 Termination of Certain Covenants..............................................20
3. Miscellaneous...........................................................................20
3.1 Successors and Assigns.........................................................20
3.2 Governing Law..................................................................20
3.3 Counterparts...................................................................20
3.4 Titles and Subtitles...........................................................20
3.5 Notices........................................................................20
3.6 Expenses.......................................................................20
3.7 Amendments and Waivers.........................................................20
3.8 Severability...................................................................21
3.9 Aggregation of Stock...........................................................21
3.10 Entire Agreement..............................................................21
3.11 Prior Agreement...............................................................21
3.12 Public Announcement...........................................................21
</TABLE>
Schedule A Schedule of Investors
<PAGE> 3
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as
of the 18th day of May, 1999, by and among CyberGold, Inc., a California
corporation (the "Company"), and the investors listed on Schedule A hereto, each
of which is herein referred to as an "Investor" and A. Nathaniel Goldhaber (the
"Founder").
RECITALS
WHEREAS, the Company and certain of the Investors (the "Prior
Investors") possess registration and other investor rights granted pursuant to
that certain Amended and Restated Investors' Rights Agreement dated May 15,
1998, between the Company, the persons listed on the Schedule of Investors
attached thereto and A. Nathaniel Goldhaber (the "Prior Agreement");
WHEREAS, certain of the Investors (the "Series D Investors") are
parties to the Series D Preferred Stock and Warrant Purchase Agreement of even
date herewith (the "Series D Agreement") between the Company and the investors
listed on the Schedule of Investors attached thereto, pursuant to which the
Company will sell, and the Series D Investors will acquire, shares of the
Company's Series D Preferred Stock and warrants to purchase shares of the
Company's Series D Preferred Stock (the "Series D Warrants");
WHEREAS, in order to induce the Company to enter into the Series
D Agreement and to induce the Series D Investors to invest funds in the Company
pursuant to the Series D Agreement, the Prior Investors and the Company hereby
agree to waive their rights under the Prior Agreement, and the Investors and the
Company hereby agree that this Agreement shall govern the rights of the
Investors to cause the Company to register shares of Common Stock issuable to
the Investors and certain other matters as set forth herein; and
WHEREAS, the Series D Investors and the Company have agreed,
pursuant to the terms of the Series D Agreement, to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the Prior Investors hereby agree that the Prior
Agreement shall be superseded and replaced in its entirety by this Agreement,
and the parties hereto further agree as follows:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act
as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
<PAGE> 4
(c) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.11 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
(e) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Company's Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock, (ii) the Common Stock issuable or issued upon conversion of the Company's
Series D Preferred Stock issued upon exercise of the Series D Warrants, (iii)
any Common Stock of the Company issued upon exercise of the Warrant to Purchase
Shares of Capital Stock of CyberGold, Inc. dated July 2, 1996 between Intel
Corporation and the Company, and (iv) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for, or in replacement of, the shares referenced in (i), (ii) and
(iii), above, excluding in all cases, however, any Registrable Securities sold
by a person in a transaction in which his rights under this Section 1 are not
assigned.
(g) The number of shares of "Registrable Securities"
outstanding shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) Subject to the conditions of this Section 1.2, if the
Company shall receive, at any time after six (6) months following the effective
date of the first registration statement for a public offering of securities of
the Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
the Holders of fifteen percent (15%) or more of the Registrable Securities then
outstanding that the Company file a registration statement under the Act
covering the registration of such Registrable Securities, then the Company
shall:
(i) within twenty (20) days of the receipt thereof,
give written notice of such request to all Holders; and
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<PAGE> 5
(ii) subject to the limitations of subsection 1.2(b),
effect as soon as practicable, and in any event within sixty (60) days of the
receipt of such request, the registration under the Act of all Registrable
Securities which the Holders request to be registered in a written request
received by the Company within twenty (20) days of the mailing of such notice by
the Company in accordance with Section 3.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by the Holders of a majority
in interest of the shares to be registered in such registration and shall be
reasonably acceptable to the Company. In such event, the right of any Holder to
include his Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company as provided in
subsection 1.4(e)) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting. Notwithstanding
any other provision of this Section 1.2, if the underwriter advises the Company
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders thereof, including the Initiating Holders,
in proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than once in any
twelve (12) month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration,
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<PAGE> 6
unless the Company is already subject to service in such jurisdiction and except
as may be required under the Act;
(ii) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(iii) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective date of,
a registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iv) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.13 below.
1.3 Company Registration. If (but without any obligation
to do so) the Company proposes to register (including for this purpose a
registration effected by the Company for itself, for the Holders or for
shareholders other than the Holders) any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Act or a registration
in which the only Common Stock being registered is Common Stock issuable upon
conversion of debt securities which are also being registered), the Company
shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 3.5,
the Company shall, subject to the provisions of Section 1.7, use all reasonable
efforts to cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under
Section 1.2 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred twenty
(120) days or until the distribution contemplated in the Registration Statement
has been completed; provided, however, that such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration
4
<PAGE> 7
statement as may be necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such registration
statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
1.5 Furnish Information. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to Section 1.3
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.6 Expenses of Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.13,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
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Company shall be borne by the Company. Notwithstanding the foregoing, the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 or Section 1.13 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses pro rata based upon the number of Registrable
Securities that were to be requested in the withdrawn registration), unless, in
the case of a registration requested under Section 1.2, the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2; provided, however, that if at the
time of such withdrawal, the Holders have learned of a material adverse change
in the condition, business or prospects of the Company from that known to the
Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any such expenses
and shall retain their rights pursuant to Section 1.2.
