<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1999.
REGISTRATION NO. 333-79067
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CYBERGOLD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 7311 94-3212392
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1330 BROADWAY
TWELFTH FLOOR
OAKLAND, CALIFORNIA 94612
(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.
1330 BROADWAY
TWELFTH FLOOR
OAKLAND, CALIFORNIA 94612
(510) 845-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
CARLA S. NEWELL, ESQ. NORA L. GIBSON, ESQ.
ANDREW BAW, ESQ. LINDSAY C. FREEMAN, ESQ.
ERIC E. KEPPLER, ESQ. ELISA S. LEE, ESQ.
GUNDERSON DETTMER STOUGH BROBECK, PHLEGER & HARRISON LLP
VILLENEUVE FRANKLIN & HACHIGIAN, LLP SPEAR STREET TOWER
155 CONSTITUTION DRIVE ONE MARKET
MENLO PARK, CALIFORNIA 94025 SAN FRANCISCO, CA 94105
(650) 321-2400 (415) 442-0900
</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
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.0001 par value.................... $50,600,000 $14,067
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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
[FRONT INSIDE COVER
DESCRIPTION: Color reproduction of Cybergold web site home page with text
annotations and artwork describing various components of the home page. Header
for page reads: Welcome to Cybergold.com
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 enable members to purchase digital content using Cybergold
Micropayments.
- - Constantly changing "earn" offers provide members with opportunities to earn
cash for specific online behaviors.
- - Extra member perks are sponsored by Cybergold merchants.
- - Easy access to popular Internet content enhances member value.
- - Web surfers can open a free Cybergold account. No software downloads are
needed.]
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL 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 AUGUST 6, 1999
PROSPECTUS
4,000,000 SHARES
LOGO
COMMON STOCK
This is an initial public offering of shares of common stock of Cybergold,
Inc. Cybergold expects that the public offering price will be between $9.00 and
$11.00 per share.
Our common stock has been approved for trading and quotation 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.
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<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 600,000 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 on
, 1999.
---------------------------
SG COWEN
CIBC WORLD MARKETS
VOLPE BROWN WHELAN & COMPANY
E*OFFERING
, 1999
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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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
</TABLE>
<TABLE>
<CAPTION>
PAGE
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Business............................... 38
Management............................. 50
Transactions with Related Parties...... 62
Principal Stockholders................. 63
Description of Capital Stock........... 65
Shares Eligible for Future Sale........ 68
Underwriting........................... 70
Legal Matters.......................... 71
Experts................................ 71
Additional Information................. 72
Index to Financial Statements.......... F-1
</TABLE>
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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.
---------------------------
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.
<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:
- assumes the conversion of 10,020,049 shares of preferred stock into an
equal number of shares of common stock on the day the offering is
completed, including 9,635,438 shares of preferred stock outstanding at
June 30, 1999, and 384,611 shares of Series D preferred stock issuable
upon the automatic exercise of warrants upon the consummation of the
offering,
- assumes that the underwriters do not exercise their option to purchase
additional shares,
- assumes our reincorporation in Delaware and
- reflects a 2-for-3 reverse stock split to be effected prior to the
consummation of the offering.
CYBERGOLD, INC.
We are a leading provider of Internet-based direct marketing and
advertising solutions. We combine Internet-based direct marketing and
advertising services with programs that reward consumers with cash when they
perform actions desired by our advertising and marketing clients. These
cash-based online incentive programs are intended to provide flexible,
incentive-marketing solutions for our clients. 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 to achieve
the desired response to their advertising campaigns. By leveraging our 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 the costs of acquiring new customers.
The unique capabilities of the Internet create significant opportunities
for advertisers, marketers and merchants to develop direct relationships with
consumers. Forrester Research estimates that worldwide Internet advertising
expenditures in 1998 were approximately $1.5 billion and projects Internet
advertising expenditures will increase to approximately $15.2 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 business revolves around what we call the Earn & Spend Community -- a
place on the Internet where consumers can earn cash incentives for responding to
online marketing offers presented by our advertising and marketing clients and
then spend the cash with merchants. By opening a Cybergold account, a consumer
can become a member of the Earn & Spend Community. Member choice is increased by
enabling consumer members 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. The cash earned by our consumer members can be
credited to either their VISA or bank accounts from their Cybergold account or
be used to purchase content, services and products, including software, music,
games, credit reporting services and original artistic works and publications
through our Earn & Spend Community. We currently have approximately 2.6 million
consumer members.
We have developed a proprietary system that facilitates payment for
inexpensive purchases, which we call "micropayments," over the Internet. This
system 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 content, services and
products which has not previously been economically practical.
3
<PAGE> 6
To date, our primary source of revenue has come from clients who pay us a
fee for each member we induce to perform a particular action. Examples of
actions our members take to receive incentives include making online purchases,
subscribing to magazines or online services, or visiting other Web sites. Since
inception, a total of 154 advertising and marketing clients have offered
incentives using our system. We have 65 advertising and marketing clients that
currently offer incentives using our system, including autobytel.com inc.,
Garden.com, Inc., The Walt Disney Company (Disney Daily Blast, Disney Store
Online), Uproar (E-Pub Services Ltd.) and MBNA America Bank. To a lesser extent,
we also receive revenue for direct marketing activities over the Internet, such
as sending e-mails to a targeted subset of our members. We have also
historically received some revenue for performing one-time engineering projects.
We have entered into a number of strategic relationships which have enabled
us to offer our advertising and marketing clients and members a broad range of
incentives and online services. For example, our relationship with the First
National Bank of Omaha enables members to directly credit their personal VISA
accounts with money earned through Cybergold. In addition, through our
relationship with MBNA America Bank we have launched the co-branded Cybergold
MBNA VISA card. We have also launched a private-label loyalty program with
Earthlink Network, Inc., that enables Earthlink members to earn incentives for
purchases made using their Earthlink credit cards. 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.
We did not begin to generate meaningful revenues until March 1997. 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 rapidly acquire significant market share.
Our principal executive offices are located at 1330 Broadway, Twelfth
Floor, Oakland, California 94612, 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
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THE OFFERING
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Common Stock we are offering............................ 4,000,000 shares
Common Stock to be outstanding after this offering...... 18,368,590 shares
Underwriters' over-allotment option..................... 600,000 shares
Use of proceeds......................................... For the marketing and promotion of our brand and 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.
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 June 30, 1999
and includes 9,635,438 shares of preferred stock outstanding on that date and
384,611 shares of Series D preferred stock issuable upon the automatic exercise
of warrants upon the consummation of this offering. This number does not take
into account:
- 1,652,215 shares of our common stock subject to options outstanding at a
weighted average exercise price of $1.98 per share and 199,309 additional
shares of common stock reserved for issuance under our stock option plans
or other option agreements at June 30, 1999;
- 123,333 shares of common stock issuable upon exercise of outstanding
options at an exercise price of $1.50 per share;
- 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 181,666 shares of our common stock at a
weighted average exercise price of $0.45 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ---------------------
1996 1997 1998 1998 1999
------- ------- ------ ---------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $ 1 $ 531 $1,005 $ 271 $ 1,278
Gross margin................................................ 0 238 539 169 678
Loss from operations........................................ (2,679) (3,854) (4,846) (2,389) (3,993)
Net loss.................................................... (2,669) (3,869) (4,767) (2,382) (3,948)
Basic and diluted net loss per common share................. $ (0.71) $ (0.97) $(1.35) $ (0.62) $ (1.15)
Shares used in computing basic and diluted net loss per
common share.............................................. 3,746 3,979 4,020 4,010,103 4,129
</TABLE>
The following table presents our summary balance sheet at June 30, 1999,
which has been adjusted for the conversion of our preferred stock into
10,020,049 shares of common stock, including 9,635,438 shares of preferred stock
outstanding as of June 30, 1999 and 384,611 shares of Series D Preferred Stock
issuable upon the automatic exercise of warrants upon the consummation of this
offering. The balance sheet has also been adjusted to reflect our sale of
4,000,000 shares of our common stock at an assumed public offering price of
$10.00 per share in this offering. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 8,601 $44,701
Current assets.............................................. 9,497 45,597
Total assets................................................ 9,960 46,060
Long-term obligations, net of current maturities............ 337 337
Convertible redeemable preferred stock...................... 15,198 --
Total stockholders' equity (deficit)........................ (8,434) 42,863
</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.
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. We incurred net losses of $2.7 million for
the year ended December 31, 1996, $3.9 million for the year ended December 31,
1997, $4.8 million for the year ended December 31, 1998 and $3.9 million for the
six months ended June 30, 1999. Our retained deficit as of June 30, 1999 was
approximately $16.9 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. The
revenues and income potential of our business and the markets for online
incentives-based direct marketing programs and for making small payments over
the Internet are unproven. We will encounter risks and difficulties that are
frequently encountered by early stage companies in new and rapidly evolving
markets. Many of these risks are described in more detail in this "Risk Factors"
section.
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;
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<PAGE> 9
- 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, which accounted for 17% and
five percent of total revenues in the year ended December 31, 1998 and
the six months ended June 30, 1999, respectively, 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."
IF ONLINE INCENTIVES-BASED DIRECT MARKETING PROGRAMS DO NOT GAIN INCREASED
ACCEPTANCE BY MEMBERS, ADVERTISING AND MARKETING CLIENTS AND MERCHANTS, WE WOULD
HAVE SLOWER REVENUE GROWTH THAN EXPECTED AND WOULD INCUR GREATER THAN EXPECTED
LOSSES
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, we would have slower revenue growth than
expected and would incur greater than expected losses, and our business, results
of operations and financial condition would be harmed.
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<PAGE> 10
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 2.6 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 470,000 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 RELATIONSHIP WITH THE FIRST NATIONAL BANK OF OMAHA WERE TO DETERIORATE OR
TERMINATE OR IF THE FIRST NATIONAL BANK OF OMAHA WERE TO ENTER INTO SIMILAR
RELATIONSHIPS WITH OUR COMPETITORS, OUR ABILITY TO DEPOSIT TO AND TRANSFER FUNDS
FROM VISA ACCOUNTS COULD BE DISCONTINUED OR WE COULD FACE INCREASED COMPETITION
Cybergold has a relationship with the First National Bank of Omaha, an
acquiring bank for 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 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 ABILITY TO ATTRACT
ADVERTISING AND MARKETING CLIENTS, MEMBERS AND MERCHANTS 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.
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IF THE INTERNET FAILS TO GAIN FURTHER ACCEPTANCE AS A MEDIUM FOR ADVERTISING AND
MARKETING, WE WOULD HAVE SLOWER REVENUE GROWTH THAN EXPECTED AND WOULD INCUR
GREATER THAN EXPECTED LOSSES
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, we would have slower revenue
growth than expected and would incur greater than expected losses, and our
business, results of operations and financial condition would be harmed.
THE MARKET FOR MAKING SMALL PAYMENTS OVER THE INTERNET IS NEW AND WE CANNOT BE
CERTAIN THAT A VIABLE MARKET FOR OUR PRODUCTS WILL EMERGE OR BE SUSTAINABLE
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.
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
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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 52% of our revenues for the year ended
December 31, 1998 and the six months ended June 30, 1999, respectively and our
ten largest clients accounted for approximately 84% and 70% of our revenues for
the year ended December 31, 1998 and the six months ended June 30, 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%
SIX MONTHS ENDED JUNE 30, 1999
Qwest Communications International, Inc................... 20%
autobytel.com inc......................................... 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 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.
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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 IF WE ARE UNABLE TO PROTECT
THESE RIGHTS, WE MAY FACE INCREASED COMPETITION OR GREATER DIFFICULTY IN
SUCCESSFULLY ESTABLISHING THE CYBERGOLD BRAND
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, 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.
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ANY FAILURE OF OUR NETWORK INFRASTRUCTURE COULD AFFECT OUR ABILITY TO OPERATE
OUR WEB SITE AND 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 of these
problems could diminish or halt our ability to provide services to our
customers, which could harm our business, results of operations and financial
condition.
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
Cybergold 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 Cybergold
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.
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COMPETITION FOR EMPLOYEES IN OUR INDUSTRY AND IN OUR GEOGRAPHIC REGION IS
INTENSE, AND 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 and in our geographic
region 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 retaining and attracting the personnel necessary to support
the growth of our business, particularly engineering and sales personnel, 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.
POTENTIAL ACQUISITIONS MAY BE DIFFICULT TO ASSIMILATE INTO OUR OPERATIONS, USE A
SIGNIFICANT AMOUNT OF OUR AVAILABLE CASH, RESULT IN DILUTION TO OUR STOCKHOLDERS
AND ADVERSELY AFFECT OUR REPORTED RESULTS OF OPERATIONS
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. We have not made a significant acquisition or investment to date. 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 of
these issuances 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.
IF WE EXPAND OUR BUSINESS INTERNATIONALLY WE MAY BE SUBJECT TO FOREIGN
GOVERNMENT REGULATION AND TAXATION, CURRENCY ISSUES, DIFFICULTIES IN MANAGING
FOREIGN OPERATIONS AND FOREIGN POLITICAL AND ECONOMIC INSTABILITY
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 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.
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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 OUR MEMBERSHIP DATABASE, MEMBERS MAY BE
DETERRED FROM USING OUR SERVICES
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.
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.
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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 REQUIRE INTERRUPTIONS, DELAYS OR CESSATION OF
SERVICE TO USERS ACCESSING OUR WEB SITE
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 site, 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 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.
INCREASED SECURITY RISKS OF TRANSMISSION OF CONFIDENTIAL INFORMATION OVER PUBLIC
NETWORKS MAY DETER USE OF OUR SERVICES
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
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<PAGE> 18
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 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 e-mail 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 e-mail providers,
including 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. We have experienced limited blockages by some e-mail
providers of e-mail correspondence from us. These blockages have not had a
material effect on our business, results of operations or financial condition.
However, because our revenues are driven in part by the number of members to
whom we are able to deliver targeted e-mails, any blockage of e-mails by a
significant e-mail provider, or by a significant number of e-mail providers in
the aggregate, of e-mails coming from us could harm our business, results of
operations and financial condition.
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 currency 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 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.
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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
67.5% of our outstanding common stock following the completion of this offering,
or 65.4% assuming exercise of the underwriters option to purchase additional
shares. As a result, these stockholders will retain substantial control over
matters requiring approval by our stockholders, such as the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in
control. See "Principal Stockholders" for more information relating to the
ownership positions of our executive officers and directors.
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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. These 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 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 $7.66 in the net
tangible book value per share of our common stock from the price you pay for our
common stock. For purposes of this calculation we have assumed an initial public
offering price of $10.00 per share. See "Dilution." The exercise of outstanding
options and warrants may result in further dilution.
18
<PAGE> 21
MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE
We intend to use $10.0 million to $15.0 million of the net proceeds for
advertising and marketing expenditures to promote our brand, and the remaining
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 not allocated to
advertising and marketing expenditures will be allocated among the other
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 these 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 4,000,000 shares of
common stock we are offering will be approximately $36.2 million ($41.8 million
if the underwriters exercise their over-allotment option in full) at an assumed
initial public offering price of $10.00 and after deducting estimated offering
expenses of $1,000,000 and underwriting discounts and commissions payable by us.
We plan to use $10.0 million to $15.0 million of the net proceeds for
advertising and marketing expenditures to promote our brand, and the remaining
net proceeds from this offering 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 June 30, 1999. The
pro forma information reflects the conversion of all outstanding shares of
preferred stock into 10,020,049 shares of common stock on completion of this
offering, including 9,635,438 shares of preferred stock outstanding at June 30,
1999 and 384,611 shares of Series D preferred stock issuable upon the automatic
exercise of outstanding warrants upon the consummation of this offering. It also
reflects 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. 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 1,652,215 shares of common stock
issuable upon exercise of outstanding options as of June 30, 1999 at a weighted
average exercise price of $1.98 per share, 123,333 shares of common stock
issuable upon exercise of outstanding options to purchase common stock at an
exercise price of $1.50 per share, 181,666 shares of common stock issuable upon
exercise of outstanding warrants at a weighted average exercise price of $0.45
per share, 1,699,309 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>
(UNAUDITED)
AS OF JUNE 30, 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..................................... $ 337,200 $ 337,200 $ 337,200
Convertible redeemable preferred stock, $0.00015
par value, 7,900,018 shares authorized,
6,240,477 shares issued and outstanding,
actual; no shares authorized, no shares issued
and outstanding, pro forma and pro forma as
adjusted....................................... 15,197,614 -- --
------------ ------------ ------------
Stockholders' equity (deficit):
Preferred stock, $0.00015 par value, 3,553,314
shares authorized, 3,394,981 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, $0.00015 par value, 14,446,667
shares authorized, 4,346,921 shares issued and
outstanding, actual; 75,000,000 shares
authorized, 14,368,590 shares issued and
outstanding, pro forma; 75,000,000 shares
authorized, 18,368,590 issued and outstanding,
pro forma as adjusted.......................... 652 2,097 2,697
Additional paid-in capital....................... 9,903,025 25,099,703 61,199,103
Deferred compensation............................ (1,449,075) (1,449,075) (1,449,075)
Retained deficit................................. (16,889,289) (16,889,289) (16,889,289)
------------ ------------ ------------
Total stockholders' equity (deficit)... (8,434,178) 6,763,436 42,863,436
------------ ------------ ------------
Total capitalization................... $ 7,100,636 $ 7,100,636 $ 43,200,636
============ ============ ============
</TABLE>
21
<PAGE> 24
DILUTION
The pro forma net tangible book value of our common stock as of June 30,
1999, giving effect to the conversion of 10,020,049 shares of preferred stock
into an equal number of shares of common stock, including:
- 9,635,438 shares of preferred stock outstanding at June 30, 1999; and
- 384,611 shares of Series D preferred stock issuable upon the automatic
exercise of warrants upon the consummation of this offering,
was $6,763,436, or approximately $0.47 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 14,368,590
shares of common stock outstanding after giving effect to the conversion into
common stock of the 9,635,438 shares of preferred stock outstanding at June 30,
1999 and the 384,611 shares of Series D preferred stock issuable upon the
automatic exercise of warrants upon the completion of this offering. After
giving effect to the issuance and sale of 4,000,000 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 June 30, 1999 would have been $42,963,436, or $2.34
per share. This represents an immediate increase in pro forma net tangible book
value of $1.87 per share to existing stockholders and an immediate dilution in
net tangible book value of $7.66 per share to new investors. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $0.47
Increase per share attributable to new investors.......... 1.87
-----
Pro forma net tangible book value per share after the
offering.................................................. 2.34
------
Dilution per share to new investors $ 7.66
======
</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 June 30, 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........... 14,368,590 78% $24,814,844 38% $ 1.73
New investors................... 4,000,000 22% 40,000,000 62% 10.00
---------- ----- ----------- ----- ------
Totals................ 18,368,590 100.0% $64,814,844 100.0% $ 3.53
========== ===== =========== ===== ======
</TABLE>
As of June 30, 1999, there were options outstanding to purchase a total of
1,652,215 shares of common stock at a weighted average exercise price of $1.98
per share; 123,333 shares of common stock issuable upon conversion of
outstanding options to purchase preferred stock; 181,666 shares of common stock
issuable upon exercise of outstanding warrants at a weighted average exercise
price of $0.45 per share; 1,699,309 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 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 Cybergold'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 June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are derived from Cybergold's unaudited financial
statements which are included elsewhere in this prospectus and which include, in
the opinion of Cybergold, 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 six months ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
Cybergold 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 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 Cybergold's financial
statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
(UNAUDITED)
------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues
Transaction...................................... $ 1 $ 457 $ 628 $ 263 $ 881
Custom marketing services and other.............. 0 74 377 8 397
------- ------- ------- ------- -------
Total revenues........................... 1 531 1,005 271 1,278
------- ------- ------- ------- -------
Cost of revenues
Transaction...................................... 1 256 293 98 416
Custom marketing services and other.............. 0 37 173 4 184
------- ------- ------- ------- -------
Total cost of revenues................... 1 293 466 102 600
Gross margin..................................... 0 238 539 169 678
------- ------- ------- ------- -------
Operating expenses:
Product development.............................. 1,093 1,190 1,700 789 1,067
Sales and marketing.............................. 841 2,162 2,695 1,429 2,369
General and administrative....................... 745 740 792 314 744
Amortization of deferred compensation............ 0 0 198 26 491
------- ------- ------- ------- -------
Total operating expenses................. 2,679 4,092 5,385 2,558 4,671
------- ------- ------- ------- -------
Loss from operations............................... (2,679) (3,854) (4,846) (2,389) (3,993)
Interest income (expense), net..................... 10 (15) 79 7 45
------- ------- ------- ------- -------
Net loss......................................... $(2,669) $(3,869) $(4,767) $(2,382) $(3,948)
Dividend attributable to preferred stockholders.... -- -- (660) (95) (819)
------- ------- ------- ------- -------
Net loss attributable to common stockholders....... $(2,669) $(3,869) $(5,427) $(2,477) $(4,767)
======= ======= ======= ======= =======
Net loss per common share,
Basic and diluted(1)............................. $ (0.71) $ (0.97) $ (1.35) $ (0.62) $ (1.15)
======= ======= ======= ======= =======
Weighted average common shares outstanding,
Basic and diluted(1)............................. 3,746 3,979 4,020 4,010 4,129
======= ======= ======= ======= =======
Pro forma basic and diluted(1)..................... $ (0.55) $ (0.39)
======= =======
Weighted average common shares outstanding, basic
and diluted................................... 9,943 12,178
======= =======
</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.
23
<PAGE> 26
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
------- ---------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,240 $ 3,175 $ 8,601
Current assets.............................................. 1,401 3,592 9,497
Total assets................................................ 1,823 4,040 9,960
Long term obligations, net of current maturities............ 272 226 337
Convertible redeemable preferred stock...................... -- 6,379 15,198
Total stockholders' equity (deficit)........................ 743 (4,277) (8,434)
</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
Cybergold is a leading provider of Internet-based direct marketing and
advertising solutions. We were 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
2.6 million at July 31, 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 earns 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 or use cash transferred to their account
from a VISA card 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.
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
25
<PAGE> 28
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. Cash rewards to our
members are recorded as a current liability in the members payable account of
the balance sheet until transferred by a member to a bank account or a VISA card
or spent in a micropayment transaction. 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 $4.8 million in 1998, and
approximately $3.9 million in the six months ended June 30, 1999. As of June 30,
1999 we had a retained deficit of approximately $16.9 million. We plan to
increase our operating expenses as we continue to build brand and
infrastructure, including expenses for online and offline advertising, expanding
programs for membership recruitment, and for additional computer hardware and
software, 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
employees, directors and consultants during 1998 and the first half of 1999, we
recorded deferred compensation of $2.1 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 six month period ended June 30, 1999 were $198,288, and
$490,785, 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 SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ------------------
1997 1998 1998 1999
------ ------ -------- ------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction......................................... 86.0% 62.5% 97.0% 68.9%
Custom marketing services and other................. 14.0 37.5 3.0 31.1
------ ------ -------- ------
Total revenues.............................. 100.0 100.0 100.0 100.0
Cost of Revenues:
Transaction......................................... 48.2 29.2 36.0 32.6
Custom Marketing Services and Other................. 7.0 17.2 1.5 14.4
------ ------ -------- ------
Total Cost of Revenues...................... 55.2 46.4 37.5 47.0
------ ------ -------- ------
Gross margin................................ 44.8 53.6 62.5 53.0
Operating expenses:
Product development................................. 223.9 169.2 291.3 83.6
Sales and marketing................................. 406.9 268.1 527.5 185.5
General and administrative.......................... 139.2 78.8 116.0 58.2
Amortization of deferred compensation............... -- 19.7 9.8 38.4
------ ------ -------- ------
Total operating expenses.................... 770.0 535.8 944.6 365.7
------ ------ -------- ------
Loss from operations.................................. (725.2) (482.2) (882.1) (312.7)
Interest income (expense), net........................ (2.9) 7.8 2.4 3.5
------ ------ -------- ------
Net loss.............................................. (728.1)% (474.4)% (879.7)% (309.2)%
====== ====== ======== ======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUES
Our revenues increased 372% to $1.3 million in the six months ended June
30, 1999 from $271,000 in the six months ended June 30, 1998.
Transaction Revenues. Transaction revenues increased 235% to $881,000 in
the six months ended June 30, 1999 from $263,000 in the six months ended June
30, 1998. All transaction revenues earned for the six months ended June 30, 1999
and 1998, related to members earning cash rewards by performing specified
actions in response to advertisements. The increase in transaction revenues is
primarily the result of the growth in our membership base. Total membership grew
268% to approximately 2.2 million as of June 30, 1999 from approximately 610,000
as of June 30, 1998.
Custom Marketing Services and Other Revenues. Custom marketing services and
other revenues increased 4,858% to $397,000 in the six months ended June 30,
1999 from $8,000 in the six months ended June 30, 1998. For the six months ended
June 30, 1999, this revenue was comprised of $278,000 of custom engineering and
production fees, $76,000 of fees for the transmission of e-mails to our members
and $43,000 in licensing fees. For the six months ended June 30, 1998, this
revenue was comprised entirely of custom engineering and production fees. The
increase in custom marketing services and other revenues is primarily the result
of our relationship with Qwest Communications Corporation as well as increasing
demand for the transmission of e-mails to our membership. Qwest Communications
Corporation, which retained us to perform non-recurring software engineering
services, accounted for $250,000 or 63% of total custom marketing services and
other revenues during the six months ended
27
<PAGE> 30
June 30, 1999. We expect that custom marketing services and other revenues will
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 491% to $600,000 in the six months ended June 30, 1999 from
$102,000 in the six months ended June 30, 1998.
The cost of transaction revenues increased 326% to $416,000 in the six
months ended June 30, 1999 from $98,000 in the six months ended June 30, 1998.
The increase in cost of transaction revenues resulted primarily from an increase
in the number of transactions.
The cost of custom marketing services and other revenues increased 4,503%
to $184,000 in the six months ended June 30, 1999 from $4,000 in the six months
ended June 30, 1998. The increase resulted primarily from activities for the
Qwest Communications Corporation project.
Gross margin decreased to 53% in the six months ended June 30, 1999 from
63% in the six month period ended June 30, 1998. This decrease in gross margin
was primarily due to a decrease in gross margin for transaction revenue
resulting from a change in mix of advertising offers as well as larger average
cash incentive awards to our members. We expect overall gross margin to
fluctuate as a result of the overall variation in the mix of services we
provide, as well as from fluctuations in gross margin for transaction revenue.
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 35% to $1.1 million in
the six months ended June 30, 1999 from $789,000 in the six months ended June
30, 1998, but decreased as a percentage of revenues to 84% from 291% 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 some of our 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 66% to $2.4 million in the six
months ended June 30, 1999 from $1.4 million in the six months ended June 30,
1998, but decreased as a percentage of revenues to 186% from 528% 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
28
<PAGE> 31
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 137%
to $744,000 in the six months ended June 30, 1999 from $314,000 in the six
months ended June 30, 1998, but decreased as a percentage of revenues to 58%
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 a portion of our 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.
AMORTIZATION OF DEFERRED COMPENSATION EXPENSE
In connection with the granting of options to purchase our common stock to
employees, directors and consultants during the six months ended June 30, 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 $491,000
in the six months ended June 30, 1999. In the six months ended June 30, 1998,
amortization of deferred compensation was $27,000.
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 our capital leases and equipment
financing obligations. Interest income (expense), net, increased to $45,000 in
the six months ended June 30, 1999 from $7,000 in the six months ended June 30,
1998. The increase in interest income (expense), net 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.
All transaction revenues earned for the years ended December 31, 1998 and 1997,
related to members earning cash rewards by performing specified actions in
response to advertisements. The increase in transaction revenues is primarily
the result of the growth in our membership base. 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
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December 31, 1997. All custom marketing services revenues earned for the years
ended December 31, 1998 and 1997, related to custom engineering and production
fees. The increase in custom marketing services and other revenues resulted
primarily from the initiation of relationships with three significant customers.
COST OF REVENUES
Overall 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. Cost of
revenues for the year ended December 31, 1998 was comprised of $293,000 of cash
incentives earned by members and $173,000 of personnel costs associated with
custom marketing services. Cost of revenues for the year ended December 31, 1997
was comprised of $256,000 of cash incentives earned by members and $37,000 of
personnel costs associated with custom marketing services. 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 224% 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 some of our development costs also contributed to the decrease in
expense as a percentage of revenues.
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 268% from 407% 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 7% to $792,000 in the year
ended December 31, 1998 from $740,000 in the year ended December 31, 1997, but
decreased as a percentage of revenues to 78% from 139% 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 a portion of our general and
administrative costs also contributed to the decrease in expense as a percentage
of revenues.
General and administrative expenses were $745,000 in the year ended
December 31, 1996.
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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 $198,000. 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
investor notes that were paid in full upon completion of our Series B Preferred
Stock financing in May 1997.
INCOME TAXES
We recorded a net loss of $4.8 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.
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QUARTERLY RESULTS OF OPERATIONS
The following tables set forth selected statement of operations data for
the quarters ended June 30, 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, JUNE 30,
1998 1998 1998 1998 1999 1999
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction.................. $ 107 $ 155 $ 175 $ 191 $ 333 $ 548
Custom marketing services and
other...................... 0 8 108 261 170 226
------- ------- ------- ------- ------- ------
Total revenues........ 107 163 283 452 503 774
Cost of revenues
Transaction.................. 35 62 87 91 159 257
Custom marketing and other... 0 4 55 132 85 99
------- ------- ------- ------- ------- ------
Total cost of
revenues............ 35 66 142 223 244 356
Gross margin.......... 72 97 141 229 259 418
------- ------- ------- ------- ------- ------
Operating expenses:
Product development.......... 376 414 430 480 484 583
Sales and marketing.......... 791 637 563 704 967 1,402
General and administrative... 157 157 244 234 278 466
Amortization of deferred
compensation............... 0 27 30 141 327 164
------- ------- ------- ------- ------- ------
Total operating
expenses............ 1,324 1,235 1,267 1,559 2,056 2,615
------- ------- ------- ------- ------- ------
Loss from operations........... (1,252) (1,138) (1,126) (1,330) (1,797) (2,197)
Interest income (expense),
net........................ (5) 12 16 55 11 33
------- ------- ------- ------- ------- ------
Net loss....................... $(1,257) $(1,126) $(1,110) $(1,275) $(1,786) (2,164)
======= ======= ======= ======= ======= ======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET
REVENUES:
Revenues:
Transaction.................. 100.0% 95.1% 61.8% 42.2% 66.2% 70.8%
Custom marketing and other... 0.0 4.9 38.2 57.8 33.8 29.2
--------- ------ ------ ------ ------ ------
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues
Transaction.................. 32.7 38.0 30.8 20.1 31.6 33.2
Custom marketing and other... 0 2.5 19.4 29.2 16.9 12.8
--------- ------ ------ ------ ------ ------
Total cost of
revenues............ 32.7 40.5 50.2 49.3 48.5 46.0
Gross margin.......... 67.3 59.5 49.8 50.7 51.5 54.0
--------- ------ ------ ------ ------ ------
Operating expenses:
Product development.......... 351.4 253.4 151.9 106.2 96.2 75.3
Sales and marketing.......... 739.2 389.5 198.9 155.5 192.2 181.1
General and administrative... 147.7 96.3 86.2 51.8 55.3 60.2
Amortization of deferred
compensation............... 0.0 16.6 10.7 31.2 65.0 21.2
--------- ------ ------ ------ ------ ------
Total operating
expenses............ 1,238.3 755.8 447.7 344.7 408.7 337.8
--------- ------ ------ ------ ------ ------
Loss from operations........... (1,170.1) (696.3) (397.9) (294.0) (357.2) (283.8)
Interest income (expense),
net........................ (4.7) 7.4 5.7 12.2 2.2 3.5
--------- ------ ------ ------ ------ ------
Net loss....................... (1,174.8)% (688.9)% (392.2)% (281.8)% (355.0)% (280.3)%
========= ====== ====== ====== ====== ======
</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 and
growth in the volume of transactions. 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 six months 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;
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- 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. 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 June 30, 1999, we had cash and
cash equivalents of $504,000 outstanding under capital lease and equipment
financing facilities.
Net cash used in operating activities was $3.5 million in 1998, $3.2
million in 1997, $2.3 million in 1996 and $2.6 million in the six months ended
June 30, 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 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.
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Net cash used in investing activities was $153,000 in 1998, $58,000 in
1997, $387,000 in 1996 and $192,000 in the six months ended June 30, 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 $8.2 million in the six months ended
June 30, 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 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 six months ended June 30, 1999 consisted primarily of proceeds
from the Series D preferred stock financing.
In 1997 and 1998, we entered into various non-cancelable capital lease
agreements for some of our 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 software products used by many companies may need to be upgraded to
comply with these Year 2000 requirements.
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<PAGE> 38
We have made an assessment of the Year 2000 readiness of all our relevant
operating, financial and administrative systems. Our assessment plan consists
of:
- quality assurance testing of our internally developed proprietary
software;
- contacting third-party vendors and licensors of material hardware and
software that are both directly and indirectly related to the delivery of
our services to users;
- appointing a Year 2000 compliance team composed of a cross-section of our
employees and appointing a manager of the team;
- assessing repair or replacement;
- implementation of the plan; and
- creating contingency plans in the event of Year 2000 failures.
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, including operating systems, databases and the
software residing between databases and the user interface, and have
substantially completed all modifications, upgrades or replacements to minimize
the possibility of a material disruption of our business. These remediation
activities include updating these systems to the newest versions, which are
claimed to be Year 2000 compliant, and applying patches to current versions. 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 e-mail 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. The worst case
scenario for Year 2000 problems for us if the third-party hardware and software
we use in our service were to prove not to be Year 2000 compliant would be the
need to cease normal operations for an indefinite period of time if our web site
were to become inoperative and the need to remediate transactions that were
incorrectly processed or recorded.
We do not currently have any information concerning the Year 2000
compliance status of our advertising and marketing clients. We plan to contact
advertising and marketing clients to remind them of the Year 2000 problem and
its potential effects on their systems and to gauge their Year 2000 compliance.
However, to the extent that our advertising and marketing clients are no longer
able to process transactions, process them incorrectly, or transmit incorrect
date to our systems, our business could be adversely affected. If our current or
future advertising and marketing clients fail to achieve Year 2000 compliance or
if they divert expenditures, especially technology expenditures that were
reserved for promotional products, to address Year 2000 compliance problems, our
business, results of operations, or financial condition could be materially
adversely affected.
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
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<PAGE> 39
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. We
expect to complete our Year 2000 contingency plan by October 31, 1999.
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BUSINESS
OVERVIEW
We are a leading provider of online direct marketing and advertising
solutions. We combine Internet-based direct marketing and advertising services
with programs that reward consumers with cash when they perform actions desired
by our advertising and marketing clients. These cash-based online incentives
programs are intended to provide flexible, incentive-marketing solutions for our
clients. 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 to achieve the desired response to their
advertising campaigns. By leveraging our 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 the cost
of acquiring new customers.
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.
Our business revolves around what we call the Earn & Spend Community -- a
place on the Internet where consumers can earn cash incentives for responding to
online marketing offers presented by our advertising and marketing clients and
then spend the cash with merchants. By opening a Cybergold account, a consumer
can become a member of the Earn & Spend Community. The cash earned by our
consumer members can be credited to either their VISA or bank accounts from
their Cybergold account or be used to purchase content, services and products,
including software, music, games, credit reporting services and original
artistic works and publications through our Earn & Spend Community. We currently
have approximately 2.6 million consumer members. Advertising and marketing
clients that currently use our service include autobytel.com inc., Garden.com,
Inc., The Walt Disney Company, Uproar (E-Pub Services Ltd.) and MBNA America
Bank.
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 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. International Data Corporation 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
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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 worldwide Internet advertising
expenditures in 1998 were approximately $1.5 billion and projects Internet
advertising expenditures to increase to approximately $15.2 billion in 2003. The
majority of Internet advertising 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 0.61% in June 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
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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.
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 approximately 2.6 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. Members are compensated for responding to online advertisements
or promotions by performing 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 content,
services and products, including software, music, games and original artistic
works and publications.
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LOGO
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, the costs of acquiring
new customers 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 database of approximately 2.6
million members, 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
desirable
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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 inexpensive purchases of 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 suite of Web site hosting, systems
administration, transaction processing and integration services, while
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
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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.
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. 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;
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- 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 a number 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 content, goods and services from merchants.
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 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 content, services and
products to online consumers.
- Hosted -- a full-service solution where we provide the customer with a
complete 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,
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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 some of our 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.
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 154 advertising and marketing clients
have offered incentives using our system. In 1997, no client accounted for more
than 10% of our revenue. Revenues from significant clients as a percentage of
total revenues in 1998 and the first half of 1999 are as follows:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1998
Qwest Communications International, Inc................... 22%
Interactive Coupon Network (Cool Savings)................. 16%
SIX MONTHS ENDED JUNE 30, 1999
Qwest Communications International, Inc................... 20%
autobytel.com inc......................................... 10%
</TABLE>
We have 65 advertising and marketing clients who are currently offering
incentives using our system, including:
<TABLE>
<S> <C> <C>
- American Homeowners - KB Holdings, Inc. - Quintel Communications,
Association (BrainPlay) Inc.
- autobytel.com inc. - LifeMinders.com, Inc. - Uproar (E-Pub Services
- Garden.com, Inc. - MBNA America Bank Ltd.)
- Netmarket Group Inc. - The Walt Disney Company
(Disney Daily Blast,
Disney Store Online)
</TABLE>
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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 account. Cybergold
pays a monthly minimum fee to the First National Bank of Omaha, along
with a transaction fee for each transfer from a Cybergold account to a
VISA account.
- 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.
Cybergold receives fee for each co-branded card generated and transaction
fees for all purchases made on these cards.
- 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. Cybergold receives a monthly minimum fee as
well as transaction fees for Cybergold transactions that occur on
Earthlink's Web site.
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;
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- 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, our products and services may become obsolete."
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 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
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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.
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. In May 1999 we notified MyPoints.com, Inc. of our
claim of infringement by MyPoints.com on our patent 5,794,210, which is
described below. If this claim cannot be resolved through a license or similar
arrangement, we could become a party to litigation with MyPoints.com. Any
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 method 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
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- 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, 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,
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.
EMPLOYEES
As of June 30, 1999, we had a total of 62 employees. Of those, 34 are in
sales and marketing, 17 are in engineering and 11 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
Our headquarters are located in approximately 14,200 square feet of office
space we have leased at 1330 Broadway, Oakland, California. Our lease extends
through July 2002, with an option to lease the space for an additional five year
term, and includes a right of first refusal on additional space which may become
available in the building where we are headquartered. We believe our office
space is adequate to meet our needs for the next six months, and we expect our
growth for the next 24 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 the name, age and position of each of our
directors and officers as of June 30, 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........................... 51 Vice President, Engineering
Larry Weinstein........................... 52 Vice President, Strategic Relationships
Pieter Hartsook........................... 52 Vice President, Business Development
Christopher D. Alafi, Ph.D.(2)............ 35 Director
Jay Chiat(2).............................. 67 Director
Garrett P. Gruener(2)..................... 44 Director
Regis P. McKenna(1)....................... 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 Cybergold, 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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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
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
Gruener.