1.7 Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities to be
so included to be apportioned pro rata among the selling Holders according to
the total amount of securities entitled to be included therein owned by each
selling Holder or in such other proportions as shall mutually be agreed to by
such selling Holders) but in no event shall the Registrable Securities held by
the Holders to be included in the offering be reduced until all of the
securities, including Registrable Securities, of shareholders who are officers,
directors or employees of the Company are first excluded entirely from such
offering by the underwriters. Further, in no event shall the amount of
securities of the selling Holders included in the offering be reduced below ten
percent (10%) of the total amount of securities included in such offering,
unless such offering is the initial public offering of the Company's securities
in which case the selling Holders may be excluded entirely if the underwriters
make the determination described above and no other shareholder's securities are
included. For purposes of the preceding parenthetical concerning apportionment,
for any selling Holder that is a partnership or corporation, the partners,
retired partners and shareholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling Holder,"
and any pro-rata reduction with respect to such "selling Holder" shall be based
upon the aggregate amount of Registrable Securities owned by all such related
entities and individuals.
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1.8 Delay of Registration. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable
Securities are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, or the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.9(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
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provided, however, that the indemnity agreement contained in this subsection
1.9(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.9(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section
1.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
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(f) The obligations of the Company and Holders under this
Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.11 Assignment of Registration Rights. The rights to
cause the Company to register Registrable Securities pursuant to this Section 1
may be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of such securities that (i) is a subsidiary, parent,
partner, limited partner, retired partner or shareholder of a Holder, (ii) is a
Holder's family member or trust for an individual Holder, or (iii) after such
assignment or transfer, holds at least 25,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (a) the Company is, within
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1.12 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act. For the purposes of
determining the number of shares of Registrable Securities held by a transferee
or assignee, the holdings of transferees and assignees of a partnership who are
partners or retired partners of such partnership (including spouses and
ancestors, lineal descendants and siblings of such partners or spouses who
acquire Registrable Securities by gift, will or intestate succession) shall be
aggregated together and with the
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partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under this Section 1.
1.12 "Market Stand-Off" Agreement. Each Holder hereby
agrees that it will not, without the prior written consent of the managing
underwriter, during the period commencing on the date of the final prospectus
relating to the Company's initial public offering and ending on the date
specified by the Company and the managing underwriter (such period not to exceed
one hundred eighty (l80) days) (i) lend, offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (whether such
shares or any such securities are then owned by the Holder or are thereafter
acquired), or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing provisions of this Section 1.13 shall apply
only to the Company's initial public offering of equity securities, shall not
apply to the sale of any shares to an underwriter pursuant to an underwriting
agreement, and shall only be applicable to the Holders if all officers and
directors and greater than five percent (5%) shareholders of the Company enter
into similar agreements. The underwriters in connection with the Company's
initial public offering are intended third party beneficiaries of this Section
1.12 and shall have the right, power and authority to enforce the provisions
hereof as though they were a party hereto.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period. Notwithstanding the
foregoing, the obligations described in this Section 1.12 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms which may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-14 or Form S-15
or similar forms which may be promulgated in the future.
1.13 Form S-3 Registration. If the Company shall receive
from any Holder or Holders a written request or requests that the Company effect
a registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are
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specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within fifteen (15) days after receipt of
such written notice from the Company; provided, however, that the Company shall
not be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 1.13: (i) if Form S-3 is not available for such
offering by the Holders; (ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriter's discounts or
commissions) of less than $3,000,000; (iii) if the Company shall furnish to the
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than one hundred twenty (120) days after receipt of the
request of the Holder or Holders under this Section 1.13; provided, however,
that the Company shall not utilize this right more than once in any twelve (12)
month period; (iv) if the Company has, preceding the date of such request,
already effected three (3) registrations on Form S-3 for Holders pursuant to
this Section 1.13; (v) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 1.13; or (vi) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
1.14 Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right
provided for in this Section 1 after five (5) years following the consummation
of the sale of securities pursuant to a registration statement filed by the
Company under the Act in connection with the initial firm commitment
underwritten offering of its securities to the general public.
(b) In addition, the right of any Holder to request
inclusion in any registration pursuant to Section 1.3 shall terminate as to such
Holder on the closing of the first Company-initiated registered public offering
of Common Stock of the Company if all shares of Registrable Securities held or
entitled to be held upon conversion by such Holder may immediately be sold under
Rule 144 during any ninety (90) day period, or on such date after the closing of
the first Company-initiated registered public offering of Common Stock of the
Company as all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold under Rule 144 during any
ninety (90) day period; provided, however, that the provisions of this Section
1.13(b) shall not apply to any Holder who owns more than two percent (2%) of the
Company's outstanding stock until such time as such Holder owns less than two
percent (2%) of the outstanding stock of the Company.