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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. McKenna,
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, 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 46,666 shares of our common
stock. In addition, on June 25, 1996, in connection with a consulting agreement
with Mr. Sealey, we granted Mr. Sealey an option to purchase 16,666 shares of
our common stock at an exercise price of $0.015 per share. On November 11, 1996,
we also granted to Mr. Sealey an option to purchase 30,000 shares of our common
stock at an exercise price of $0.225 per share, and on June 19, 1998, in
connection with a consulting agreement with Mr. Sealey, we granted him an option
to purchase 20,000 shares of our common stock at an exercise price of $0.75 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. Gruener, 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 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 some types of 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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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
enumerated 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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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 -- 33,333
Chief Financial Officer
Gary Fitts............................................... 123,963 -- --
Chief Technology Officer
</TABLE>
- -------------------------
(1) Mr. Goldhaber's annual salary for fiscal year 1999 is $200,000.
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.
The option granted to Mr. Steuart listed in the table is immediately
exercisable. Shares purchasable under the option may be repurchased by Cybergold
at the original exercise price paid per share if Mr. Steuart ceases service
before vesting in those shares. The repurchase right lapsed and Mr. Steuart
vested as to 25% of his option shares on January 7, 1999, which marked the
completion of 12 months of service from the date on which his shares began to
vest. The balance of the shares purchasable under the option will vest in a
series of equal monthly installments over three years of service beginning
January 7, 1999. The option shares would 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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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)......... 33,333 3.8 1.00 01/06/08 15,722 39,844
Gary Fitts................. -- -- -- -- -- --
</TABLE>
- -------------------------
(1) Based on a total of 875,966 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 133,332 shares of
our common stock at an exercise price of $3.90 per share. 66,666 of the
option shares vest over a two-year period, and the vesting is accelerated
for 33,333 of such shares upon the date of this offering. The remaining
66,666 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.
In addition, on May 10, 1999 we granted to Steven Farber, one of our
executive officers, an option to purchase a maximum of 200,000 shares of common
stock at an exercise price of $3.90 per share. 33,333 of these shares vest upon
the closing of this offering. The additional 166,667 shares vest based on
Cybergold's performance with respect to several criteria. These criteria include
Cybergold's revenues, the number of merchants utilizing Cybergold's
micropayments system, the introduction of new offerings, the number of Cybergold
members, the number of transactions entered into by members, the number of
visitors to Cybergold's website and Cybergold's general productivity. To the
extent these criteria are not achieved, Mr. Farber's option will vest in full in
five years from the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth for each of the named executive officers the
number of options exercised during the fiscal year ended December 31, 1998 and
the number and value of securities underlying unexercised options that are held
by the named executive officers as of December 31, 1998. No options were
exercised by the named executive officers in fiscal year 1998. No stock
appreciation
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rights were exercised by the named executive officers in fiscal year 1998, and
no stock appreciation rights were outstanding at the end of that year.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
FISCAL YEAR END(#)(1) FISCAL YEAR END($)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
A. Nathaniel Goldhaber.................... -- -- -- --
John D. Steuart........................... 33,333 -- 0 --
Gary Fitts................................ 233,333 -- 49,000 --
</TABLE>
- -------------------------
(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 $0.225 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.
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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.
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.
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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
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,
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- 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.
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 also has a limited
ability to amend the plan. If our board increases the number of shares of common
stock reserved
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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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TRANSACTIONS WITH RELATED PARTIES
In September 1996, we were a party to two agreements by which Mr. Goldhaber
sold 66,666 shares of common stock to each of Regis McKenna and Jay Chiat, two
of our directors, at a per share purchase price of $0.015, for an aggregate
purchase price of $2,000.
We have issued, in private placement transactions, shares of our preferred
stock as follows: an aggregate of 1,999,998 shares of Series A preferred stock
in July and September of 1996 at a purchase price of $1.50 per share; 1,394,973
shares of Series B preferred stock in June 1997 at a purchase price of $3.00 per
share; 4,189,192 shares of Series C preferred stock in May and August of 1998 at
a purchase price of $1.365 per share; and in May 1999, 2,051,275 shares of
Series D preferred stock at a purchase price of $3.90 per share, and warrants to
purchase an aggregate of 384,611 shares of Series D preferred stock at an
exercise price of $4.50 per share. Each share of preferred stock is convertible,
without payment of any additional consideration, 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. The warrants to purchase Series D
preferred stock, if not sooner exercised, will automatically be exercised
pursuant to net exercise provisions upon the closing of this offering.
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........ 846,666 325,774 -- 66,666
John D. Steuart............... 16,666 4,294 7,326 7,485
Jay Chiat..................... 120,000 44,224 66,666 33,333
Regis P. McKenna.............. 33,333 16,834 36,630 19,084
Peter S. Sealey............... -- 3,333 5,494 1,941
Alafi Capital Company......... 650,000 371,218 -- 270,274
Alta California Partners,
L.P.(2)..................... -- -- 2,197,802 581,664
Vantage Point Venture
Partners, 1996(3)........... -- -- 1,648,352 581,664
</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 have entered into compensation arrangements and other arrangements with
directors and officers which are described in "Management," "Option Grants in
Last Fiscal Year," and "Director Compensation."
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> 65
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of June 30, 1999 and as adjusted to reflect the sale of the common stock
offered hereby for:
- each person who is known by us to beneficially own more than 5% of our
common stock;
- the chief executive officer and each of our named executive officers,
- each of our directors; and
- 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.
Percentage ownership is based on 14,368,590 shares outstanding as of June
30, 1999, including 9,635,438 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 384,611 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 June 30, 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.,
1330 Broadway, Twelfth Floor, Oakland, CA 94612
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES -------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY BEFORE AFTER
EXECUTIVE OFFICERS AND DIRECTORS OWNED OFFERING(1) OFFERING(1)
-------------------------------- ---------------- ----------- -----------
<S> <C> <C> <C>
A. Nathaniel Goldhaber(2).......................... 4,825,773 33.59% 26.27%
Entities affiliated with Alta California Partners,
L.P.(3).......................................... 2,779,466 19.34% 15.13%
VantagePoint Venture Partners, 1996(4)............. 2,230,016 15.52% 12.14%
Alafi Capital Company(5)........................... 1,291,492 8.99% 7.03%
Gary Fitts(6)...................................... 233,333 1.62% 1.27%
John D. Steuart(7)................................. 319,103 2.20% 1.72%
Christopher D. Alafi, Ph.D.(5)..................... 1,291,492 8.99% 7.03%
Jay Chiat(8)....................................... 377,556 2.63% 2.06%
Garrett P. Gruener(3).............................. 2,779,466 19.34% 15.13%
Regis P. McKenna(9)................................ 219,213 1.52% 1.19%
Alan Salzman(4).................................... 2,230,016 15.52% 12.14%
Peter S. Sealey, Ph.D.(10)......................... 77,434 * *
All directors and officers as a group (14
persons)(11)..................................... 13,017,784 85.11% 67.47%
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Assumes the underwriters' option to purchase additional shares is not
exercised.
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<PAGE> 66
(2) Includes 15,384 shares of common stock issuable upon exercise of a warrant,
and 560,000 shares of common stock which Mr. Goldhaber has transferred to
trusts for family members.
(3) Includes 2,717,385 shares beneficially owned by Alta California Partners,
L.P., and 62,081 shares beneficially owned by Alta Embarcadero Partners
LLC. Of these shares, a total of 134,230 are issuable upon exercise of
warrants. Garrett P. Gruener, one of our directors, is a general partner of
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.
(4) Includes 134,230 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.
(5) Includes 62,371 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.
(6) Includes 33,333 shares of common stock issuable upon exercise of
immediately exercisable options, none of which are subject to our right of
repurchase.
(7) Includes 166,666 shares of common stock issuable upon exercise of
immediately exercisable options, 114,585 shares of which were subject to
our right of repurchase on June 30, 1999, and 1,727 shares of common stock
issuable upon exercise of a warrant.
(8) Includes 7,692 shares of common stock issuable upon exercise of a warrant.
(9) Includes 46,666 shares of common stock issuable upon exercise of
immediately exercisable options, none of which were subject to our right of
repurchase on June 30, 1999, and 4,404 shares of common stock issuable upon
exercise of a warrant.
(10) Includes 16,389 shares of common stock issuable upon exercise of
immediately exercisable options, 14,444 shares of which were subject to our
right of repurchase on June 30, 1999, and 448 shares of common stock
issuable upon exercise of a warrant.
(11) Includes 976,663 shares of common stock issuable upon exercise of
immediately exercisable options, 688,665 shares of which were subject to
our right of repurchase on June 30, 1999, and 360,038 shares of common
stock issuable upon exercise of warrants.
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<PAGE> 67
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 June 30, 1999, there were 14,368,590 shares of common stock
outstanding that were held of record by approximately 60 stockholders. There
will be 18,368,590 shares of common stock outstanding (assuming no exercise of
the underwriters' over-allotment option and assuming no exercise after June 30,
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 AND OPTIONS
As of June 30, 1999, we had outstanding exercisable warrants to purchase an
aggregate of 166,666 shares of common stock at $0.225 per share; 15,000 shares
of Series B preferred stock at $3.00 per share; and 384,611 shares of Series D
preferred stock at $4.50 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, which remain outstanding after this offering,
will expire between July 28, 2000 and January 30, 2008. All unexercised warrants
to purchase Series B preferred stock will automatically convert into warrants to
purchase the
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<PAGE> 68
same number of shares of common stock upon the closing of this offering. As of
June 30, 1999, we had outstanding exercisable options to purchase an aggregate
of 123,333 shares of Series A preferred stock at $1.50 per share. All
unexercised options to purchase Series A preferred stock will automatically
convert into options to purchase the same number of shares of common stock upon
the closing of this offering.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Our 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 undesirable
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 some 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 limited 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> 69
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 specified 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 9,817,104 shares of common stock will
be entitled to rights with respect to the registration of such shares under the
Securities Act. Under the terms of our agreement with the holders of these
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, these holders are entitled to
receive notice of the registration and are entitled to include shares of these
registrable securities therein. Additionally, holders of 9,802,104 shares of
common stock are entitled to 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 this registration. Further, the holders of these
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 conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in the 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 U.S. Stock
Transfer Corporation.
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<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have 18,368,590 shares of
common stock outstanding, assuming the issuance of 4,000,000 shares of common
stock offered hereby and no exercise of options after June 30, 1999. Of these
shares, the 4,000,000 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 14,368,590 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
4,000,000 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, 11,812,344 restricted shares will become available for
sale in the public market subject to the limitations imposed by 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 143,686 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 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
these 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
these shares in the public market, or the perception that these 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 June 30, 1999, there were a total of 1,652,215 shares of common stock
subject to outstanding options under our 1996 Stock Option Plan, of which
471,829 were vested, and 123,333 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> 71
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 462,624 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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<PAGE> 72
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., Volpe Brown Whelan &
Company, LLC and E*OFFERING Corp., 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...........................
E*OFFERING Corp.............................................
----------
Total............................................. 4,000,000
==========
</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 some 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 some 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 600,000 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
limited 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 some 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 14,317,606 shares, together with the holders of options to purchase
1,295,816 shares of common stock and holders of warrants to purchase 181,666
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:
- 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
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<PAGE> 73
which may be deemed to be beneficially owned in accordance with the rules
and regulations promulgated under the Securities Act); or
- 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.
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 the 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 some 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 $1,000,000.
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. Some 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 may only be summaries of the contracts or documents.
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.
72
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheet as of December 31, 1997, 1998 and June 30,
1999...................................................... F-3
Statements of Operations for the three years in the period
ended December 31, 1998 and the six month periods ended
June 30, 1998 and 1999.................................... F-4
Statements of Stockholders Equity (Deficit) for the three
years in the period ended December 31, 1998 and the six
month period ended June 30, 1999.......................... F-5
Statements of Cash Flows for the three years in the period
ended December 31, 1998 and the six month periods ended
June 30, 1998 and 1999.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 76
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,
August 6, 1999
F-2
<PAGE> 77
CYBERGOLD, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 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 $ 8,600,817
Accounts receivable, less allowance for doubtful accounts
of $50,000, $30,000 and $44,000, respectively........... 161,165 390,701 431,482
Deferred financing costs.................................. -- -- 411,253
Prepaid expenses and other current assets................. -- 26,347 53,630
---------- ------------ ------------
Total current assets................................ 1,400,675 3,592,056 9,497,182
PROPERTY AND EQUIPMENT, net................................. 371,619 407,066 441,463
DEPOSITS AND OTHER ASSETS................................... 50,364 41,150 21,206
---------- ------------ ------------
Total assets........................................ $1,822,658 $ 4,040,272 $ 9,959,851
========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 142,070 $ 257,267 $ 633,105
Current maturities of long term obligations............... 81,791 136,639 166,833
Member payable............................................ 382,203 800,255 1,207,366
Membership acquisition payable............................ 69,775 175,653 471,714
Accrued liabilities....................................... 88,493 167,294 185,522
Deferred revenue.......................................... 43,134 175,543 194,675
---------- ------------ ------------
Total current liabilities........................... 807,466 1,712,651 2,859,215
LONG TERM OBLIGATIONS, net of current maturities............ 272,152 225,550 337,200
---------- ------------ ------------
Total liabilities................................... 1,079,618 1,938,201 3,196,415
---------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE REDEEMABLE PREFERRED STOCK, Series C .00015 par
value: 5,333,353 shares authorized; 4,189,195 issued and
outstanding at December 31, 1998, and June 30, 1999
(preference in liquidation of $5,718,251)................. -- 6,378,679 6,964,281 --
Series D, .00015 par value: 2,566,667 authorized; 2,051,282
issued and outstanding at June 30, 1999 (preference in
liquidation of $8,000,000)................................ -- -- 8,233,333 --
---------- ------------ ------------
Total convertible redeemable preferred stock........ -- 6,378,679 15,197,614 --
========== ============ ============
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock, .00015 par value:
Authorized shares -- 2,123,333
Issued and outstanding shares -- 2,000,000, 2,000,000,
2,000,000 and 0 respectively.......................... 300 300 300 --
Preference in liquidation -- $3,000,000
Series B convertible preferred stock, .00015 par value:
Authorized shares -- 1,429,981
Issued and outstanding shares -- 1,378,314, 1,394,981,
1,394,981, and 0 respectively......................... 207 209 209 --
Preference in liquidation -- $4,134,939, 4,184,942 and
$4,184,942
Common stock, .00015 par value:
Authorized shares -- 14,446,667
Issued and outstanding shares -- 4,012,042, 4,048,178,
4,346,921, and 13,982,379 respectively................ 602 607 652 2,097
Additional paid-in capital.................................. 7,435,077 8,611,086 9,903,025 25,099,703
Deferred compensation....................................... -- (767,283) (1,449,075) (1,449,075)
Retained (deficit).......................................... (6,693,146) (12,121,527) (16,889,289) (16,889,289)
---------- ------------ ------------ ------------
Total stockholders' equity (deficit)................ 743,040 (4,276,608) (8,434,178) 6,763,436
---------- ------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit)......................................... $1,822,658 $ 4,040,272 $ 9,959,851 $ 9,959,851
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 78
CYBERGOLD, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------
--------------------------------------- JUNE 30, JUNE 30,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Transaction....................... $ 1,000 $ 457,074 $ 628,350 $ 262,852 $ 880,517
Custom marketing services and
other.......................... -- 74,342 376,583 8,000 396,618
----------- ----------- ----------- ----------- -----------
Total revenues............ 1,000 531,416 1,004,933 270,852 1,277,135
COST OF REVENUES:
Transaction....................... 671 256,123 292,865 97,584 415,863
Custom marketing services and
other.......................... -- 37,048 173,253 4,000 184,133
----------- ----------- ----------- ----------- -----------
Total cost of revenues.... 671 293,171 466,118 101,584 599,996
----------- ----------- ----------- ----------- -----------
Gross margin.............. 329 238,245 538,815 169,268 677,139
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Product development............... 1,093,433 1,190,047 1,700,421 788,935 1,067,148
Sales and marketing............... 840,586 2,162,413 2,694,601 1,428,806 2,369,224
General and administrative........ 745,298 739,816 791,837 314,068 743,730
Amortization of deferred
compensation................... -- -- 198,288 26,500 490,785
----------- ----------- ----------- ----------- -----------
Total operating expenses..... 2,679,317 4,092,276 5,385,147 2,558,309 4,670,887
----------- ----------- ----------- ----------- -----------
Loss from operations......... (2,678,988) (3,854,031) (4,846,332) (2,389,041) (3,993,748)
INTEREST INCOME (EXPENSE), net...... 10,198 (15,292) 78,381 6,601 44,921
----------- ----------- ----------- ----------- -----------
Net loss.................. (2,668,790) (3,869,323) (4,767,951) (2,382,440) (3,948,827)
DIVIDEND ATTRIBUTABLE TO PREFERRED
STOCKHOLDERS...................... -- -- (660,430) (94,347) (818,935)
----------- ----------- ----------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS...................... $(2,668,790) $(3,869,323) $(5,428,381) $(2,476,787) $(4,767,762)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON SHARE, Basic and
diluted........................... $ (0.71) $ (0.97) $ (1.35) $ (0.62) $ (1.15)
=========== =========== =========== =========== ===========
Pro forma basic and diluted....... $ (0.55) $ (0.39)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, Basic and diluted.... 3,745,607 3,979,489 4,020,393 4,010,103 4,129,167
=========== =========== =========== =========== ===========
Pro forma basic and diluted....... 9,943,079 12,178,298
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 79
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........ -- $ -- -- $ -- 3,733,333 $ 560 $ 63,465 $ --
Issuance of Series A preferred
stock.......................... 2,000,000 300 -- -- -- -- 2,999,700 --
Exercise of common stock
options........................ -- -- -- -- 46,667 7 693 --
Imputed compensation............. 100,000 --
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1996........ 2,000,000 300 -- -- 3,780,000 567 3,163,858 --
Issuance of Series B preferred
stock.......................... -- -- 1,378,314 207 -- -- 4,134,732 --
Exercise of common stock
options........................ -- -- -- -- 270,375 41 15,644 --
Repurchase of stock options...... -- -- -- -- (38,333) (6) (4,157) --
Imputed compensation............. 125,000 --
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1997........ 2,000,000 300 1,378,314 207 4,012,042 602 7,435,077 --
Issuance of Series B preferred
stock.......................... -- -- 16,667 2 -- -- 49,998 --
Accretion of Series C redemption
premium........................ -- -- -- -- -- -- -- --
Exercise of common stock
options........................ -- -- -- -- 61,761 9 10,820 --
Repurchase of stock options...... -- -- -- -- (25,625) (4) (380) --
Deferred compensation............ -- -- -- -- -- -- 965,571 (965,571)
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 198,288
Imputed compensation............. 150,000 --
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1998........ 2,000,000 300 1,394,981 209 4,048,178 607 8,611,086 (767,283)
Accretion of Series C
redemption..................... -- -- -- -- -- -- -- --
Exercise of common stock
options........................ -- -- -- -- 298,743 45 36,029 --
Deferred compensation............ -- -- -- -- -- -- 1,172,577 (1,172,577)
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 490,785
Imputed compensation............. 83,333 --
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, JUNE 30, 1999
(unaudited)...................... 2,000,000 $ 300 1,394,981 $ 209 4,346,921 $ 652 $ 9,903,025 $(1,449,075)
Conversion of Series A
preferred...................... (2,000,000) (300) -- -- 2,000,000 300 -- --
Conversion of Series B
preferred...................... -- -- (1,394,981) (209) 1,394,981 209 -- --
Conversion of Series C
preferred...................... -- -- -- -- 4,189,195 628 6,963,653 --
Conversion of Series D
preferred...................... 2,051,282 308 8,233,025 --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
PRO FORMA BALANCE, JUNE 30, 1999
(unaudited)...................... -- $ -- -- $ -- 13,982,379 $2,097 $25,099,703 $(1,449,075)
========== ===== ========== ===== ========== ====== =========== ===========
<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
Imputed compensation............. -- 100,000
Net loss......................... (2,668,790) (2,668,790)
------------ -----------
BALANCE, DECEMBER 31, 1996........ (2,823,823) 340,902
Issuance of Series B preferred
stock.......................... -- 4,134,939
Exercise of common stock
options........................ -- 15,685
Repurchase of stock options...... -- (4,163)
Imputed compensation............. -- 125,000
Net loss......................... (3,869,323) (3,869,323)
------------ -----------
BALANCE, DECEMBER 31, 1997........ (6,693,146) 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................... -- 198,288
Imputed compensation............. -- 150,000
Net loss......................... (4,767,951) (4,767,951)
------------ -----------
BALANCE, DECEMBER 31, 1998........ (12,121,527) (4,276,608)
Accretion of Series C
redemption..................... (818,935) (818,935)
Exercise of common stock
options........................ -- 36,074
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 490,785
Imputed compensation............. -- 83,333
Net loss......................... (3,948,827) (3,948,827)
------------ -----------
BALANCE, JUNE 30, 1999
(unaudited)...................... $(16,889,289) $(8,434,178)
Conversion of Series A
preferred...................... -- --
Conversion of Series B
preferred...................... -- --
Conversion of Series C
preferred...................... -- 6,964,281
Conversion of Series D
preferred...................... -- 8,233,333
------------ -----------
PRO FORMA BALANCE, JUNE 30, 1999
(unaudited)...................... $(16,889,289) $ 6,763,436
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 80
CYBERGOLD, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------
--------------------------------------- JUNE 30, JUNE 30,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(2,668,790) $(3,869,323) $(4,767,951) $(2,382,440) $(3,948,827)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation....................................... 101,050 190,859 269,158 124,507 157,906
Amortization of deferred compensation.............. -- -- 198,288 26,500 490,785
Imputed compensation............................... 100,000 125,000 150,000 75,000 83,334
Changes in assets and liabilities:
Accounts receivable.............................. -- (161,165) (229,536) 69,744 (40,781)
Prepaid expenses and other current assets........ (22,375) (27,989) (17,133) (6,843) (418,592)
Accounts payable................................. 148,310 (6,240) 115,197 21,133 375,838
Members payable.................................. -- 382,203 418,052 285,942 407,110
Membership acquisition payable................... -- 69,775 217,694 75,976 296,061
Accrued liabilities.............................. 38,392 50,101 (33,015) (15,000) 19,132
Deferred revenue................................. -- 43,134 132,409 (10,662) 18,228
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities.......... (2,303,413) (3,203,645) (3,546,837) (1,736,143) (2,559,806)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment................ (387,472) (57,564) (152,922) (37,140) (192,303)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations................. -- (114,549) (143,437) (53,155) (73,314)
Proceeds from equipment financing.................... -- -- -- -- 215,158
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 5,399,999 8,000,000
Proceeds from exercise of stock options, net of
repurchases........................................ 700 11,522 10,445 10,656 36,074
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities...... 2,909,692 4,281,912 5,635,257 5,357,500 8,177,918
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 218,807 1,020,703 1,935,498 3,584,217 5,425,809
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 $ 4,823,727 $ 8,600,817
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............................... $ -- $ 35,800 $ 71,086 33,763 33,223
Acquisition of property and equipment using capital
leases............................................. 120,600 97,892 151,683 57,427 --
Conversion of stockholder loans into preferred
stock.............................................. -- 1,000,000 -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 81
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 was a
development stage company through December 31, 1997.
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 $12.1 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 June 30, 1999 and for the six
months ended June 30, 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
six-month period ended June 30, 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 June 30, 1999 reflects the automatic conversion of all
outstanding shares of convertible preferred stock into 9,635,458 shares of
common stock which will occur upon the closing of the Company's proposed initial
public offering.
F-7
<PAGE> 82
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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.
MEMBERS PAYABLE
Members payable represents amounts payable to the Company's members as a
result of them performing certain actions and completing transactions. These
amounts are cash rewards and are recorded on the Company's balance sheet until
the member elects to receive payment of the reward or to use the rewards to
purchase items on-line.
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
F-8
<PAGE> 83
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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,
-------------------------------------- JUNE 30,
1996 1997 1998 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Options to purchase common stock.... 690,375 776,333 1,250,122 1,652,215
Warrants to purchase common stock... 166,667 166,667 166,667 166,667
Warrants to purchase preferred
stock............................. -- 146,667 138,333 522,944
Series A preferred stock............ 2,000,000 2,000,000 2,000,000 2,000,000
Series B preferred stock............ -- 1,378,314 1,394,981 1,394,981
Redeemable preferred stock.......... -- -- 4,189,195 6,240,477
---------- ---------- ---------- -----------
Total..................... 2,857,042 4,467,981 9,139,298 11,977,284
========== ========== ========== ===========
</TABLE>
F-9
<PAGE> 84
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
STOCK SPLIT
During June 1999, the Company approved a 2-for-3 reverse stock split. All
of the share amounts and per share amounts in these financial statements have
been restated to reflect this split for all periods presented.
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.
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,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment and software......................... $ 625,610 $ 923,127
Furniture and fixtures.................................. 25,817 30,465
Leasehold improvements.................................. 12,101 14,541
--------- ---------
663,528 968,133
Accumulated depreciation................................ (291,909) (561,067)
--------- ---------
$ 371,619 $ 407,066
========= =========
</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.
F-10
<PAGE> 85
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
The reconciliation of the effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory tax rate......... $ 907,389 (34.0)% $ 1,315,570 (34.0)% $ 1,621,103 (34.0)%
State taxes, net of federal
income tax benefit............ 160,127 (6.0)% 232,159 (6.0)% 286,077 (6.0)%
Research and development tax
credit........................ 43,069 (1.6)% 104,413 (2.7)% 126,681 (2.7)%
Other........................... (39,057) 1.5% (111,496) 2.9% (75,258) 1.6%
Change in valuation allowance... (1,071,528) 40.1% (1,540,646) 39.8% (1,958,603) 41.1%
----------- ----- ----------- ----- ----------- -----
Provision for income taxes...... $ -- --% $ -- --% $ -- --%
=========== ===== =========== ===== =========== =====
</TABLE>
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 5,333,353 shares of Series C
Convertible Redeemable Preferred Stock (Series C Stock) and 2,566,667 shares of
Series D Convertible Redeemable Preferred Stock (Series D Stock). During the
period from May 1998 through August 1998, the Company issued 4,189,195 shares of
Series C Stock at $1.37 per share. During May 1999, the Company issued 2,051,282
shares of Series D Stock at $3.90 per share.
The holders of Series C Stock and Series D Stock shall be entitled to
receive noncumulative dividends of $0.06825 per annum and $.195 per annum,
respectively, as declared by the Board of Directors.
F-11
<PAGE> 86
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $1.37 and $3.90 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 $9.75 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 $2.73 per share and $7.80
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 384,611 warrants of Series D Stock an exercise price of
$4.50.
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.
PREFERRED STOCK
Pursuant to the Company's Series A preferred stock agreement entered into
in May 1996, 2,000,000 shares of Series A preferred stock were sold to the
existing stockholder and other investors at a price of $1.50 per share in July
1996. Upon liquidation, merger or acquisition of the Company, provided
sufficient assets are available, Series A preferred stockholders would receive
$1.50 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 166,667 shares of common stock at $0.225 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, 1,378,314 shares of Series B preferred stock were sold to the
existing stockholders and other investors at a price of $3.00 per share. Of the
total number of shares sold, 343,614 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
F-12
<PAGE> 87
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
acquisition of the Company, provided sufficient assets are available, Series B
preferred stockholders would receive $3.00 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 $1.50 and $3.00 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 $4.10 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 15,000 shares of Series B preferred
stock at $3.00 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, 10,000,019 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 July 2002.
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>
F-13
<PAGE> 88
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. 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 June 30, 1999, 56,771
and 107,817 shares of common stock were subject to repurchase, respectively,
under this provision.
F-14
<PAGE> 89
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 six
months ended June 30, 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................... 914,333 8,333 922,666 $0.05 $0.06
Canceled.................. (177,291) -- (177,291) $0.08
Exercised................. (46,667) (8,333) (55,000) $0.02
--------- ------- ---------
Balance, December 31, 1996 690,375 -- 690,375 $0.05
Granted................... 334,333 106,667 441,000 $0.41 $0.08
Canceled.................. (93,000) -- (93,000) $0.23
Exercised................. (262,042) -- (262,042) $0.05
--------- ------- ---------
Balance, December 31,
1997...................... 669,666 106,667 776,333 $0.24
Granted................... 675,733 200,233 875,966 $0.41 $1.02
Canceled.................. (279,305) (61,111) (340,416) $0.51
Exercised................. (60,694) (1,067) (61,761) $0.18
--------- ------- ---------
Balance, December 31,
1998...................... 1,005,400 244,722 1,250,122 $0.29
Granted................... 801,333 138,900 940,233 $4.34 $2.73
Canceled.................. (156,767) (82,630) (239,397) $0.27
Exercised................. (248,467) (50,276) (298,743) $0.13
--------- ------- ---------
Balance, June 30, 1999...... 1,401,499 250,716 1,652,215 1.98
========= ======= =========
</TABLE>
Options outstanding, exercisable, and vested by price range at December 31,
1998, are as follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE NUMBER CONTRACTUAL NUMBER NUMBER
PRICE OUTSTANDING REMAINING LIFE EXERCISABLE VESTED
- --------- ----------- -------------- ----------- -------
<S> <C> <C> <C> <C>
$0.75 274,928 9.0 274,928 152,067
$0.02 319,361 7.4 319,361 314,027
$0.23 655,833 9.5 655,833 100,617
--------- --------- -------
1,250,122 1,250,122 566,711
========= ========= =======
</TABLE>
During 1997, the Company entered into agreements that granted options to
purchase 123,333 shares of Series A preferred stock to consultants at $1.50 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 $965,571. This deferred compensation is 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 $198,288.
F-15
<PAGE> 90
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In connection with the granting of certain stock options to employee,
directors and consultants during the six months ended June 30, 1999, the Company
recorded deferred compensation of $1,172,577. This deferred compensation is
being amortized over the expected service periods of the grantees, generally
four years. Amortization of deferred compensation for the six months ended June
30, 1999, was $490,785.
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>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss:
As reported.............. $(2,668,790) $(3,869,323) $(5,428,381) $(2,476,787) $(4,767,762)
Pro forma................ (2,682,025) (3,929,438) (5,525,937) (2,476,787) (4,818,237)
Basic and diluted net loss
per common share:
As reported.............. $ (0.71) $ (0.97) $ (1.35) $ (0.62) $ (1.15)
Pro forma................ (0.72) (0.99) (1.37) (0.62) (1.17)
</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.
F-16
<PAGE> 91
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. The Company
has imputed a salary of $100,000, $125,000 and $150,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
F-17
<PAGE> 92
[BACK INSIDE COVER
Description: 14 color photographs of Cybergold members, laid out in a staggered
pattern. (See attached layout). Each photo is approximately 2.5 inches x 2
inches. Each photograph is captioned with name and occupation. Cybergold logo,
approximately 1 inch x 2 inches, in center of page. Header beneath Cybergold
logo reads: Meet Some of Our Members
<TABLE>
<S> <C>
CAPTIONS:
Stacey Trask waitress
Ron Beall business professor
Chris Trim police officer
Devora Kanter customer service manager
Rebecca Flores event planner
Dick Kerner financial portfolio planner
Ian Dalec field engineer
Colette Sandstedt filmmaker
Frank Siegel software developer
Jessica Burrows media planner
Jonathan Peacock technical support engineer
Jim Kwan chef
Carrie Applebaum marketing communications
Voltaire Moise artist]
</TABLE>
<PAGE> 93
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
SG COWEN
CIBC WORLD MARKETS
VOLPE BROWN WHELAN & COMPANY
E*OFFERING
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 94
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 Cybergold 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........................................ $ 14,067
NASD fee.................................................... 5,560
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 200,000
Blue sky fees and expenses.................................. 3,000
Transfer agent fees......................................... 10,000
Miscellaneous fees and expenses............................. 122,373
----------
Total............................................. 1,000,000
==========
</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> 95
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1996, Cybergold 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 1,999,998 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 166,666 shares of common stock
to a private accredited investor at an exercise price of $0.225 pursuant to
Section 4(2) of the Act.
(4) In June 1997, we issued 1,394,973 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 15,000
shares of Series B Preferred Stock at an exercise price of $3.50 pursuant to
Section 4(2) of the Act.
(6) In May and August 1998, we issued 4,189,192 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 2,051,275 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 384,611 shares of
Series D Preferred Stock at an exercise price of $4.50 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.
II-2
<PAGE> 96
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<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
3.4* Amended and Restated Bylaws of the Registrant
3.5 Certificate of Correction to the Registrant's Certificate of
Incorporation
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5
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 Villeneuve Franklin &
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 Office Building Lease, between the Registrant and 1330
Broadway, dated July 5, 1999.
10.14 Series C Preferred Stock Purchase Agreement, dated May 15,
1998.
10.15 Series C Preferred Stock Purchase Agreement, dated August
19, 1998.
10.16 Series D Preferred Stock and Warrant Purchase Agreement,
dated May 18, 1999.
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 six months ended
June 30, 1999).
</TABLE>
- ---------------
* Previously filed
+ Specified portions of this agreement have been omitted and have been filed
separately with the Commission pursuant to a request for confidential
treatment.
II-3
<PAGE> 97
(b) FINANCIAL STATEMENT SCHEDULES
None.
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 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> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Berkeley, State of California, on this 6th day of August, 1999.
CYBERGOLD, INC.
By: /s/ A. NATHANIEL GOLDHABER
------------------------------------
A. Nathaniel Goldhaber
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the 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 August 6, 1999
- ------------------------------------------------ Officer (Principal Executive
A. Nathaniel Goldhaber Officer)
and Director
/s/ JOHN STEUART Chief Financial Officer August 6, 1999
- ------------------------------------------------ (Principal Financial and
John Steuart Accounting Officer)
/s/ CHRISTOPHER ALAFI Director August 6, 1999
- ------------------------------------------------
Christopher Alafi
/s/ JAY CHIAT Director August 6, 1999
- ------------------------------------------------
Jay Chiat
/s/ GARRETT GRUENER Director August 6, 1999
- ------------------------------------------------
Garrett Gruener
/s/ REGIS MCKENNA Director August 6, 1999
- ------------------------------------------------
Regis McKenna
/s/ ALAN SALZMAN Director August 6, 1999
- ------------------------------------------------
Alan Salzman
/s/ PETER SEALEY Director August 6, 1999
- ------------------------------------------------
Peter Sealey
</TABLE>
*By: /s/ A. NATHANIEL GOLDHABER
------------------------------
A. Nathaniel Goldhaber
Attorney-in-Fact
*By: /s/ JOHN STEUART
------------------------------
John Steuart
Attorney-in-Fact
II-5
<PAGE> 99
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
3.4* Amended and Restated Bylaws of the Registrant
3.5 Certificate of Correction to the Registrant's Certificate of
Incorporation
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5
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 Villeneuve Franklin &
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 Office Building Lease, between the Registrant and 1330
Broadway, dated July 15, 1999.
10.14 Series C Preferred Stock Purchase Agreement, dated May 15,
1998.
10.15 Series C Preferred Stock Purchase Agreement, dated August
19, 1998.
10.16 Series D Preferred Stock and Warrant Purchase Agreement,
dated May 18, 1999.
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 six months ended
June 30, 1999).
</TABLE>
- ---------------
* Previously filed
+ Specified portions of this agreement have been omitted and have been filed
separately with the Commission pursuant to a request for confidential
treatment.
<PAGE> 1
EXHIBIT 1.1
_____________ SHARES
CYBERGOLD, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
[DATE]
SG COWEN SECURITIES CORPORATION
CIBC WORLD MARKETS
VOLPE BROWN WHELAN & COMPANY
E*OFFERING
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, $.0001 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, Volpe Brown Whelan & Company and E*Offering 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. 333-79067) (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
1
<PAGE> 2
to the Initial Registration Statement has heretofore been filed with the
Commission; and no stop 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, to the Company's knowledge, 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. All references in this Agreement to (i) the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus or the Term Sheet, or any amendments or supplements
to any of the foregoing, shall include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR") and (ii) the Prospectus shall be deemed to include the
"electronic Prospectus" provided for use in connection with the offering of the
Common Shares as contemplated by Section 4(o) of this Agreement.
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 has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which its ownership or lease of property or the conduct of
its business requires such qualification, and has all power and authority
necessary to own or hold its properties and to conduct the business in which it
is engaged, except where the failure to so qualify or have such power or
authority would not have,
2
<PAGE> 3
singularly or in the aggregate, a material adverse effect on the condition
(financial or otherwise), results of operations, business or prospects of the
Company (a "Material Adverse Effect"). The Company does not own or control,
directly or indirectly, any corporation, association or other entity.
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. 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 is a
party or by which the Company is bound or to which any of the property or assets
of the Company is subject, except for such conflicts, breaches, violations and
defaults that would not, individually or in the aggregate, result in a Material
Adverse Effect, nor will such actions result in any violation of the provisions
of the charter or by-laws of the Company 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 properties or assets.
h. 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 and
from the National Association of Securities Dealers, Inc. (the "NASD") 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.
i. Arthur Andersen LLP, who have expressed their opinions on the
audited financial statements included in the Registration Statements and the
Prospectus are independent public accountants as required by the Securities Act
and the Rules and Regulations.
j. 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 for the respective
periods therein specified. Such statements and related notes [and schedules]
3
<PAGE> 4
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis except as may be set forth in the Prospectus.
k. The Company has not 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 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,
otherwise than as set forth or contemplated in the Prospectus.
l. Except as set forth in the Prospectus, there is no legal or
governmental proceeding pending to which the Company is a party or of which any
property or assets of the Company is the subject which, singularly or in the
aggregate, if determined adversely to the Company, might have a Material Adverse
Effect or would prevent or materially and adversely affect the ability of the
Company to perform its obligations under this Agreement; and to the Company's
knowledge, no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
m. The Company is not (i) in violation of its charter or by-laws, (ii)
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) 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.
n. The Company possesses all licenses, certificates, authorizations and
permits issued by, and has 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 its properties or the conduct of its
business 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.
o. The Company is not and, after giving effect to the offering of the
Stock and the application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations of the
Commission thereunder.
p. 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
4
<PAGE> 5
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.
q. The Company owns or possesses 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 it for the conduct of its business
and, except as described in the Prospectus, the Company is not aware of any
claim to the contrary or any challenge by any other person to the rights of the
Company with respect to the foregoing. The Company's business as now 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.
r. The Company has good and marketable title in fee simple to, or has
valid rights to lease or otherwise use, all items of real or personal property
which are material to the business of the Company, in each case free and clear
of all liens, encumbrances, claims and defects that may result in a Material
Adverse Effect.
s. No labor disturbance by the employees of the Company exists or, to
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.
t. 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 respects with applicable law, including ERISA and the Code,
except to the extent that failure to so comply would not have a Material Adverse
Effect; the Company has not incurred and does not 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.
u. 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, to the Company's knowledge, any other
5
<PAGE> 6
entity for whose acts or omissions the Company is or may be liable) upon any of
the property now or previously owned or leased by the Company, 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 has 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.
v. The Company (i) has filed all necessary federal, state and foreign
income and franchise tax returns, (ii) has paid all federal state, local and
foreign taxes due and payable for which it is liable, and (iii) does not have
any tax deficiency or claims outstanding or assessed or, to the Company's
knowledge, proposed against it which could reasonably be expected to have a
Material Adverse Effect.
w. The Company carries, or is covered by, insurance in such amounts and
covering such risks as is adequate for the conduct of its business and the value
of its properties and as is customary for companies engaged in similar
businesses in similar industries.
x. The Company 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.
y. The minute books of the Company has been made available to the
Underwriters and counsel for the Underwriters, and such books (i) contain a
complete summary of all meetings and actions of the directors and shareholders
of the Company since the time of its 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.
z. 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.
aa. 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.