2. Covenants of the Company.
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2.1 Delivery of Financial Statements. The Company shall
deliver to each Investor:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a statement of cash flows
such year, such year-end financial reports to be in reasonable detail, prepared
in accordance with generally accepted accounting principles and audited and
certified by independent public accountants of nationally recognized standing
selected by the Company;
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited income statement, statement of
cash flows for such fiscal quarter and an unaudited balance sheet and a
statement of shareholder's equity as of the end of such fiscal quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and statement of cash flows and balance sheet for and
as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets, income
statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
(e) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request;
provided, however, that the Company shall not be obligated under this subsection
(e) or any other subsection of Section 2.1 to provide information which it deems
in good faith to be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each Investor, at
such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Investor; provided, however, that the Company shall not be
obligated pursuant to this Section 2.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
2.3 Termination of Information and Inspection Covenants.
The covenants set forth in Sections 2.1 and 2.2 shall terminate as to Investors
and be of no further force or effect when the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
firm commitment underwritten offering of its securities to the general public is
consummated or when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall
first occur.
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2.4 Right of First Offer. Subject to the terms and
conditions specified in this paragraph 2.4, the Company hereby grants to each
Investor a right of first offer with respect to future sales by the Company of
its Shares (as hereinafter defined). For purposes of this Section 2.4, Investor
includes any general partners and affiliates of an Investor. An Investor shall
be entitled to apportion the right of first offer hereby granted it among itself
and its partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice in accordance with
Section 3.5 ("Notice") to the Investors stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and (iii) the
price and terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company,
within twenty (20) calendar days after receipt of the Notice, the Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock then held by such Investor bears to the total number
of shares of Common Stock of the Company then outstanding (assuming full
conversion and exercise of all convertible or exercisable securities). The
Company shall promptly, in writing, inform each Investor that elects to purchase
all the shares available to it (a "Fully Exercising Investor") of any other
Investor's failure to do likewise. During the ten (10) day period commencing
after such information is given, each Fully-Exercising Investor may elect to
purchase that portion of the Shares for which Investors were entitled to
subscribe but which were not subscribed for by the Investors that is equal to
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock then held, by such
Fully-Exercising Investor bears to the total number of shares of Common Stock
issued and held, or issuable upon conversion of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
then held, by all Fully-Exercising Investors that wish to purchase some of the
unsubscribed shares.
(c) If all Shares that Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the ninety (90) day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within ninety (90) days of
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the execution thereof, the right provided hereunder shall be deemed to be
revived and such Shares shall not be offered unless first reoffered to the
Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall
not be applicable (i) to the issuance or sale of shares of Common Stock (or
options therefor) to employees for the primary purpose of soliciting or
retaining their employment, provided each employee executes an agreement in the
form then approved by the Company's Board of Directors and such grant or
issuance is approved by the Company's Board of Directors; (ii) to or after
consummation of a bona fide, firmly underwritten public offering of shares of
Common Stock, registered under the Act pursuant to a registration statement on
Form S-1, with an aggregate offering price of at least $15,000,000; (iii) the
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities; (iv) the issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise; or (v)
the issuance of stock, options, warrants or other securities or rights to
persons or entities with which the Company has business relationships (such as
consultants, directors, and personal property and equipment lease lines)
provided such issuances are for other than primarily equity financing purposes.
(e) The right of first offer set forth in this Section 2.4
may not be assigned or transferred.
2.5 Board of Directors.
(a) With respect to those members of the Company's Board
of Directors that the Articles of Incorporation provide are to be elected by the
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Common Stock (voting together as a
single class and not as a separate series, and, with respect to the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, on an as-converted basis), the Founder and the Investors hereby
agree to vote all of their shares of Common Stock and Preferred Stock now owned
or hereafter acquired as necessary to accomplish the nomination and election of
two (2) independent industry representatives that are mutually agreed upon by a
majority of the directors elected by (i) the holders of the Series D Preferred
Stock, (ii) the holders of the Series C Preferred Stock and (iii) the holders of
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Common Stock (voting together as a single class and not as a separate series,
and, with respect to the Series A Preferred Stock and Series B Preferred Stock,
on an as-converted basis).
(b) Should the provisions of this Section 2.5 be construed
to constitute the granting of proxies, such proxies shall be deemed coupled with
an interest and are irrevocable for the term of this Agreement. It is agreed and
understood that monetary damages would not adequately compensate an injured
party for the breach of this Section 2.5 by any party, that this Section 2.5
shall be specifically enforceable, and that any breach or threatened breach of
this Section 2.5 shall be the proper subject of a temporary or permanent
injunction or restraining order. Further, each party hereto waives any claim or
defense that there is an adequate remedy at law for such breach or threatened
breach.
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(c) This Section 2.5 shall terminate in its entirety and
be of no further force or effect upon the earlier to occur of:
(i) the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the firm
commitment underwritten offering of its securities to the general public is
consummated, the public offering price of which was not less than $6.50 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations), and $15,000,000 in aggregate proceeds to the Company;
(ii) the date upon which the Company first becomes
subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the
1934 Act; or
(iii) May 15, 2008.