6
<PAGE> 7
bb. The Company does not 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.
cc. The Company is not 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.
dd. 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.
ee. The Company has reviewed its operations and that of any third
parties with which the Company has a material relationship to evaluate the
extent to which the business or operations of the Company will be affected by
the Year 2000 Problem. Based solely on the review to date of the Year 2000
Problem compliance of the Company's systems, except as otherwise described in
the Prospectus, the Company 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 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.
ff. 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").
7
<PAGE> 8
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 of immediately available funds 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 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 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
8
<PAGE> 9
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 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
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<PAGE> 10
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. The Company will 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. The Company will 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).
e. The Company will make generally available to its stockholders 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 (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
shall not be obligated to qualify as a foreign corporation in any jurisdiction
in which it is 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 make available 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.
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<PAGE> 11
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 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 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 expects to apply the net proceeds from the sale of the
Stock as set forth in the Prospectus under the heading "Use of Proceeds."
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<PAGE> 12
o. The Company shall cause to be prepare and delivered, at its expense,
within one business day form the effective date of this Agreement, to E*Offering
an "electronic Prospectus" to be used by the Underwriters in connection with the
offering and sale of the Common Shares. As used herein, the term "electronic
Prospectus" means a form of Prospectus, and any amendment or supplement thereto,
that meets each of the following conditions: (i) it shall be encoded in an
electronic format, satisfactory to E*Offering, that may be transmitted
electronically by E*Offering and the other Underwriters to offerees and
purchasers of the Common Shares for at least the Prospectus Delivery Period;
(ii) it shall disclose the same information as the paper Prospectus and
Prospectus filed pursuant to EDGAR, except to the extent that graphic and image
material cannot be disseminated electronically, in which case such graphic and
image material shall be replaced in the electronic Prospectus with a fair and
accurate narrative description or tabular representation of such material, as
appropriate; and (iii) it shall be in or convertible into a paper format or an
electronic format, satisfactory to E*Offering that will allow investors to store
and have continuously ready access to the Prospectus at any future time, without
charge to investors (other than any fee charged for subscription to the system
as a whole and for on-line time). Such electronic Prospectus may consist of a
Rule 434 preliminary prospectus, together with the applicable Term Sheet,
provided that it otherwise satisfied the format and conditions described in the
immediately preceding sentence. The Company hereby confirms that it has included
or will include in the Prospectus filed pursuant to EDGAR or otherwise with the
Commission and in the Registration Statement at the time it was declared
effective an undertaking that, upon receipt of a request by an investor or his
or her representative within the Prospectus Delivery Period, the Company shall
transmit or cause to be transmitted promptly, without charge, a paper copy of
the Prospectus.
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 has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification, and has all
power and authority necessary to own or hold its properties and to conduct the
business in which its is 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 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.
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<PAGE> 14
(iii) 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.
(iv) This Agreement has been duly authorized, executed and delivered
by the Company.
(v) 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 material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party or by
which the Company is bound or to which any of the properties or assets of the
Company is subject, nor will such actions result in any violation of the charter
or by-laws of the Company 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 properties or assets.
(vi) 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 and from the NASD 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.
(vii) The description in the Registration Statement and Prospectus
of statutes, legal and governmental proceedings and contracts and other
documents, insofar as such statements constitute matters of law, summaries of
legal matters, the Company's charter or by-law provisions, documents or legal
proceedings, or legal conclusions, have been reviewed by such counsel and fairly
present and summarize, in all material respects, the matters referred to
therein; and 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.
(viii) To the best of such counsel's knowledge, the Company is not
(i) in violation of its charter or by-laws, (ii) 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 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) 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.
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<PAGE> 15
(ix) To such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending or threatened
to which the Company is a party or of which any property or asset of the Company
is the subject which, singularly or in the aggregate, if determined adversely to
the Company, would prevent or adversely affect the ability of the Company to
perform its obligations under this Agreement.
(x) 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.
(xi) 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, 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.
(xii) To such counsel's knowledge, 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.
(xiii) The Company is not an "investment company" within the meaning
of the Investment Company Act and the rules and regulations of the Commission
thereunder.
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.
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<PAGE> 16
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 substantially the
form of Exhibit A hereto.
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 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 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
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<PAGE> 17
position or results of operation of the Company, 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, except as set forth in the Prospectus.
j. The Company shall not 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 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, 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 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.
m. The Nasdaq National Market System shall have approved the Stock for
listing, subject only to official notice of issuance and evidence of
satisfactory distribution.
n. 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.
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<PAGE> 18
o. 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 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 16). 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,
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<PAGE> 19
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.
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
19
<PAGE> 20
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.
d. 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
20
<PAGE> 21
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 7(d) 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(d) shall be deemed to include, for
purposes of this Section 7(d), 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(d), 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 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.
e. The Underwriters' obligations to contribute as provided in this
Section 7(e) 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) or 6(l) has 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
21
<PAGE> 22
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 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 and 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)______________ ;
22
<PAGE> 23
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 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.
23
<PAGE> 24
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:
24
<PAGE> 25
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm Number of
Shares to be Optional Shares
Name Purchased to be Purchased
- ---- -------------- ---------------
<S> <C> <C>
SG Cowen Securities Corporation ---------- ----------
CIBC World Markets ---------- ----------
Volpe Brown Whelan & Company ---------- ----------
E*Offering ---------- ----------
Total ---------- ----------
========== ==========
</TABLE>
25
<PAGE> 26
SCHEDULE B
[LIST OF SHAREHOLDERS SUBJECT TO SECTION 4(h)]
26
<PAGE> 27
EXHIBIT A
{UNDERWRITER]
[address]
[address]
Re: Cybergold, Inc.
Ladies and Gentlemen:
This opinion is furnished to you as of the date given above pursuant to
Section __ of the Underwriting Agreement dated ______, 1999 by and among
Cybergold Inc. (the "Company") and you.
I.
Such November of 1998, we have acted as special patent counsel to the
Company with respect to the following matters (collectively referred to herein
as our "Representation"): (i) assisting in the ongoing prosecution of certain
United States patent applications of the Company listed in Schedule A hereto
(the "U.S. Applications") and supervising foreign counsel in prosecuting
certain foreign counterpart patent applications corresponding thereto listed in
Schedule B hereto (the "Foreign Applications") (the U.S. Applications and the
Foreign Applications will be referred to collectively herein as the
"Applications"); and (ii) assisting the Company in the enforcement and
licensing of its issued United States Patents listed on Schedule C hereto (the
"Issued Patents"). To date, all Applications with respect to which we have
assisted in the prosecution or supervision of prosecution were written
initially by another firm, and responsibility for ongoing prosecution or
supervision of prosecution of such Applications was recently transferred to our
firm.
As patent counsel, we are familiar with the technology used by the Company
in its business that is the subject of the Applications and of the Issued
Patents. We have acted as general outside corporate counsel to the Company, but
rather have provided only the limited Representation described above. We have
not been asked to assist and have not assisted in the preparation and filing of
the Company's Registration Statement in connection with the offer of ___________
shares of Cybergold Inc. (the "Registration Statement"), or any amendments
thereto, other than those specific portions of the Registration Statement
referring to patents, trade secrets, trademarks, service marks or other
proprietary information of the Company reproduced in Schedule D attached hereto.
27
<PAGE> 28
II.
We have performed an electronic database search through the LEXIS search
service of the records of the United States Patent and Trademark Office. Based
on such search, as of the date hereof, the Company is listed in the records of
the United States Patent and Trademark Office as the holder of record of the
Issued Patents. Based on such search and on the U.S. Applications in our
possession, as of the date hereof, the Company has received an assignment of
each of the U.S. Applications from each of the designated inventors of each such
U.S. Application, which assignments have been recorded in the United States
Patent and Trademark Office. To our knowledge in the course of our limited
Representation as of the date hereof, there are no claims of third parties to
any ownership interest or lien with respect to any of the Issued Patents or U.S.
Applications, and the Company owns as its sole property the Issued Patents and
pending U.S. Applications. As of the date hereof, we are not aware of any
material defect in form in the preparation or filing of the U.S. Applications on
behalf of the Company, although as noted above, we did not perform the initial
preparation and filing of the U.S. Applications. To our knowledge as of the date
hereof, the U.S. Applications are being pursued by the Company.
We have reviewed the Foreign Applications in our possession. As of the
date hereof, each Foreign Application lists the Company as the applicant for
the patent. To our knowledge in the course of our limited Representation as of
the date hereof, there are no claims of third parties to any ownership interest
or lien with respect to any of the Foreign Applications, and the Company owns
as its sole property the pending Foreign Applications. As of the date hereof,
we are not aware of any material defect in form in the preparation or filing of
the Foreign Applications on behalf of the Company, although, as noted above, we
did not perform the initial preparation and filing of the Foreign Applications.
To our knowledge as of the date hereof, the Foreign Applications are being
pursued by the Company.
III.
We have not become aware in the course of our limited Representation as of
the date hereof of any reason why the Issued Patents are not valid as issued or
why any patent that may issue as a result of any Application would not be valid.
IV.
We have read the statements of the Registration Statement under the
captions "Risk Factors - Dependence on Patents and Proprietary Rights" and
"Business - Patents and Proprietary Rights" in the final form in which such
statements were delivered to us before the date hereof (the "Statements"), which
Statements are reproduced in Schedule D hereto. Nothing has come to our
attention in the course of our limited Representation as of the date hereof
which caused us to believe that the Statements contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the Statements not misleading.
2
<PAGE> 29
V.
As of date hereof, we know of no material action, suit, claim or proceeding
(other than prosecution of the Applications) relating to patents, patent rights
or licenses, trademarks or trademark rights, copyrights, collaborative research,
licenses or royalty arrangements or agreements, trade secrets, know-how or
proprietary techniques, including processes and substances, owned by or
affecting the business or operations of the Company which are pending or overtly
threatened against the Company or any of its officers or directors.
VI.
The opinion expressed in this letter is based solely on the information in
our possession as of the date hereof. We have undertaken no investigation to
uncover additional information relevant to the matters discussed herein. There
may be facts of which we are not aware that would materially influence our
opinion.
This letter and the opinions set forth herein are intended solely for your
use in connection with the offer of shares of the Company pursuant to the
Registration Statement, and may not be relied upon by you for any other purpose
and are not to be made available to or relied upon by other persons or entities
without our prior written consent. This letter is delivered to you as of the
date hereof, and we do not undertake to, and will not, advise you of any changes
to the matters addressed herein that arise or come to our attention after the
delivery hereof.
Very truly yours,
David L. Hayes
for FENWICK & WEST LLP
3
<PAGE> 30
SCHEDULE A
U.S. APPLICATIONS
<TABLE>
<CAPTION>
SERIAL NUMBER FILING DATE TITLE
- ------------- ----------- -----
<S> <C> <C>
08,988,902 12/11/97 Method for Trading Customer
Attention for Advertisement
09/175,731 10/28/98 Attention Brokerage
</TABLE>
4
<PAGE> 31
SCHEDULE B
FOREIGN APPLICATIONS
<TABLE>
<CAPTION>
COUNTRY SERIAL NUMBER FILING DATE
------- ------------- -----------
<S> <C> <C>
Australia 14153/97 12/11/96
Canada 2,240,314 12/11/96
Europe 96944314.2 12/11/96
Israel 124832 12/11/96
Japan 9-522188 12/11/96
</TABLE>
5
<PAGE> 32
SCHEDULE C
ISSUED PATENTS
U.S. Pat. No. 5,794,210 titled "Attention Brokerage"
U.S. Pat. No. 5,855,008 titled "Attention Brokerage"
6
<PAGE> 33
SCHEDULE D
REGISTRATION STATEMENT EXCERPTS
From p. 11 of the S-1:
"WE RELY ON OUR INTELLECTUAL PROPERTY RIGHTS AND IF WE ARE UNABLE TO PROTECT
THESE RIGHTS, WE MAY FACE INCREASED COMPETITION OR GREATER DIFFICULTY IN
SUCCESSFULLY ESTABLISHING THE CYBERGOLD BRAND
We rely on a combination of patent, copyright, trademark, 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 other, 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, 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
7
<PAGE> 34
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."
From pp. 47-48 of the S-1:
"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
8
<PAGE> 35
- - Patent #5,855,008, for Consumer and 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 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.
9
<PAGE> 36
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;
28
<PAGE> 37
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:
29
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF CORRECTION OF
THE RESTATED CERTIFICATE OF INCORPORATION OF
CYBERGOLD, INC.
Pursuant to Section 103 (f) of Title 8 of the Delaware Code of 1953, as
amended:
I, the undersigned, being the duly elected Secretary of Cybergold, Inc.
(the "Company"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, DO HEREBY CERTIFY:
RESOLVED, that in the Restated Certificate of Incorporation of this
corporation, as filed May 18, 1999, the par value of the Company's Common Stock
was inadvertently set forth incorrectly, and that the first paragraph of Article
IV thereof should be corrected by changing it to read as follows:
"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 $0.0001 per share.
Seventeen million one hundred eighty thousand (17,180,000) shares shall
be Preferred Stock, par value $0.0001 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."
IN WITNESS WHEREOF, the undersigned has signed this
Certificate this 15th day of June, 1999.
/s/ A. Nathaniel Goldhaber
---------------------------
A. Nathaniel Goldhaber,
President and Secretary
<PAGE> 1
EXHIBIT 5.1
GUNDERSON DETTMER STOUGH VILLENEUVE FRANKLIN & HACHIGIAN, LLP
155 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
August 6, 1999
Cybergold, Inc.
2921 Adeline St.
Berkeley, California 94703
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No.
333-79067) originally filed by Cybergold, Inc. (the "Company") with the
Securities and Exchange Commission (the "Commission") on May 21, 1999, as
thereafter amended or supplemented (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of up to
4,000,000 shares of the Company's Common Stock (the "Shares"). The Shares, which
include an over-allotment option granted by certain stockholders of the Company
to the Underwriters to purchase up to 600,000 additional shares of the Company's
Common Stock, are to be sold to the Underwriters by the Company as described in
the Registration Statement for resale to the public. As your counsel in
connection with this transaction, we have examined the proceedings taken and are
familiar with the proceedings proposed to be taken by you in connection with the
sale and issuance of the Shares.
It is our opinion that the Shares being sold by the Company, when
issued and sold in the manner described in the Registration Statement and in
accordance with the resolutions adopted by the Board of Directors of the
Company, will be legally and validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to said
Registration Statement and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus constituting
a part thereof, and in any amendment or supplement thereto.
Very truly yours,
/s/ GUNDERSON DETTMER STOUGH VILLENEUVE FRANKLIN & HACHIGIAN, LLP
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
<PAGE> 1
Exhibit 10.7
MERCHANT TRANSACTION PROCESSING
-------------------------------
AGREEMENT
<PAGE> 2
<TABLE>
<S> <C> <C> <C> <C> <C>
Associate: Chain: MID#: DDA#: MCC Code: Date Rec'd
---------- ------ ------ ------- ------- -------
</TABLE>
AGREEMENT
By their execution hereof, the undersigned PARTIES hereby agree to the terms,
conditions, and provisions of the documents, agreements, and rules which are
included herein, which shall become effective as provided. All of the documents
contained are called the "AGREEMENT."
The following documents are attached hereto:
<TABLE>
<S> <C>
Processing Terms.......................................... pp. 1 - 7
Terminal Rental Agreement (included: / / Y / / N)........ pp. 8 - 9
Guarantee................................................. pp. 10
Rules..................................................... pp. 11 - 20
</TABLE>
The following documents are included herein and are located in the inside front
cover of this packet:
Merchant Application
Funds Transfer Instructions
Schedule of Applicable Fees
POS Information
Purchasing Card Information
- --------------------------------------------------------------------------------
BY ITS EXECUTION HEREOF, MERCHANT ACKNOWLEDGES RECEIPT OF THE DOCUMENTS LISTED
ON THIS PAGE. ALL INFORMATION CONTAINED ON THIS APPLICATION WAS COMPLETED OR
SUPPLIED BY ALL CONTRACTING PARTIES. MERCHANT ACCEPTS ALL CONTRACTUAL ASPECTS
OF THE AGREEMENT. MERCHANT UNDERSTANDS THAT THIS AGREEMENT SHALL NOT TAKE EFFECT
UNTIL SIGNED BY FIRST NATIONAL BANK OF OMAHA.
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE EXECUTED
BY THEIR DULY AUTHORIZED REPRESENTATIVES EFFECTIVE ON THE DATE SIGNED BY FNBO.
<TABLE>
<S> <C>
MERCHANT: CyberGold, Inc. FIRST NATIONAL BANK OF OMAHA
Signature: /s/ MARY K. GLAESER Signature: /s/ FIRST NATIONAL BANK OF OMAHA
------------------------- ---------------------------------
Name: /s/ Mary K. Glaeser Name: FIRST NATIONAL BANK OF OMAHA
------------------------------ --------------------------------------
Date: 6/17/97 Date: 9/12/97
------------------------------ --------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
THE UNDERSIGNED AGREES TO THE TERMS OF THE UNDERSIGNED AGREES TO THE
THE TERMINAL RENTAL AGREEMENT: TERMS OF THE GUARANTEE.
SPC, INC. GUARANTOR: /S/ A. NATHANIEL GOLDHABER
--------------------------------
Signature: By: A. Nathaniel Goldhaber
----------------------------- ---------------------------------------
Name: Social Security or Tax ID: ###-##-####
---------------------------------- ----------------
Date: Address: 261 Stonewall Road
---------------------------------- ----------------------------------
City: Berkeley
-------------------------------------
State: CA Zip Code: 94705
------------ -------------
</TABLE>
<PAGE> 3
PROCESSING TERMS
This AGREEMENT shall become effective on the date executed by a duly authorized
representative of FNBO. FNBO and MERCHANT shall be collectively known as the
"PARTIES."
A. WHEREAS FNBO is a Member of VISA U.S.A., Inc. ("VISA") and MasterCard
International, Inc. ("MASTERCARD") and provides transaction processing
and other services, ("SERVICES"), in relation to financial services
cards ("CARDS") issued by VISA, MASTERCARD and other financial service
card organizations, including debit point of sale networks ("DEBIT POS
NETWORKS"). VISA, MASTERCARD, DEBIT POS NETWORKS, and the other
financial service card organizations shall be collectively known as
"ASSOCIATIONS;"
B. WHEREAS MERCHANT, in furtherance of its business operations, wishes to
accept debit and credit CARDS issued by the ASSOCIATIONS and have FNBO
process the resulting transactions ("SALES") pursuant to the terms and
conditions set out below. For purposes of this AGREEMENT, debit
transactions, ("DEBIT"), shall mean those transactions processed on a
DEBIT POS NETWORK, in an on-line real time environment requiring the
entry of a personal identification number, ("PIN");
C. WHEREAS MERCHANT desires to be sponsored as a participant in certain
DEBIT POS NETWORKS, under the terms of the rules and regulations of
each such DEBIT POS NETWORK;
D. WHEREAS ASSOCIATIONS and FNBO each have adopted rules and regulations
relating to all aspects of SALES processing. Such rules and
regulations, as amended from time to time, are incorporated by this
reference herein and shall be referred to as the "RULES."
E. WHEREAS MERCHANT understands that this is an agreement for transaction
processing and that the fees for the services herein are calculated
based on the term of this AGREEMENT, the number of transactions
processed, and the method of processing.
NOW THEREFORE, in consideration of the mutual promises made herein and other
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the PARTIES do hereby agree as follows:
1. GENERAL:
1.1 The CARDS designated herein will be processed under the terms and
conditions of AGREEMENT as long as FNBO is contractually permitted to offer
such SERVICES by the respective ASSOCIATIONS.
1.2 MERCHANT agrees to submit all SALES from CARDS accepted in MERCHANT's
business as defined in the Application, under Business Profile and
Assumptions, for processing, ("BUSINESS"), to FNBO in accordance with the
RULES and pursuant to the terms of this AGREEMENT.
1.3 MERCHANT agrees that this AGREEMENT is confidential and will not disclose
it to any third party without the prior written consent of FNBO.
1.4 MERCHANT and FNBO agree to abide by the RULES. FNBO and ASSOCIATIONS may
from time to time amend the RULES or operating procedures related to SALES
and SERVICES to be effective upon thirty (30) days written notice to
MERCHANT.
1.5 MERCHANT has been supplied with the RULES and by signing AGREEMENT,
acknowledges that it has received and understands them.
1
<PAGE> 4
1.6 Submission by MERCHANT of SALES at any time after seven (7) days from the
date of distribution of amended RULES to MERCHANT's address for
processing statements, shall be evidence that MERCHANT has received the
amended RULES and has agreed to abide by them.
2. SPECIFIC OPERATING PROCEDURES:
2.1 MERCHANT agrees that it will comply with all CARD Acceptance Procedures
in RULES for each SALE, including, but not limited to the following:
2.1.1 MERCHANT agrees that it will obtain and record a valid positive
authorization for all SALES in accordance with the RULES before
submitting them to FNBO for processing; and
2.1.2 MERCHANT must be able to prove, by evidence of a terminal capture
of a magnetic stripe or signed sales draft showing imprint of the
CARD, that the CARD was present at the time of SALE, unless
specifically set up for Mail Order and Telephone Order ("MO/TO")
transactions.
2.2 MERCHANT may participate in such DEBIT POS NETWORKS as are set forth in
the Schedule Of Applicable Fees. Additional DEBIT POS NETWORKS may be
available from time to time. FNBO does not warrant the continuing
availability of any DEBIT POS NETWORK.
2.3 MERCHANT agrees to accept valid CARDS of each of the DEBIT POS NETWORKS
selected without discrimination and will not impose purchase minimums,
maximums, or surcharges, unless specifically allowed by the DEBIT POS
NETWORKS. MERCHANT agrees to comply with the rules, regulations,
procedures, fees, assessments, penalties, and other obligations of each
DEBIT POS NETWORK, as from time to time are in effect.
2.4 FNBO may provide MERCHANT access through MERCHANT's terminals to the
DEBIT POS NETWORKS if agreed to by MERCHANT herein.
2.5 MERCHANT realizes that there are no voice authorizations for DEBIT
transactions.
3. PAYMENT OF SUMS DUE:
3.1. MERCHANT agrees to pay FNBO the fees as set out in the Schedule of
Applicable Fees and other sums owed to FNBO, including but not limited to
all disputed transactions ("CHARGEBACKS"), (collectively "FEES") for
SERVICES as set forth in this AGREEMENT as amended from time to time.
3.2 As set our in the Schedule of Applicable Fees, discount ("DISCOUNT") is a
transaction charge for SALES submitted by MERCHANT and generally includes
"Processing," "Authorizations," "Assessments," and "Interchange."
Assessments and Interchange are the standard fees that the ASSOCIATIONS
charge for the clearing of SALES transactions and are subject to change
by the ASSOCIATIONS; FNBO has no direct control over these fees. Any
adjustment in Interchange and Assessments by the ASSOCIATIONS may result
in an adjustment in the DISCOUNT charged to MERCHANT. FNBO will notify
MERCHANT of any change in FEES caused by action of ASSOCIATIONS, in
writing, prior to any such change becoming effective. Notice to MERCHANT
of any change in FEES caused by ASSOCIATIONS may be less than thirty (30)
days.
3.3 DISCOUNT is quoted by FNBO based on the information supplied by MERCHANT
in the Application under the Business Profile and Assumptions,
("ASSUMPTIONS"). MERCHANT agrees that the FEES are based on the term of
this AGREEMENT, the ASSUMPTIONS, and the method of processing. MERCHANT
agrees that the ASSUMPTIONS are material facts in the calculation of the
DISCOUNT and other FEES. MERCHANT agrees that if the ASSUMPTIONS are
shown to be incorrect, FNBO may amend FEES as set out herein to reflect
such change. MERCHANT agrees to pay such amended FEES.
3.4 The FEES may be amended by FNBO on thirty (30) days written notice to
MERCHANT unless provided otherwise herein.
2
<PAGE> 5
3.5 MERCHANT understands that FNBO is in no way financially responsible for
CHARGEBACKS. Failure to comply with the RULES will increase MERCHANT's
exposure to CHARGEBACKS. MERCHANT's obligation to pay chargebacks shall
survive the termination or expiration of AGREEMENT.
3.6 In the event that ASSOCIATIONS should levy a fine or penalty or assess a
charge to FNBO as a result of MERCHANT's SALES or CHARGEBACK activity,
MERCHANT agrees to pay such fines, penalties, or charges, and any
administrative fees associated with such fines, penalties, or charges.
3.7 MERCHANT shall establish a designated account ("DESIGNATED ACCOUNT") for
the credit and debit of sums between the PARTIES. MERCHANT agrees to
maintain a positive balance in the DESIGNATED ACCOUNT and to deposit
funds so that the balance required by FNBO is maintained. If AGREEMENT is
terminated for any reason, the DESIGNATED ACCOUNT shall be maintained for
a minimum period of six months in order to secure the obligations of
MERCHANT hereunder unless otherwise agreed in writing by the PARTIES
hereto.
3.8 FNBO agrees to pay MERCHANT for SALES less FEES owed to FNBO by
MERCHANT. FNBO shall deduct FEES from income transactions or debit the
same from MERCHANT's DESIGNATED ACCOUNT.
3.9 In the event that FNBO invoices MERCHANT for any FEES and MERCHANT does
not pay such sums within thirty (30) days from date of receipt of
invoice, FNBO will charge, and MERCHANT agrees to pay, a late fee of one
and one-half percent (1.5%) on the balance outstanding on the unpaid
invoices accruing on a monthly basis.
3.10 If MERCHANT breaches AGREEMENT or if FNBO identifies suspicious or
irregular activity related to SALES, FNBO may refuse to process SALES
and/or may hold funds pending the cure of such breach or resolution of
such activity.
3.11 Electronic Authorizations are the number of authorizations requested per
month which exceed one hundred percent (100%) (unless a different
authorization percentage is provided for in the ASSUMPTIONS) of the
number of VISA and MASTERCARD SALES transactions processed in that month.
In the event MERCHANT pays the per item authorization fee this section
does not apply.
3.12 Voice Authorizations are the number of Voice Authorizations requested per
month of the number of VISA and MASTERCARD transactions processed in that
month.
3.13 Voice Assisted Class are considered to be any call to the Voice
Authorization Center for any reason other than a Voice Authorization.
3.14 In the event AGREEMENT is terminated early for any reason other than set
out in paragraph 5.1, 5.2.1, 5.2.2, MERCHANT agrees to pay FNBO a
liquidated damages sum ("LIQUIDATED DAMAGES") to be determined by
computing the number of months remaining from the effective date of
termination to the end of the current term of this AGREEMENT and
multiplying that number by fifty-five dollars ($55.00). MERCHANT and FNBO
agree that the damages suffered by FNBO as a result of such early
termination would be extremely difficult to calculate with precision. For
that reason, the PARTIES agree that the LIQUIDATED DAMAGES should be
computed as set forth above.
3.15 MERCHANT agrees that LIQUIDATED DAMAGES shall also be due to FNBO if
MERCHANT discontinues submitting SALES for processing during the term of
AGREEMENT.
3.16 In the event of a termination of this AGREEMENT, MERCHANT shall pay FNBO
all costs of deconversion, including but not limited to, costs of
communication and attorney's fees of FNBO's counsel.
3.17 In the event FNBO takes any action against MERCHANT to collect any FEES
or monies due FNBO from MERCHANT, MERCHANT agrees to pay all costs of
collection, including but not limited to, attorney's fees, to the extent
allowed by law.
3
<PAGE> 6
4. TERM OF AGREEMENT:
4.1 The initial term of this AGREEMENT shall be for the term of three (3)
years (the "INITIAL TERM") commencing on the date this AGREEMENT is
executed by an authorized agent of FNBO.
4.2 At the expiration of the INITIAL TERM, this AGREEMENT will automatically
renew for successive one (1) year periods ("RENEWAL TERM") unless
terminated as set out below.
5. TERMINATION OF AGREEMENT:
5.1 This AGREEMENT, except for any included terminal rental agreement, may
be terminated by FNBO at any time effective upon thirty (30) days written
notice.
5.2 This AGREEMENT may be terminated by MERCHANT as follows:
5.2.1 Upon FNBO's default of any material obligation to MERCHANT
thereunder and the failure of FNBO to cure such default within
thirty (30) days after written notice of such default; or
5.2.2 Upon written notice of non-renewal at least thirty (30) days prior
to the commencement of any RENEWAL TERM; or
5.2.3 On thirty (30) days written notice of termination accompanied by
payment to FNBO of the LIQUIDATED DAMAGES due at that time.
5.3 In order to protect the ASSOCIATIONS and FNBO, FNBO may terminate this
AGREEMENT effective immediately for any of the following reasons:
5.3.1 In the event of insolvency, receivership or voluntary or
involuntary bankruptcy; or in the event of an assignment of any of
MERCHANT's assets for the benefit of MERCHANT's property creditors,
or in the event that any part of MERCHANT's property is or becomes
subject to any levy, seizure, assignment or sale for or by any
creditor or governmental agency without being released within
thirty (30) days thereafter; or
5.3.2 If MERCHANT fails to pay any FEES when due; or
5.3.3 If MERCHANT has misrepresented or omitted any material information
provided to FNBO; or
5.3.4 If MERCHANT is in breach of the RULES; or
5.3.5 If MERCHANT, after FNBO's request, fails to send copies of SALES
drafts to FNBO; or
5.3.6 If MERCHANT submits for processing SALES that were not originated
as a result of a direct SALE transaction between a cardholder and
MERCHANT in the normal course of business ("LAUNDERING"); or
5.3.7 If the number of CHARGEBACKS experienced by MERCHANT in any one
month exceed one percent (1%) of the number of SALES in that or any
prior month; or
5.3.9 In the event of a material change of BUSINESS; or
5.3.10 In the event that MERCHANT, its principal, or associated parties,
is identified by the ASSOCIATIONS under any program designed to
monitor merchants; or
5.3.11 If MERCHANT is inactive for ninety (90) days and is not a seasonal
MERCHANT; or
5.3.12 In the event that Guarantor (if designated) shall give notice of
its intention to withdraw the Guarantee.
5.4. Upon the notice of termination or expiration of the AGREEMENT, FNBO is
entitled to retain sufficient funds to cover anticipated FEES. In the
event that there is not enough money retained to cover the anticipated
FEES, FNBO may require MERCHANT to deposit sufficient funds. This sum will
be retained by FNBO for a period of one hundred eighty (180) days, plus
the period of any warranty or guarantee on goods and/or services sold by
MERCHANT and processed as SALES, from the date of the last SALE processed
by MERCHANT under AGREEMENT. FEES due to FNBO received during this period
will be
4
<PAGE> 7
debited from this sum. At the end of the period defined above FNBO will
release to MERCHANT the balance of the sums retained, net of any FEES that
are then being processed or disputed.
6. BANKRUPTCY:
6.1 It is not the intention of the PARTIES that FNBO remain obligated to
continue processing SALES in the event of a Bankruptcy filing by MERCHANT.
Upon filing voluntary or involuntary bankruptcy proceedings by or against
MERCHANT, MERCHANT must notify FNBO in writing within five (5) days.
Notification must be sent by certified mail to FNBO at the address for
NOTICES set out herein.
6.2 Credits to MERCHANT's DESIGNATED ACCOUNT and other payments to MERCHANT
are provisional and the PARTIES agree that AGREEMENT is a contract whereby
FNBO is extending financial accommodations to MERCHANT within the meaning
of Section 365 of the Bankruptcy Code as amended from time to time. The
right or MERCHANT to receive any amounts due or to become due from FNBO is
expressly subject and subordinate to the CHARGEBACKS, setoff, lien, and
security interest rights of FNBO under this AGREEMENT without regard to
whether such CHARGEBACKS, setoff, lien, and/or security interest rights
are being applied to claims that are liquidated, unliquidated, fixed,
contingent, matured, or unmatured.
7. INFORMATION AND DOCUMENTATION:
7.1 MERCHANT agrees to comply with all requests for information and
documentation regarding SALES and CARDS processed under AGREEMENT within
the time period stated by FNBO in its request.
7.2 Upon FNBO's request MERCHANT shall provide FNBO with current financial
statements in a format acceptable to FNBO.
7.3 MERCHANT understands that credit reports of principal(s) of MERCHANT will
be requested and authorizes the same, on behalf of itself and those
parties. MERCHANT authorizes parties contacted by FNBO, or any of its
affiliates, in relation to this AGREEMENT to release the credit
information requested by FNBO or any affiliate.
7.4 If the opinion of FNBO, information received or discovered about MERCHANT
reflects an adverse change in status, or in the event that any information
requested by FNBO is not received, FNBO may withhold the payment for SALES
or require a reserve of funds be deposited in an account at FNBO with the
deposit established to cover MERCHANT's obligations under AGREEMENT.
7.5 MERCHANT is supplied with monthly reports by FNBO regarding MERCHANT's
SALES activity. It is MERCHANT's sole responsibility to report any error
or discrepancies detected by MERCHANT in writing to FNBO within ninety
(90) days following the end of the monthly reporting period. After such
period, MERCHANT will be deemed to have accepted the monthly reports as
delivered.
8. PROCESSING RESTRICTIONS:
8.1 MERCHANT understands that FNBO is not responsible for and is not able to
provide customer service for the POS devices installed by and/or operated
by any Third Party with which MERCHANT has contracted. MERCHANT should
contact the Third Party for service in respect of this equipment. MERCHANT
shall not allow any Third Party to install, remove, or modify any terminal
software application at MERCHANT's location without the express written
consent of FNBO. MERCHANT understands and agrees that FNBO can only
process SALES that are received by FNBO, and that any Third Party is
responsible for ensuring that the SALES are formatted and transmitted to
FNBO in accordance with the then current FNBO and ASSOCIATIONS'
requirements. MERCHANT also understands and agrees that in the event that
a Third Party presents SALES transactions that are not in accordance with
the then current ASSOCIATIONS' requirements that the FEES charged to
MERCHANT by FNBO may increase.
8.2 MERCHANT agrees that it will not materially change its BUSINESS or the
method in which it markets or sells the goods and services of BUSINESS
without informing FNBO. FNBO may only process SALES from BUSINESS as
defined in the Application.
5
<PAGE> 8
8.3 In the event actual monthly SALES volume substantially exceeds the
projected annual SALES volume as provided in the ASSUMPTIONS and pro-rated
to one month, FNBO may, at its option, either refuse to process SALES in
excess of such sum and/or process such SALES and retain the proceeds of
such SALES until the next month and release such sums to MERCHANT at that
time (and count this volume as SALES volume for that month) and/or
terminate AGREEMENT; and/or amend this AGREEMENT in a way to ensure that
FNBO has security for the increased volume. Such rights of termination and
retention of funds are in addition to those already provided for herein.
9 WARRANTIES AND INDEMNITIES:
9.1 MERCHANT understands that FNBO merely provides processing services for
SALES and is neither a partner in MERCHANT's business operations nor a
guarantor of the receipt by MERCHANT of the proceeds of SALES.
Furthermore, FNBO does not guarantee that SALES will not be subject to
CHARGEBACKS.
9.2 MERCHANT warrants that it has not been terminated form depositing SALES
with any other member of the ASSOCIATIONS.
9.3 MERCHANT warrants that at the time of depositing SALES for processing (i)
it has the right to assign such SALES to FNBO and does by this reference
assign all its rights, title, and interest to payment for such SALES to
FNBO so that FNBO may process SALES under AGREEMENT; (ii) it has no
knowledge of any fact that would impair the collectability of the SALES;
and (iii) that the SALES represent a valid obligation of the cardholder in
the amount indicated for merchandise sold and delivered or services
rendered to the cardholder by the MERCHANT only and does not involve any
element of credit for any other purpose.
9.4 MERCHANT agrees to indemnify and hold harmless FNBO from and against any
claims, demands, or judgments, made or recovered against it and arising
out of any breach by MERCHANT of the terms of this AGREEMENT or arising
from any act or omission by MERCHANT which violates any applicable
federal, state, or local laws, regulations, or the RULES. FNBO may defend
on its own any such claims or demands or request MERCHANT to take up such
defense. In either event MERCHANT will further indemnify FNBO for
reasonable attorneys' fees or any other necessary expenses incurred by
FNBO by reason of such defense.
9.5 MERCHANT shall be solely responsible for losses and CHARGEBACKS, incurred
as a result of, or arising out of any fraud including LAUNDERING,
negligence, or willful misconduct on the part of MERCHANT, or one or more
of MERCHANT's employees or agents.
10. NOTICES:
10.1 All notices required under this AGREEMENT shall be written notices
effective, unless otherwise stated in AGREEMENT, upon the earlier of
actual receipt thereof or the third (3rd) business day following such
notices being deposited postage prepaid in the United States Postal System.
10.2 All notices shall be sent to the following addresses:
10.3 If to FNBO or SPC:
First National Bank of Omaha.
One First National Center
16th & Dodge Street
P.O. Box 2196
Omaha, NE 68102
Attention: Merchant Legal and Compliance
10.4 If to MERCHANT: At the address set out in the Application or such
alternative address as designated in writing by MERCHANT.
6
<PAGE> 9
10.5 Either PARTY may designate alternate addresses by giving the other
fourteen (14) days written notice of the change in address.
11. MISCELLANEOUS:
11.1 FNBO, may from time to time, delegate duties under AGREEMENT without
giving notice to MERCHANT, provided, however, that FNBO will remain
liable to MERCHANT for any obligations existing under AGREEMENT.
Except as expressly provided in AGREEMENT, MERCHANT may not assign its
rights or delegate its responsibilities under this AGREEMENT without
the prior written consent of FNBO.
11.2 This AGREEMENT and the guarantee contained herein shall be governed by
and construed in accordance with the laws of the State of Nebraska.
The PARTIES also agree that in the event of any dispute regarding this
AGREEMENT, the courts of the State of Nebraska shall have and be
vested with personal jurisdiction over the PARTIES.
11.3 No delay or failure by either PARTY to exercise any right under
AGREEMENT, and no partial or single exercise of that right, shall
constitute a waiver of that right or any other right, unless expressly
provided for in AGREEMENT.