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2.6 Sales by Founder.
(a) For purposes of this Section 2.6; (i) "Stock" shall
mean shares of the Company's Common Stock and Preferred Stock now owned or
subsequently acquired by the Founder, (ii) "Preferred Stock" shall mean the
Company's outstanding Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and any other series of Preferred
Stock issued by the Company hereafter, and (iii) "Common Stock" shall mean (w)
the Company's Common Stock, (x) shares of Common Stock issuable or issued upon
conversion of the Company's outstanding Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock, (y)
shares of Common Stock issuable upon exercise of outstanding options or warrants
to the extent such options or warrants are then exercisable and/or the stock
issuable thereupon would not be subject to repurchase by the Company, and (z)
shares of Common Stock issuable upon conversion of any outstanding convertible
securities.
(b) If the Founder proposes to sell or transfer any shares
of Stock in one or more related transactions which will result in the cumulative
transfer of 10% or more of the Founder's total holdings of Stock, then Founder
shall promptly give written notice (the "Notice") to the Company and the
Investors at least twenty (20) days prior to the closing of such sale or
transfer. The Notice shall describe in reasonable detail the proposed sale or
transfer including, without limitation, the number of shares of Stock to be sold
or transferred, the nature of such sale or transfer, the consideration to be
paid, and the name and address of each prospective purchaser or transferee.
(c) Each Investor shall have the right, exercisable upon
written notice to Founder within fifteen (15) days after receipt of the Notice,
to participate in such sale of Stock on the same terms and conditions. To the
extent one or more of the Investors exercise such right of participation in
accordance with the terms and conditions set forth below, the number of shares
of Stock that Founder may sell in the transaction shall be correspondingly
reduced.
(d) Each Investor may sell all or any part of that number
of shares of Stock equal to the product obtained by multiplying (i) the
aggregate number of shares of Stock covered by the Notice by (ii) a fraction,
the numerator of which is the number of shares of Common Stock (including shares
of Common Stock issuable upon conversion of Preferred Stock) owned by the
Investor at the time of the sale or transfer and the denominator of which is the
total number of shares of Stock owned by Founder plus the number of shares of
Common Stock (including shares of Common Stock issuable upon conversion of
Preferred Stock) owned by all of the Investors at the time of the sale or
transfer.
(e) If any Investor fails to elect to fully participate in
Founder's sale pursuant to this Section 2.6, Founder shall promptly give notice
of such failure to the Investors who did so elect (the "Participants"). Such
notice may be made by telephone if confirmed in writing within two (2) days. The
Participants shall have five (5) days from the date such notice was given to
agree to sell their pro rata share of the unsold portion. For purposes of this
paragraph, a Participant's pro rata share shall be the ratio of (i) the number
of shares of Common
16
<PAGE> 19
Stock (including shares of Common Stock issuable upon conversion of Preferred
Stock) held by such Participant to (ii) the number of shares of Common Stock
(including shares of Common Stock issuable upon conversion of Preferred Stock)
held by all the Participants and Founder.
(f) Each Participant shall effect its participation in the
sale by promptly delivering to Founder for transfer to the prospective purchaser
one or more certificates, properly endorsed for transfer, which represent:
(i) the type and number of shares of Common Stock which
such Participant elects to sell; or
(ii) that number of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D
Preferred Stock which is at such time convertible into the number of shares of
Common Stock which such Participant elects to sell; provided, however, that if
the prospective purchaser objects to the delivery of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred
Stock in lieu of Common Stock, such Participant shall convert such Preferred
Stock into Common Stock and deliver Common Stock as provided above. The Company
agrees to make any such conversion concurrent with the actual transfer of such
shares to the purchaser.
(g) The stock certificate or certificates that the
Participant delivers to the Founder pursuant to paragraph 2.6(f) shall be
transferred to the prospective purchaser in consummation of the sale of the
Stock pursuant to the terms and conditions specified in the Notice, and the
Founder shall concurrently therewith remit to such Participant that portion of
the sale proceeds to which such Participant is entitled by reason of its
participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares or
other securities from a Participant exercising its rights of co-sale hereunder,
the Founder shall not sell to such prospective purchaser or purchasers any Stock
unless and until, simultaneously with such sale, the Founder shall purchase such
shares or other securities from such Participant for the same consideration and
on the same terms and conditions as the proposed transfer described in the
Notice. The exercise or non-exercise of the rights of the Participants hereunder
to participate in one or more sales of Stock made by the Founder shall not
adversely affect their rights to participate in subsequent sales of Stock
subject to Section 2.6 (i).
(h) If none of the Investors elect to participate in the
sale of the Stock subject to the Notice, the Founder may, not later than sixty
(60) days following delivery to the Company and each of the Investors of the
Notice, conclude a transfer of not less than all of the Stock covered by the
Notice on terms and conditions not more favorable to the transferor than those
described in the Notice. Any proposed transfer on terms and conditions more
favorable than those described in the Notice, as well as any subsequent proposed
transfer of any of the Stock by the Founder, shall again be subject to the
co-sale rights of the Stockholders and shall require compliance by the Founder
with the procedures described in this Section 2.6.