11.4 FNBO is not liable or responsible for any failure or delay in
performance caused by any Act of God, strikes, flood, fire, war,
public enemy, electrical or equipment failure, failures by third
PARTIES, or other events beyond its control.
11.5 This AGREEMENT constitutes the entire understandings of the PARTIES
and supersedes all prior contracts, agreements, and negotiations
between the PARTIES whether verbal or written.
11.6 FNBO shall not be responsible for the costs incurred by MERCHANT in
negotiating or implementing this AGREEMENT.
11.7 The obligations of all PARTIES incurred prior to the effective date of
termination of AGREEMENT will survive the termination of AGREEMENT. In
the event that any portion of AGREEMENT is held invalid or
unenforceable for any reason, it is agreed that any invalidity or
unenforceability will not affect the remainder of the same and the
remaining provisions will remain in full force and effect. The PARTIES
agree that any Court of competent jurisdiction may modify any
objectionable provision of the AGREEMENT so as to render it valid,
reasonable and enforceable.
11.8 This AGREEMENT may be amended or modified by FNBO effective upon
thirty (30) days written notice.
11.9 By signing the AGREEMENT, MERCHANT represents that it has the full
legal power and authority to enter into performance obligations under
AGREEMENT. MERCHANT also represents that the entering into of this
AGREEMENT has been duly authorized by MERCHANT, that the signer is a
duly authorized signatory for the MERCHANT and that this AGREEMENT
constitutes a legal, valid, and binding obligation of MERCHANT and is
enforceable against MERCHANT in accordance with its terms.
11.10 FNBO agrees not to use any information supplied by MERCHANT in the
Purchasing Card Information which is required for acceptance of
purchasing cards, in its decision as to whether to accept MERCHANT for
processing. MERCHANT agrees to hold FNBO harmless from any and all
claims relating to the collection, processing, dissemination, and use
or misuse of the information contained in the Purchasing Card
Information. MERCHANT acknowledges that the information from the
Purchasing Card Information will be sent to MERCHANT's corporate
customers who pay with a purchasing card. MERCHANT agrees that FNBO is
not responsible for any actions or omissions of others regarding this
information.
11.11 This AGREEMENT shall not become a binding AGREEMENT between the
PARTIES until (i) it is signed by an authorized Agent of FNBO; and
(ii) FNBO has received a negative response to its inquiry of the
ASSOCIATIONS' programs designed to monitor merchants.
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TERMINAL RENTAL AGREEMENT
If the first page of this AGREEMENT is executed by the PARTIES the following
hereby applies. This Terminal Rental Agreement, ("RENTAL AGREEMENT"), by and
between SPC, Inc. d/b/a First of Omaha Merchant Processing, a Nebraska
Corporation ("SPC") and MERCHANT shall become effective on the date executed by
a duly authorized representative of SPC.
1. SPC agrees to rent to MERCHANT and MERCHANT agrees to rent from SPC the
equipment described in the attached POS Information form ("EQUIPMENT") for
a term of three (3) years and shall automatically renew for additional one
(1) year terms. Following the initial term either PARTY may terminate by
providing 30 days written notice of termination to the PARTY.
2. MERCHANT agrees to pay SPC a monthly RENTAL FEE for the EQUIPMENT which
will be debited monthly from the MERCHANT's DESIGNATED ACCOUNT established
under the RENTAL AGREEMENT.
3. MERCHANT agrees to pay the fee set out in the POS Information per month as
rental for the EQUIPMENT.
4. The PARTIES hereto agree to each of the terms and conditions forth herein
and acknowledge that such provisions are binding upon each of them, their
successors, heirs and assigns.
5. MERCHANT understands that a telephone jack and other equipment may be
required for its phone system to be compatible with EQUIPMENT at MERCHANTS
expenses.
6. Upon expiration of the rental of the EQUIPMENT, MERCHANT agrees to remove
the EQUIPMENT from its locations and deliver it to SPC at MERCHANTS cost in
the same condition as when the EQUIPMENT was installed, normal wear and
tear excepted. The PARTIES agree that the EQUIPMENT is and will remain
personal property of SPC.
7. MERCHANT hereby assumes the entire risk of loss, damage or destruction of
the EQUIPMENT from any cause whatsoever during the term of the rental,
until the delivery of the EQUIPMENT to SPC. In the event of damage to or
loss of EQUIPMENT, MERCHANT shall at the option of SPC either repair
EQUIPMENT at MERCHANT's expense or pay SPC the cost of replacing the same
at the current replacement cost.
8. MERCHANT hereby grants to SPC the right, during normal business hours, to
enter any location under MERCHANT's control for the purpose of inspecting,
repairing, or replacing EQUIPMENT.
9. MERCHANT shall and does hereby agree to indemnify and hold SPC, its agents,
employees, successors and assigns harmless from any and all liability,
damages or loss (including attorney fees and costs) arising out of the
ownership, selection, possession, leasing or renting, operation (regardless
of where, how and by whom operated), control, use, condition (included but
not limited to, latent and other defects, whether or not discoverable by
SPC) maintenance, delivery and return of the EQUIPMENT. This
indemnification and the obligations contained herein shall survive
termination or expiration of RENTAL AGREEMENT.
10. MERCHANT shall keep EQUIPMENT insured against all risks for not less than
replacement costs of EQUIPMENT, naming SPC as an additional insured as its
interest may appear. All such insurance shall be in form and with companies
acceptable to, and approved in writing by SPC.
11. In the event of termination of this rental, SPC shall have the right to
enter onto MERCHANT's locations for the purpose of recovering EQUIPMENT.
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12. MERCHANT is not authorized to make any alterations, repairs or changes
including programming changes to EQUIPMENT. Any personal property attached
to EQUIPMENT shall become part of the EQUIPMENT.
13. SPC has no liability whatsoever for any indirect, special or consequential
damages, such as, but not limited to, loss of anticipated profits, or
other economic loss in connection with any use of EQUIPMENT or services
provided by SPC pursuant to this or any other agreement. SPC is not
responsible for any loss or damages whatsoever sustained by MERCHANT
arising as a result of any acts of God, strikes, flood, weather, shortages
of parts or supplies or other events beyond its reasonable control.
14. SPC will provide maintenance service to EQUIPMENT during the term of the
RENTAL. MERCHANT shall not allow any other person or entity to maintain or
tamper with EQUIPMENT without the express written consent of SPC.
15. MERCHANT has examined EQUIPMENT and relies on no warranties or
representations of SPC as to the quantity or nature of EQUIPMENT. SPC makes
no warranty express or implied as to the merchantability or fitness for any
particular purpose of EQUIPMENT.
16. Except as expressly provided herein, MERCHANT may not assign its rights or
delegate its responsibilities under this RENTAL AGREEMENT without the prior
written consent of SPC, which will not be unreasonably withheld.
17. This RENTAL AGREEMENT shall be governed by and construed in accordance with
the laws of the State of Nebraska. The PARTIES further agree that in the
event of any dispute regarding this RENTAL AGREEMENT, the courts of the
State of Nebraska shall have and be vested with personal jurisdiction over
the PARTIES to this RENTAL AGREEMENT.
18. No delay or failure by either PARTY to exercise any right under RENTAL
AGREEMENT, and no partial or single exercise of that right, shall
constitute a waiver of fact or any other right, unless expressly provided
herein.
19. This RENTAL AGREEMENT constitutes the entire understandings of the PARTIES
and supersedes all prior contracts, agreements and negotiations whether
oral or written. This RENTAL AGREEMENT includes any and all Addenda and
Exhibits attached and/or referenced hereto.
20. SPC shall not be responsible for the costs incurred by MERCHANT for
negotiating or implementing this RENTAL AGREEMENT.
21. The obligations of all PARTIES hereto incurred prior to the effective date
of termination of RENTAL AGREEMENT shall survive the termination of RENTAL
AGREEMENT.
22. In the event that any portion of RENTAL AGREEMENT shall be held invalid
or unenforceable for any reason, it is agreed that any invalidity or
unenforceability shall not affect the remainder of the same and the
remaining provisions shall remain full force and effect, and any court of
competent jurisdiction may so modify any objectionable provision of the
same so as to render it valid, reasonable and enforceable.
23. This RENTAL AGREEMENT may only be amended or modified by a subsequent
written agreement by and between the PARTIES hereto.
24. MERCHANT hereby represents that the entering into of this RENTAL AGREEMENT
has been duly authorized by MERCHANT and that this RENTAL AGREEMENT
constitutes a legal, valid and binding obligation of MERCHANT, and is
enforceable against MERCHANT in accordance with its terms.
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GUARANTEE
For value received, and in consideration of the mutual undertakings contained in
this AGREEMENT, the undersigned, ("GUARANTOR"), being interested in the business
and success of MERCHANT and to induce FNBO to enter into AGREEMENT, does hereby
absolutely and unconditionally guarantee the full and faithful performance and
prompt payment by MERCHANT of all its obligations to FNBO, together with all
costs, expenses and attorney's fees incurred by FNBO in connection with any
actions, inaction's, or defaults of MERCHANT. The liability of GUARANTOR shall
not be effected by any settlement, modification, release, waiver, discharge or
variation of terms of any obligation of MERCHANT, of GUARANTOR, or any other
person or by any failure of FNBO to exercise or enforce any of its rights
against MERCHANT. GUARANTOR hereby waives notice of acceptance of guarantee,
notice of demand, prosecution of collection, all exemption and homestead laws
and all setoffs and counterclaims. The GUARANTOR waives any right to require
FNBO to proceed against other persons or MERCHANT or to require MERCHANT to
comply with AGREEMENT. This is a guarantee of payment and not of collection.
This is a continuing guarantee and shall remain in effect until one
hundred-eighty (180) days after receipt by FNBO of written notice by GUARANTOR
terminating or modifying the same. The GUARANTOR agrees to provide on FNBO's
request financial statements and/or tax returns to verify ability to guarantee
the MERCHANT's liabilities under AGREEMENT. The termination of AGREEMENT or
guarantee shall not release GUARANTOR from liability with respect to any
obligations incurred prior to the effective date of termination. No termination
of guarantee shall be effected by the dissolution of GUARANTOR, by any change in
legal status of GUARANTOR or any change in the relationship between MERCHANT and
GUARANTOR. Guarantee shall bind and inure to the benefit of the personal
representatives, heirs, administrators, successors and assigns of GUARANTOR and
FNBO.
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THE RULES
CARD ACCEPTANCE PROCEDURES
1. HONOR ALL CARDS
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1.1 MERCHANT shall honor all CARDS issued by an ASSOCIATION when presented
in accordance with these RULES for the purchase of goods or services by
an authorized holder of CARD or in a request for credit following such
a transaction.
1.2 MERCHANT shall not establish minimum or maximum SALE amounts as a
condition for honoring CARDS.
1.3 MERCHANT shall not impose any surcharge on SALES. Any tax required to
be collected by the MERCHANT must be included in the total transaction
amount.
2. SALES TRANSACTIONS
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2.1 No SALE may be completed if cardholder (the duly authorized holder and
user of CARD) fails to present his CARD to MERCHANT at time of SALE,
except in the case of MAIL ORDER ("MO") or TELEPHONE ORDER ("TO") where
permitted by FNBO.
2.2 MERCHANT must date each sales draft, resulting from the use of a CARD
("SALES DRAFT") with the transaction date and should include thereon a
brief description of the merchandise and/or services sold and the price
thereof (including any applicable taxes) in detail sufficient to
identify the SALE.
2.3 MERCHANT MUST IMPRINT THE CARD, UNLESS SUCCESSFULLY READ BY A MAGNETIC
STRIPE CARD READER/TERMINAL, with printer attached. Failure to obtain a
signed and imprinted SALES DRAFT when a transaction is not captured by
swiping through a magnetic stripe reader (this includes transactions
that are key entered on such a terminal) will expose MERCHANT to a
CHARGEBACK on such a transaction regardless of the authorization that
may or may not be received.
2.4 MERCHANT shall require cardholder to sign the SALES DRAFT. The risk of
CHARGEBACK or SALE dispute is far higher on a transaction when the CARD
and the cardholder are not present at the SALE location at the time of
the SALE.
2.5 Unless specifically permitted by FNBO, goods and services purchased
must be delivered to cardholder at time of SALE.
2.6 MERCHANT shall not require cardholders to provide personal information
(such as telephone number or address) as a condition for honoring a
CARD SALE unless required by the RULES.
3. SECURITY FEATURES
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3.1 MERCHANT is required to examine one or more card security features
prior to completing a SALE. In all cases, MERCHANT will complete a SALE
only if the signature on the SALES DRAFT appears to be the same as the
signature on the CARD, and the person presenting the CARD resembles the
person depicted in the picture on the CARD, if any and that the
appropriate VISA or MASTERCARD hologram is present on CARD. MERCHANT
must also check the valid dates on the CARD to ensure that CARD is
valid and has not expired.
3.2 Specific CARD Security features:
A. VISA
------------
(1) The "DOVE" hologram should appear to fly when tilted.
(2) All VISA account numbers begin with a "4" and can be 13
or 16 digits long.
(3) Check that the first four digits of the embossed account
number matches the four digits printed above the account
number of the CARD.
(4) Be sure the signature panel has not been tampered with.
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(5) The "V" to the right of the expiration date will be
included with a second letter either "CV", "GV", "PV", or
"BV". The "V" should be a special letter (a "Flying V",
not a normal "V".)
B. MASTERCARD
(1) The "World" hologram should appear as two separate spheres
when tilted.
(2) All MASTERCARD account numbers begin with "51" through "55"
and are 16 digits long.
(3) Be sure that the signature panel has not been tampered with.
3.3 When the CARD is "Mag-stripe read" by an Electronic Cash Register ("ECR")
or Electronic Draft Capture ("EDC") terminal, MERCHANT must check the
CARD account number on the terminal (if displayed) against the account
number embossed on the CARD or follow such other security check as is
mandated by FNBO from time to time. If the CARD is read with a terminal
that displays the CARD number and the receipt is printed, MERCHANT shall
verify that the account number displayed on the terminal and the printed
card numbers on the receipt match the embossed numbers on the face of the
CARD. In the event that they do not match the SALE must not be completed.
Failure to follow these checks and procedures will expose MERCHANT to
chargebacks.
3.4 In the event that terminal is programmed to require MERCHANT to key the
last four (or more) digits of each CARD used for a SALE, and the terminal
indicates that the numbers keyed are not the same as those present on the
card, the SALE must not be completed.
3.5 In order to protect the integrity of the ASSOCIATIONS' systems, FNBO
reserves the right to hold funds settled by MERCHANT in the event of a
breach of AGREEMENT, irregular SALES activity, or receipt of detrimental
financial information.
4. AUTHORIZATION
4.1 On all SALES, MERCHANT shall request an authorization for the total amount
of the SALE and shall record the positive authorization response code on
the SALES DRAFT prior to completing the SALE. If MERCHANT receives a
negative authorization response, MERCHANT may not complete the SALE and may
be requested to recover the CARD, if MERCHANT can do so by reasonable
peaceful means. If MERCHANT does not recover the CARD, MERCHANT should
notify VOICE AUTHORIZATION CENTER and ask for further instructions.
4.2 MERCHANT may not, after receiving a negative response or decline on an
authorization attempt, split the SALE amount into multiple transactions in
order to obtain a valid authorization for each one, so that the separate
transactions total the original amount of the SALE.
4.3 In the event that an unsigned CARD is presented at the point of sale,
MERCHANT must request that cardholder provide proof of identification and
sign the card before completing the SALE. Identifying details of the
identification provided must be placed on the SALES DRAFT unless prohibited
by local law. In the event that the cardholder refuses to do so, the SALE
must not be completed. If the SALE is completed, MERCHANT must write the
account number and expiration date on the SALES DRAFT.
4.4 In any of the following cases, MERCHANT shall obtain authorization from
the VOICE AUTHORIZATION CENTER designated or approved by FNBO before
completing a SALES transaction:
A. Paper MERCHANTS whose SALES exceeds MERCHANT's floor limit as
established by FNBO, or amended from time to time;
B. An unsigned CARD is presented;
C. MERCHANT believes the CARD may be counterfeit or stolen or that the
SALE is in some other manner suspicious or unusual; in this situation
MERCHANT should proceed only through voice authorization procedures
and MERCHANT should state to the voice authorization clerk, "This is a
Code 10" and await further instruction.
D. In any other circumstances hereinafter established by FNBO or stated
in the RULES and/or AGREEMENT.
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4.5 If permitted in writing by FNBO, a retail store that accepts an infrequent
telephone order transaction should authorize using the above
authorization acceptance procedures. The floor limit for MO/TO
authorization is zero. In such cases the authorization DOES NOT protect
the MERCHANT from CHARGEBACKS where the cardholder disputes that the CARD
use was authorized.
4.6 MERCHANT shall indicate to the authorization center the reason for the
authorization request in any case except where the sole reason for the
request is that the SALE exceeds the MERCHANT's floor limit.
4.7 When MERCHANT requests and receives a positive authorization code,
MERCHANT shall enter such code onto the SALES DRAFT. In the event that a
negative response is obtained, the MERCHANT shall not complete the SALE
and shall, if instructed, attempt to pick up CARD (by reasonable and
peaceful means) and if successful, inform FNBO of the fact.
5. SALES DRAFT - DISTRIBUTION AND STORAGE OF INFORMATION
5.1 MERCHANT shall deliver to the cardholder at the time of a SALE a true and
completed copy of the SALES DRAFT, or suitable receipt, evidencing a
SALE involving use of CARD.
5.2 The following information must be included on the SALES DRAFT: CARD
account number; MERCHANT's DBA name; MERCHANT's city and state; amount of
SALE; SALE date and CARD expiration date.
5.3 MERCHANT shall not disclose a cardholder's account information or any
other personal information to third parties other than to MERCHANT's
agents for the purpose of completing the transaction or as specifically
required by law or by the RULES.
5.4 MERCHANT shall store in a limited access area for at least one (1) year
after the date of SALES all SALES DRAFTS and transaction records and
MERCHANT shall make and retain for at least three (3) years the original
or legible microfilm copies of both sides of all SALES DRAFTS and
transaction records. Prior to discarding, MERCHANT shall destroy or make
unreadable all material containing cardholder account numbers, card
imprints such as SALES DRAFTS and credit vouchers, vehicle leasing
agreements, and carbons.
6. RECOVERY OF CARDS
6.1 MERCHANT shall use his best effort to recover any CARD, by reasonable and
peaceful means, if:
A. The account number thereon is listed on a Electronic Exception File;
B. The printed four digits above the embossed account number do not match
the first four digits of the account number (VISA);
C. MERCHANT is advised to do so by the authorization center; or
D. MERCHANT has reasonable grounds to believe such CARD is counterfeit,
fraudulent, or stolen.
6.2 This obligation upon MERCHANT in no way authorizes a breach of the peace
or any injury to persons or property, and MERCHANT will hold FNBO
harmless from any claim arising from any injury to person or property or
other breach of peace.
7. MULTIPLE SALES AND SALES DRAFTS AND PARTIAL CONSIDERATION
7.1 Generally, all SALES accomplished at the same time should be included on
one SALES DRAFT.
7.2 MERCHANT shall not effect a SALE when only part of the account due is
included on the single SALES DRAFT except:
A. When the balance of the amount due is paid by the cardholder at the
time of the SALE in cash, by check with another CARD, or any
combination thereof; or
B. When the cardholder executes two separate SALES DRAFT in a delayed
delivery transaction, whereby a deposit is made by completion of one
SALES DRAFT and payment of the balance is
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tendered by completion of a second SALES DRAFT, conditioned upon
delivery of merchandise or performance of services. If the total
amount of both SALES DRAFTS exceeds the floor limit, authorization
must be obtained.