(i) Notwithstanding the foregoing, the co-sale rights of
the Investors shall not apply to (i) any pledge of Stock made pursuant to a bona
fide loan transaction that creates a mere security interest, (ii) any transfer
to the ancestors, descendants or spouse or to
17
<PAGE> 20
trusts for the benefit of such persons or Founder; (iii) any bona fide gift;
provided that (w) Founder shall inform the Investors of such pledge, transfer or
gift prior to effecting it and (x) the pledgee, transferee or donee shall
furnish the Investors with a written agreement to be bound by and comply with
all provisions of this Section 2.6 of this Agreement. Such transferred Stock
shall remain "Stock" hereunder, and such pledgee, transferee or donee shall be
treated as a "Founder" for purposes of this Agreement, (iv) the sale of any
Stock to the public pursuant to a registration statement filed with, and
declared effective by, the SEC under the Act, or (v) the sale of any Stock to
the Company.
(j) In the event the Founder should sell any Stock in
contravention of the co-sale rights of the Investors under this Agreement (a
"Prohibited Transfer"), the Investors, in addition to such other remedies as may
be available at law, in equity or hereunder, shall have the put option provided
in (k) below, and the Founder shall be bound by the applicable provisions of
such option.
(k) In the event of a Prohibited Transfer, each Investor
shall have the right to sell to the Founder the type and number of shares of
Stock equal to the number of shares each Investor would have been entitled to
transfer to the purchaser under Section 2.6(d) hereof had the Prohibited
Transfer been effected pursuant to and in compliance with the terms hereof. Such
sale shall be made on the following terms and conditions:
(i) The price per share at which the shares are to be
sold to the Founder shall be equal to the price per share paid by the purchaser
to the Founder in the Prohibited Transfer. The Founder shall also reimburse each
Investor for any and all fees and expense, including legal fees and expenses,
incurred pursuant to the exercise or the attempted exercise of the Investor's
rights under Section 2.6.
(ii) Within ninety (90) days after the later of the
dates on which the Investor (w) received notice of the Prohibited Transfer or
(x) otherwise become aware of the Prohibited Transfer, each Investor shall, if
exercising the option created hereby, deliver to the Founder the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) The Founder shall, upon receipt of the
certificate or certificates for the shares to be sold by an Investor, pursuant
to this subparagraph, pay the aggregate purchase price therefor and the amount
of reimbursable fees and expenses, as specified in Section 2.6(k)(i) of this
Agreement, in cash or by other means acceptable to the Investor.
(iv) Notwithstanding the foregoing, any attempt by
Founder to transfer Stock in violation of Section 2.6 hereof shall be void and
the Company agrees it will not effect such a transfer nor will it treat any
alleged transferee as the holder of such shares without the written consent of a
majority in interest of the Investors.
2.7 Key-Man Insurance. The Company shall use its best
efforts to obtain from financially sound and reputable insurers term life
insurance on the life of A. Nathaniel Goldhaber in the amount of $1,000,000.
Such policy shall name the Company as loss
18
<PAGE> 21
payee and shall not be cancelable by the Company without prior approval of the
Board of Directors.
2.8 Observer Rights.
(a) As long as Vantage Point Venture Partners ("Vantage
Point") owns not less than seventy-five percent (75%) of the shares of the
Series C Preferred Stock it purchased pursuant to the Series C Preferred Stock
Purchase Agreement by and among the Company and the Investors listed on Schedule
A thereto, dated May 15, 1998 (the "Series C Agreement"), (or an equivalent
amount of Common Stock issued upon conversion thereof) and does not have a
representative on the Company's Board of Directors, the Company shall invite a
representative of Vantage Point to attend all meetings of its Board of Directors
in a nonvoting observer capacity and, in this respect, shall give such
representative copies of all notices, minutes, consents, and other materials
that it provides to its directors; provided, however, that such representative
shall agree to hold in confidence and trust and to act in a fiduciary manner
with respect to all information so provided; and, provided further, that the
Company reserves the right to withhold any information and to exclude such
representative from any meeting or portion thereof if access to such information
or attendance at such meeting could adversely affect the attorney-client
privilege between the Company and its counsel or would result in disclosure of
trade secrets to such representative or if such Investor or its representative
is a direct competitor of the Company.
(b) As long as CGI, LLC ("CGI") owns not less than
seventy-five percent (75%) of the shares of the Series D Preferred Stock it
purchased pursuant to the Series D Preferred Stock and Warrant Purchase
Agreement by and among the Company and the Investors listed on Schedule A
thereto of even date herewith (the "Series D Agreement"), (or an equivalent
amount of Common Stock issued upon conversion thereof) and does not have a
representative on the Company's Board of Directors, the Company shall invite a
representative of CGI to attend all meetings of its Board of Directors in a
nonvoting observer capacity and, in this respect, shall give such representative
copies of all notices, minutes, consents, and other materials that it provides
to its directors; provided, however, that such representative shall agree to
hold in confidence and trust and to act in a fiduciary manner with respect to
all information so provided; and, provided further, that the Company reserves
the right to withhold any information and to exclude such representative from
any meeting or portion thereof if access to such information or attendance at
such meeting could adversely affect the attorney-client privilege between the
Company and its counsel or would result in disclosure of trade secrets to such
representative or if such Investor or its representative is a direct competitor
of the Company.
2.9 Restrictions on Future Issuance of Stock. The Company
hereby covenants and agrees that it shall not issue any shares of Series D
Preferred Stock, other than shares of Series D Preferred Stock issued pursuant
to the Series D Agreement or pursuant to exercise of the Series D Warrants,
without the prior written consent of at least sixty-seven percent (67%) of the
voting power of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock (voting together as a single class
and not as separate series, and on an as-converted basis).
19
<PAGE> 22
2.10 Termination of Certain Covenants. The covenants set
forth in Sections 2.5, 2.6, 2.7, 2.8 and 2.9 shall terminate and be of no
further force or effect upon the consummation of the sale of securities pursuant
to a registration statement filed by the Company under the Act in connection
with the firm commitment underwritten offering of its securities to the general
public.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery to the party to be notified
or upon deposit with the United States Post Office, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
3.6 Expenses. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.7 Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this
20
<PAGE> 23
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
3.8 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 Aggregation of Stock. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
3.10 Entire Agreement. This Agreement (including the
Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
3.11 Prior Agreement. The Prior Agreement is hereby
superseded in its entirety and shall be of no further force or effect.
3.12 Public Announcement. Neither the Company nor any
Investor (other than Intel Corporation) shall use Intel Corporation's or its
affiliates names or refer to Intel Corporation or its affiliates directly or
indirectly in connection with Intel Corporation's or its affiliates relationship
with the Company in any advertisement, news release, or professional or trade
publication, or in any other manner, unless otherwise required by law or with
Intel Corporation's prior written consent, which consent will generally not be
granted. The parties agree that there will be no press release or other public
statement issued by any party relating to this Agreement or the transactions
contemplated hereby unless required by law or mutually agreed to, and further
agree to keep the terms of this Agreement, the Series A Preferred Stock Purchase
Agreement dated July 2, 1996 (the "Series A Agreement"), the Series B Preferred
Stock Purchase Agreement dated June 12, 1997 (the "Series B Agreement"), the
Series C Agreement, and the Warrant issued to Intel Corporation (the "Intel
Warrant") in strictest confidence, it being understood that the restriction
shall not prohibit disclosure to the parties' counsel, accountants, and
professional advisors. If the Company determines that it is required by law or
under the rules and regulations of the SEC to disclose the terms and conditions
of the Agreement, the Series A Agreement, the Series B Agreement, the Series C
Agreement or the Intel Warrant, it shall, a reasonable time before making any
such disclosure or filing, consult with Intel Corporation regarding such
disclosure or filing and seek confidential treatment for such portions of those
agreements as may be reasonably requested by Intel Corporation.
Notwithstanding the above, the Company may disclose the existence
and terms and conditions of this Agreement, the Series A Agreement, the Series B
Agreement, the Series C Agreement and the Intel Warrant to bona fide potential
investors who are under obligations of nondisclosure, similar to those contained
herein and which the Company believes in good faith are seriously considering
investing in the Company.
21
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
COMPANY:
CYBERGOLD, INC.
By:
----------------------------------------------
A. Nathaniel Goldhaber
President
Address: 2921 Adeline Street
Berkeley, California 94703
SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 25
FOUNDER:
-------------------------------------------------
A. Nathaniel Goldhaber
Address:
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---------------------------------------
---------------------------------------
Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 26
INVESTOR:
ALTA CALIFORNIA PARTNERS, L.P.
By: Alta California Management Partners, L.P.
By:
----------------------------------------------
General Partner
ALTA EMBARCADERO PARTNERS, LLC
By:
----------------------------------------------
Member
Address:
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---------------------------------------
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 27
VANTAGEPOINT VENTURE PARTNERS 1996
By: VantagePoint Associates LLC
By:
----------------------------------------------
Alan Salzman
Managing Member
Address:
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---------------------------------------
---------------------------------------
Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 28
ALAFI CAPITAL CORPORATION
By:
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Print Name:
--------------------------------------
Title:
-------------------------------------------
Address:
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---------------------------------------
---------------------------------------
Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 29
-------------------------------------------------
Jay Chiat
Address:
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---------------------------------------
---------------------------------------
Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 30
E.S. FISHBURNE AND PATRICIA M. FISHBURNE, JTWROS
By:
----------------------------------------------
Print Name:
--------------------------------------
Title:
-------------------------------------------
Address:
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---------------------------------------
---------------------------------------
Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 31
-------------------------------------------------
A. Nathaniel Goldhaber
Address:
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---------------------------------------
---------------------------------------
Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 32
-------------------------------------------------
Regis McKenna
Address:
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---------------------------------------
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 33
LEVINE FAMILY TRUST
By:
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Print Name:
--------------------------------------
Title:
-------------------------------------------
Address:
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---------------------------------------
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 34
REESE M. JONES 1996 CHARITABLE REMAINDER UNITRUST
By:
----------------------------------------------
Print Name:
--------------------------------------
Title:
-------------------------------------------
Address:
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---------------------------------------
---------------------------------------
Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 35
-------------------------------------------------
Frank Richards
Address:
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---------------------------------------
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 36
-------------------------------------------------
Daniel J. Schwinn
Address:
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 37
-------------------------------------------------
Peter Sealey
Address:
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---------------------------------------
---------------------------------------
Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 38
-------------------------------------------------
John Steuart
Address:
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---------------------------------------
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 39
-------------------------------------------------
Bradford C. Webb
Address:
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---------------------------------------
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 40
-------------------------------------------------
Bruce R. Katz
Address:
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---------------------------------------
---------------------------------------
Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 41
-------------------------------------------------
Wolter Link
Address:
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 42
-------------------------------------------------
Joshua Mailman
Address:
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 43
ZINSMEYER TRUSTS PARTNERSHIP
By:
----------------------------------------------
Print Name:
--------------------------------------
Print Title:
-------------------------------------
Address: 7777 Bonhomme Street, Suite 1400
Clayton, Missouri 63105-1301
SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 44
GC&H INVESTMENTS
By:
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Print Name:
--------------------------------------
Print Title:
-------------------------------------
Address:
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---------------------------------------
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 45
OSPREY VENTURES, L.P.
By:
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Print Name:
--------------------------------------
Print Title:
-------------------------------------
Address:
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 46
CGI, LLC
By: CG Investors, LLC
Its Manager
By:
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Phillip E. Himelstein
Managing Member
Address:
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Telephone:
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Facsimile:
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SIGNATURE PAGE TO CYBERGOLD, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 47
SCHEDULE A
SCHEDULE OF INVESTORS
Alafi Capital Company
Alta California Partners, L.P.
Alta Embarcadero Partners, LLC
CGI, LLC
Jay Chiat
Defta Partners
E.S. Fishburne and Patricia M. Fishburne, JTWROS
Charles H. Finnie
Abe H. Frumkin
GC&H Investments
A. Nathaniel Goldhaber
George Hara
Intel Corporation
Bruce R. Katz
Levine Family Trust
Walter Link
Joshua Mailman
Regis McKenna
Paul H. Levine and Burgess Lea Levine, JTWROS
Osprey Ventures, L.P.
Reese M. Jones 1996 Charitable Remainder Unitrust
Frank Richards
Frank Richards and Marsia Richards
Daniel J. Schwinn
Peter Sealey
Frank G. Slaughter
John Steuart
VantagePoint Venture Partners 1996
Bradford C. Webb
Dean Witter CUST FBO Bradford C. Webb IRA Rollover DTD 11/21/97
Zinsmeyer Trusts Partnership
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of May
__, 1999, between CYBERGOLD, INC., a Delaware corporation ("the Company"), and
____________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company has adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the maximum extent authorized by Section 145 of the Delaware General
Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer or director of the Company, the
Company has determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an officer
or director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and Article
VII of the Bylaws, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section l(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith
<PAGE> 2
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware shall determine that such indemnification may
be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee that is finally
determined (under the procedures, and subject to the presumptions, set forth in
Sections 6 and 7 hereof) to be unlawful under Delaware law.
3. Contribution in the Event of Joint Liability.
(a) Whether or not the indemnification provided in Sections 1
and 2 hereof is available, in respect of any threatened, pending or completed
action, suit or proceeding
2
<PAGE> 3
in which Company is jointly liable with Indemnitee (or would be if joined in
such action, suit or proceeding), Company shall pay, in the first instance, the
entire amount of any judgment or settlement of such action, suit or proceeding
without requiring Indemnitee to contribute to such payment and Company hereby
waives and relinquishes any right of contribution it may have against
Indemnitee. Company shall not enter into any settlement of any action, suit or
proceeding in which Company is jointly liable with Indemnitee (or would be if
joined in such action, suit or proceeding) unless such settlement provides for a
full and final release of all claims asserted against Indemnitee.
(b) Without diminishing or impairing the obligations of the
Company set forth in the preceding subparagraph, if, for any reason, Indemnitee
shall elect or be required to pay all or any portion of any judgment or
settlement in any threatened, pending or completed action, suit or proceeding in
which Company is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), Company shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Indemnitee in proportion
to the relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding to which Indemnitee is not
a party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of
this Agreement, the Company shall advance all Expenses incurred by or on behalf
of Indemnitee in connection with any Proceeding by reason of Indemnitee's
Corporate Status within ten (10) days
3
<PAGE> 4
after the receipt by the Company of a statement or statements from Indemnitee
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses. Any advances and
undertakings to repay pursuant to this Section 5 shall be unsecured and interest
free. Notwithstanding the foregoing, the obligation of the Company to advance
Expenses pursuant to this Section 5 shall be subject to the condition that, if,
when and to the extent that the Company determines that Indemnitee would not be
permitted to be indemnified under applicable law, the Company shall be entitled
to be reimbursed, within thirty (30) days of such determination, by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid; provided, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Company that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee shall not
be required to reimburse the Company for any advance of Expenses until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed).
6. Procedures and Presumptions for Determination of Entitlement to
Indemnification. It is the intent of this Agreement to secure for Indemnitee
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to,
the advancement of Expenses and contribution by the Company) under this
Agreement, Indemnitee shall submit to the Company a written request, including
therein or therewith such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board of Directors in writing that Indemnitee has requested
indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case by one of the following three methods, which
shall be at the election of Indemnitee: (1) by a majority vote of the
disinterested directors, even though less than a quorum, or (2) by independent
legal counsel in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by
4
<PAGE> 5
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors). Indemnitee or the Company, as the case may be, may, within
10 days after such written notice of selection shall have been given, deliver to
the Company or to Indemnitee, as the case may be, a written objection to such
selection; provided, however, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirements
of "Independent Counsel" as defined in Section 13 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If a written objection is made and substantiated,
the Independent Counsel selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 6(a) hereof, no Independent
Counsel shall have been selected and not objected to, either the Company or
Indemnitee may petition the Court of Chancery of the State of Delaware or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. Whether or not the foregoing provisions of this Section 6(e) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
5
<PAGE> 6
(f) If the person, persons or entity empowered or selected under
Section 6 to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 30 day period may be extended for a reasonable
time, not to exceed an additional fifteen (15) days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 6(g) shall not apply if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other
disposition short of final judgment may be successful if it permits a party to
avoid expense, delay, distraction, disruption and uncertainty. In the event that
any action, claim or proceeding to which Indemnitee is a party is resolved in
any manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
6
<PAGE> 7
7. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 of this
Agreement, Indemnitee shall be entitled to an adjudication in an appropriate
court of the State of Delaware, or in any other court of competent jurisdiction,
of his entitlement to such indemnification. Indemnitee shall commence such
proceeding seeking an adjudication within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 7(a). The Company shall not oppose Indemnitee's right to seek any such
adjudication.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding
commenced pursuant to this Section 7, absent a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7,
seeks a judicial adjudication of his rights under, or to recover damages for
breach of, this Agreement, or to recover under any directors' and officers'
liability insurance policies maintained by the Company the Company shall pay on
his behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement of
expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any
judicial proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
7
<PAGE> 8
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be afforded currently under the
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is an
officer or director of the
8
<PAGE> 9
Company (or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise) and shall continue thereafter so long as Indemnitee
shall be subject to any Proceeding (or any proceeding commenced under Section 7
hereof) by reason of his Corporate Status, whether or not he is acting or
serving in any such capacity at the time any liability or expense is incurred
for which indemnification can be provided under this Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns, spouses,
heirs, executors and personal and legal representatives. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as an
officer or director of the Company or any other Enterprise at the Company's
request.
11. Security. To the extent requested by the Indemnitee and approved
by the Board of Directors of the Company, the Company may at any time and from
time to time provide security to the Indemnitee for the Company's obligations
hereunder through an irrevocable bank line of credit, funded trust or other
collateral. Any such security, once provided to the Indemnitee, may not be
revoked or released without the prior written consent of the Indemnitee.
12. Enforcement.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as an officer or director of the Company,
and the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
13. Definitions. For purposes of this Agreement:
(a) "Corporate Status" describes the status of a person who is
or was a director, officer, employee or agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is
9
<PAGE> 10
or was serving at the express written request of the Company as a director,
officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(f) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other Enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
14. Severability. If any provision or provisions of this Agreement
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent
10
<PAGE> 11
possible, the provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
thereby.
15. Modification and Waiver. No supplement, modification, termination
or amendment of this Agreement shall be binding unless executed in writing by
both of 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 hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise unless and only
to the extent that such failure or delay materially prejudices the Company.
17. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to the address set forth below Indemnitee
signature hereto.
(b) If to the Company, to:
2921 Adeline Street
Berkeley, California 94703
Attention: Chief Executive Officer
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. Identical Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
19. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
11
<PAGE> 12
20. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. Gender. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
CYBERGOLD, INC.
By:____________________________________
Name: A. Nathaniel Goldhaber
Title: Chief Executive Officer
---------------------------------------
Print Name of Indemnitee
---------------------------------------
Signature of Indemnitee
Address:
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
May 21, 1999 ARTHUR ANDERSEN LLP
San Francisco, California
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 3,175,008 2,280,033
<SECURITIES> 0 0
<RECEIVABLES> 420,701 142,650
<ALLOWANCES> 30,000 30,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,592,056 2,403,283
<PP&E> 968,133 1,057,262
<DEPRECIATION> 561,067 642,679
<TOTAL-ASSETS> 4,040,272 2,892,675
<CURRENT-LIABILITIES> 1,712,651 1,908,070
<BONDS> 225,550 291,425
6,378,679 6,671,480
509 509
<COMMON> 607 611
<OTHER-SE> (4,276,608) (5,979,420)
<TOTAL-LIABILITY-AND-EQUITY> 4,040,272 2,892,675
<SALES> 1,004,933 0
<TOTAL-REVENUES> 1,004,933 502,736
<CGS> 0 0
<TOTAL-COSTS> 466,118 244,417
<OTHER-EXPENSES> 5,221,637 1,994,858
<LOSS-PROVISION> 25,000 0
<INTEREST-EXPENSE> 75,402 19,536
<INCOME-PRETAX> (4,604,441) (1,725,953)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,604,441) (1,725,953)
<EPS-PRIMARY> (0.87) (0.33)
<EPS-DILUTED> (0.87) (0.33)
</TABLE>