7.3 The use of multiple different CARDS for one purchase is permissible as
long as an individual SALE and SALES DRAFT is used for each CARD. The use
of multiple SALES on one CARD for one purchase is not permitted (this is
done to bring the value of each SALE below the authorization threshold of
the CARD Issuer). In the event that this is done the SALE may be reversed.
8. RETURNED MERCHANDISE AND ADJUSTMENTS
8.1 In the event that any merchandise, that was the subject of a SALE is
accepted for return or any services terminated or canceled, or any price
adjustment allowed by MERCHANT, the MERCHANT shall not make any cash
refund to the cardholder, but shall deliver promptly to FNBO a credit
voucher evidencing such refund or adjustments on the same CARD as the
original SALE was processed. The refund or adjustment indicated on the
credit voucher may not exceed the original SALE amount.
8.2 MERCHANT may limit its acceptance of returned merchandise or establish a
policy to make price adjustments for any SALE provided proper disclosure
is made and purchased goods and service are delivered to the cardholder at
the time of the SALE.
8.3 Proper disclosure by MERCHANT shall only be determined to have been given
at the time of the SALE if cardholder is present at the time of SALE and
words such as "NO REFUND", "EXCHANGE ONLY", or "IN STORE CREDIT ONLY" are
printed in large letters on all copies of the SALES DRAFT prior to
obtaining the cardholder's signature on the SALES DRAFT. MERCHANT may
stipulate other special circumstances or terms of the SALE on the SALES
DRAFT.
8.4 For each credit or return transaction, MERCHANT must be able to provide
FNBO with evidence of the original purchase if requested.
9. CASH TRANSACTION
9.1 MERCHANT shall not receive any payments from a cardholder with respect to
charges for merchandise or services which are included on the SALES DRAFT
resulting from the use of a CARD, nor shall MERCHANT receive money from a
cardholder and subsequently prepare a credit voucher for purpose of
affecting a deposit to the cardholder's account.
9.2 Cash disbursement by MERCHANT to a cardholder is not permitted. MERCHANT
shall not make any cash advance to an employee or principal of MERCHANT, or
family member of the same, who is a cardholder.
9.3 MERCHANT will not accept SALES from cardholders related to the business
where the primary purpose of the transaction is for the provision of
working capital to said business and not the purchase of goods and/or
services from the business.
10. RECURRING TRANSACTIONS AND QUASI CASH TRANSACTIONS
10.1 MERCHANT will not accept recurring SALE transactions where the delivery,
provision of or billing is performed on a periodic basis ("RECURRING
TRANSACTIONS") without the express written consent of FNBO.
10.2 MERCHANT shall not accept SALES for processing that are classified as
"Quasi-Cash Transactions" including, but not limited to, the sale of
Casino Gaming chips, money orders, opening deposits on financial or other
accounts, wire transfer money orders, or the issuance of Scrip.
10.3 No MERCHANT shall use accept a CARD or use a VISA and MASTERCARD
processing terminal to issue "scrip" exchangeable for cash or products or
services as a result of a SALE.
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11. PROMOTIONAL MATERIALS
11.1 MERCHANT will adequately display promotional materials provided by FNBO
to inform the public that CARDS will be honored by MERCHANT.
11.2 All uses by MERCHANT of decals, signs, printed and broadcast materials
and other promotional materials must be in conformity with the
requirements of ASSOCIATIONS.
11.3 MERCHANT may use promotional materials only to indicate that CARDS are
accepted for payment and shall not indicate, directly or indirectly, that
MERCHANT has received endorsement of any goods or services other than the
CARDS' services.
11.4 MERCHANT may not refer to the CARDS in stating eligibility for its
products, services, or membership.
12. RULES SPECIFIC TO CARDS OTHER THAN VISA AND MASTERCARD
12.1 In the event that AGREEMENT provides for the acceptance of CARDS other
than VISA and MASTERCARD, the following regulations apply specifically to
these CARDS in addition to the regulations set out above.
13. SPECIFIC CARD REGULATIONS
13.1 MERCHANT is required to comply with the specific regulations as set out
in its agreements with ASSOCIATIONS other than VISA and/or MASTERCARD
with regard to the acceptance of cards issued by such ASSOCIATIONS.
CHARGEBACKS
14. GENERAL
14.1 MERCHANT has agreed to pay FNBO for each CHARGEBACK and any ASSOCIATION
fees, fines or charges imposed on MERCHANT or FNBO associated therewith.
Such reimbursement will be accomplished by the debit of the sum(s)
involved from the MERCHANT's DEPOSITORY ACCOUNT.
14.2 Failure to comply with the RULES will reduce FNBO's ability to reverse
CHARGEBACKS and increase the likelihood of MERCHANT receiving a
CHARGEBACK.
14.3 MERCHANT may be subject to a CHARGEBACK on SALES for a minimum period of
180 days from the date the SALE was entered into the ASSOCIATION's
processing system.
14.4 FNBO agrees to mail all CHARGEBACK documentation to MERCHANT promptly to
MERCHANT's address shown on CONTRACT. MERCHANT agrees to respond promptly
to all CHARGEBACKS. If FNBO elects, at its discretion, to take action on
CHARGEBACKS after the MASTERCARD or VISA time limits have expired, such
action shall be done at additional cost.
14.5 MERCHANT agrees that it will not re-deposit SALES that have been
previously charged back and not represented. This restriction applies
whether or not the cardholder consents to such activity.
15. CHARGEBACK REASONS
15.1 The summary of reasons for CHARGEBACKS includes, but is not limited to,
an invalid CARD account number submitted by MERCHANT, or any one of the
following cardholder complaints:
A. Neither the cardholder nor a person authorized by the cardholder
received the goods or services requested;
B. The cardholder received the good or services but disputes the quality;
C. The cardholder never received credit for a returned item or a
canceled order;
D. The cardholder was charged incorrectly;
E. The amount of the SALE exceeded the Floor Limit and authorization was
not requested and obtained, or was denied;
F. The SALE was authorized but not for the correct amount;
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G. The authorization code provided is invalid;
H. The CARD was expired at the time of the SALE or had not reached its
effective date;
I. The SALES DRAFT was not signed. An exception will be made for Mail
Order and Telephone Order SALES where authorized;
J. The CARD issuer has information that a MERCHANT fraud has occurred;
K. The CARD account number and the amount of SALE is missing from SALES
DRAFT or is illegible;
L. The SALES DRAFT bears the imprint of a CARD which to MASTERCARD or
VISA, is a counterfeit CARD, as defined in their regulations, but
which is not embossed in accordance with the standards set forth in
the VISA and MASTERCARD regulations and the SALE was not authorized.
16. CHARGEBACK MONITORING PROGRAMS
16.1 In the event that MERCHANT exceeds a one (1) percent CHARGEBACK to
interchange ratio in two months out of three for Consumer Dispute
CHARGEBACKS ("CDCS") or a two and three-quarters (2.75) percent
CHARGEBACK to interchange ratio for all incoming chargebacks, MERCHANT
will be defined as a "REVIEW-MERCHANT". On notification of Review
Merchant status MERCHANT will supply FNBO with a business plan as to how
to reduce the amount of CDCs in the event that MERCHANT is unable to
reduce CDCs below one (1) percent within 120 days and maintain them at
that level for a six (6) month probationary period FNBO or VISA may
terminate MERCHANT's agreement to process SALES. In this event MERCHANT
will pay FNBO for any fine or charge levied on FNBO or MERCHANT as a
result of such classification or notification. The parameters of this
section may be amended from time to time as a result of action by
ASSOCIATIONS.
17. OTHER ASSOCIATION MONITORING PROGRAMS
17.1 In the event that MERCHANT is identified by certain ASSOCIATION
monitoring programs, the ability FNBO to reverse CHARGEBACKS can be
severely restricted.
17.2 Under normal procedures, if a MERCHANT is able to show that it complied
with the CARD ACCEPTANCE PROCEDURES by producing evidence (a SALES DRAFT)
that the CARD was present at the time of SALE and that the evidence bears
the signature of the cardholder, MERCHANT may not be liable for a SALE
that was made with a Lost, Stolen or Counterfeit CARD.
17.3 Certain Monitoring Programs review the number of Lost, Stolen and
Counterfeit CARDS accepted by MERCHANT in its normal course of business
as well as the percentage of CARDS used for SALES that were not read
electronically by terminals or ECRs. The purpose of these Programs is to
reduce the use of Lost, Stolen and Counterfeit CARDS.
17.4 In the event that MERCHANT is identified under these PROGRAMS as
exceeding the acceptable threshold value of such CARDS, MERCHANT may
become liable for CHARGEBACKS and SALES on Lost, Stolen, or Counterfeit
CARDS regardless of the CARD ACCEPTANCE PROCEDURES followed, and AGREEMENT
may be terminated on notice by FNBO.
UNIQUE BUSINESS REQUIREMENTS
18. MAIL ORDER AND TELEPHONE ORDER MERCHANTS
18.1 MERCHANTS may not accept MO/TO SALES unless AGREEMENT specifically refers
to MO/TO SALES in the description of BUSINESS. If this is not the case,
MERCHANT should contact FNBO if they wish to accept MO/TO SALES and
provide descriptions of product types and marketing methods. FNBO
reserves the right to refuse MERCHANT permission to accept MO/TO SALES.
18.2 In the event that MERCHANT is specifically authorized to accept MO/TO
SALES by FNBO, no SALE shall be submitted for processing with FNBO prior
to shipping of the product purchased to the cardholder, unless
specifically authorized in AGREEMENT.
18.3 MO/TO SALES do not require that the cardholder's signature be on the
SALES DRAFT. MERCHANT is required to obtain the Valid Dates for each CARD
used for a SALE. The Expiration Date must be submitted as part of the
Authorization Inquiry.
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18.4 In the event that MERCHANT supplies goods and/or services under a
Pre-Authorized Order, it shall not charge a cardholder for goods after
receiving notice from a cardholder that that the authorization is
canceled. In the absence of such data, the following substitute data shall
be inserted: for VISA "1111" and MASTERCARD "1099".
18.5 The receipt of a valid Authorization does not protect MERCHANT from
CHARGEBACKS on SALES for the Unauthorized Purchaser reason code. The
supply of shipping documents indicating the address the goods were shipped
to and a signature of an individual (even cardholder) will not normally be
sufficient to reverse an Unauthorized Purchaser reason code.
18.6 MO/TO MERCHANTS are encouraged to investigate the CHARGEBACK protection
attributes of the various Address Verification Services available from the
ASSOCIATIONS.
19. VEHICLE RENTAL AUTHORIZATION PROCEDURES
19.1 A special authorization procedure is available for the use of the MERCHANT
if MERCHANT estimates the transaction amount based upon cardholder's
intended rental length at time of rental, the applicable rental rate, tax,
and/or mileage rates. Such estimated transaction amount shall not include
ancillary charges representing amounts to cover potential vehicle damages
or insurance deductibles when cardholder waives insurance at time of
rental.
19.2 MERCHANT shall record on the SALES DRAFT the date, amount, and all
authorization approvals obtained.
19.3 MERCHANT shall disclose such amount authorized to cardholder at the time
of rental.
19.4 Subsequent Authorization:
A. If no authorization was obtained at time of rental and MERCHANT,
based upon cardholder's actual charges later estimates the
transaction amount will exceed the applicable floor limit, MERCHANT
may obtain an authorization approval code for the new estimated
amount.
B. MERCHANT may obtain authorization for additional amounts (not
cumulative of previous amounts) at any time on or between the vehicle
rental check-out date and check-in date, as necessary. MERCHANT may
not seek authorization for, nor charge to cardholder charges for
traffic violations, parking tickets, or other related items.
Additional authorization is not necessary if the sales transaction
does not exceed the applicable floor limit or 115 percent of the sum
of the authorized amounts.
20. PAPER PROCESSING MERCHANTS
20.1 Paper Processing MERCHANTS shall authorize by using the established Floor
Limits. Any MERCHANT that wishes to accept a sales transaction under the
established Floor Limits, and which is not authorized, is liable for the
resulting CHARGEBACKS from those CARD numbers listed on the Electronic
Exception File.
20.2 In the case of a MERCHANT depositing paper drafts, such drafts shall be
deposited with FNBO within five (5) days of the transaction or SALE date.
21. EXPRESS PAYMENT SERVICES ("EPS/QPS")
21.1 Any "Fast Food", motion picture theater, or parking lot merchant that
wishes to participate in the VISA or MASTERCARD EPS/QPS program must first
be in possession of a signed EPS/QPS Addendum with FNBO.
21.2 This Addendum must be in place prior to the offering of the program.
22. LODGING MERCHANTS
22.1 Hotel Management Companies are responsible for all CHARGEBACKS and FEES
for hotels managed at the time of the SALE.
17
<PAGE> 20
22.2 VISA Hotel Services: Any MERCHANT that participates or wishes to
participate in any of the VISA Hotel Services (the "Services"), namely the
Advanced Lodging Deposit Service, the Priority Check Out Service, or the
Cash Disbursement Service must be in possession of a current VISA Hotel
Service addendum to their AGREEMENT. This Addendum covers all the
contractual and operational requirements to implement the Services and
must be in place before the offering of the Services by MERCHANT to
cardholders.
22.3 VISA Reservation Service: Any MERCHANT which accepts CARDS to guarantee
reservations must do so in accordance with the following requirements:
A. MERCHANT must accept all VISA CARDS.
B. MERCHANT must inform the cardholder that accommodations will be held
until check out time the following day unless canceled by 6:00 pm
MERCHANT's time, on the scheduled arrival date. If a MERCHANT
requires a cancellation time prior to 6:00 pm MERCHANT's time, on
the scheduled arrival date, the cancellation date and time may vary
but must not exceed 72 hours prior to the scheduled arrival date and
the cardholder must be informed of this time when making the
reservation. If, in such a situation, a reservation is made within
72 hours of scheduled arrival, the cancellation time of 6:00 pm
MERCHANT's time on the scheduled arrival date applies.
C. MERCHANT will obtain the cardholder's account number, expiration
date, and name embossed on the CARD. MERCHANT must confirm this
information by reciting it back to the cardholder. Advise the
cardholder that if he has not checked in by checkout time the
following day after his scheduled arrival date and the reservation
was not properly canceled, the cardholder will be billed for one
night's lodging plus applicable taxes.
D. MERCHANT must quote to cardholder the following information: i) rate
of reserved accommodation; ii) MERCHANT name and address; and iii)
Confirmation Code (advising that it be retained). If requested, the
MERCHANT will provide the above information in written form along
with the provisions of the VISA reservation services relating to the
cardholder's obligations related to the accommodation reserved.
E. If cardholder complies with the cancellation procedures above,
MERCHANT must accept all cancellation requests and provide
cardholder with a cancellation code and advise that it must be
retained in order to protect cardholder's rights in case of dispute.
If requested, MERCHANT must provide cardholder with written
confirmation of all this information including the CARD information.
F. If cardholder does not claim accommodation that has been reserved
under these procedures or canceled prior to the specified
cancellation time, the room(s) must be held available in accordance
with the reservation. If the cardholder does not cancel the
reservation or check in within the prescribed time, MERCHANT will
deposit a SALES DRAFT for one night's lodging plus applicable tax,
indicating the cardholder's account number, expiration date, and
name embossed on the CARD and the words "NO SHOW" on the cardholder
signature line. MERCHANT should then follow the required
authorization procedures for hotel transactions.
G. If accommodations that were guaranteed under this service are
unavailable, MERCHANT must provide cardholder with: i) at least
comparable accommodations for one night at another establishment;
ii) provide transportation to the location of the alternative
establishment; and iii) if requested, provide cardholder with a
three (3) minute telephone call and forward all messages and calls
to the location of the alternate establishment. These services shall
be provided at no cost to cardholder.
H. If a CHARGEBACK occurs and involves a dispute between the Lodging
MERCHANT and the cardholder over cancellation of reservations or
advance deposits, FNBO may request resolution of the dispute by VISA
or MASTERCARD. If the dispute is resolved successfully, FNBO will
charge the MERCHANT, and the MERCHANT agrees to pay FNBO a
"Resolution Fee."
23. PRE-AUTHORIZED HEALTH CARE TRANSACTIONS
23.1 Any MERCHANT that participates in the VISA Pre-authorized Health Care
Program must be in possession of a current Addendum for this program.
23.2 This Addendum must be in place prior to the offering of the Program by
MERCHANT.
18
<PAGE> 21
24. VISA SUPERMARKET PROGRAM
24.1 Any MERCHANT that wishes to participate in the VISA Supermarket Incentives
Program must be in possession of the FNBO current addendum for this
program.
24.2 This addendum must be in place prior to the offering of the Program by
MERCHANT.
25. ELECTRON CARD PROGRAM
25.1 At its option, a MERCHANT may accept Electron Cards. If a MERCHANT chooses
to accept Electron Cards, it must accept all Electron Cards when properly
presented. In addition, the MERCHANT must:
A. Display the Electron symbol;
B. Obtain authorization;
C. Use a Point of Transaction Terminal for authorization and data
capture; such Point of Transaction device must print a receipt;
D. Accept Electron Cards only for "face to face" transactions in which
both the CARD and cardholder are present; and
E. Process all transaction resulting from CARDS bearing an Electron
symbol as Electron transactions and be subject to all VISA
International Operating Regulations governing the Electron Program.
OPERATIONAL REQUIREMENTS
26. MERCHANT NAME AND ADDRESS
26.1 All forms submitted to FNBO must bear both the corporate and "Doing
Business As" ("DBA") name.
26.2 FNBO expects to sign all corporate entities with the signature of a
corporate officer.
26.3 MERCHANT will inform FNBO immediately of any change in:
A. Corporate or "DBA" name and location address
B. The information contained on MERCHANT's imprinter plates
27. IMPRINTERS
27.1 All MERCHANTS must be in possession of a working imprinter, supply of
blank sales drafts and an accurate imprinter plate showing their DBA name,
city, state, and FNBO merchant number. In the event that MERCHANT is not
in possession of the above equipment, MERCHANT must contact FNBO to obtain
such equipment.
27.2 Failure to be in possession of the equipment and supplies listed above
will seriously increase MERCHANT's liability for CHARGEBACKS where
transactions cannot be mag-stripe read by a terminal and, as a result, are
key entered and a signed imprinted SALES DRAFT not completed.
28. INCORPORATION
28.1 FNBO and MERCHANT are parties to an agreement for the processing of SALES
("AGREEMENT") into which these RULES (as amended from time to time) have
been incorporated by reference. The capitalized terms in AGREEMENT will
have the same meaning in RULES.
29. USE OF NON-FNBO TERMINALS AND/OR SOFTWARE
29.1 If MERCHANT elects to use the terminal of AMEX or Discover or other third
party providers of software (such as a POS or Accounting System Vendors)
to capture and transmit VISA and MASTERCARD SALES to FNBO, MERCHANT
assumes full responsibility and liability for third party providers
failure to comply with the RULES. The third party provider is the source
for information regarding authorizations and CHARGEBACKS that may be
needed by FNBO. Certain CHARGEBACKS require authorization information to
reverse. MERCHANT is responsible to obtain this information from third
party provider. FNBO is not liable for SALES that were not received by it.
19
<PAGE> 22
30. COMMUNICATION VENDORS
30.1 MERCHANT understands that in the event FNBO terminals are used by
MERCHANT, the communications vendor is not responsible for losses
arising from the transactions processed using the vendor's service.
31. EFFECT OF TERMINATION OF PROCESSING AGREEMENT
31.1 In the event that AGREEMENT is terminated by FNBO for cause, FNBO is
required by ASSOCIATIONS to file the name and address of MERCHANT and
MERCHANT's principals on the "Combined Terminated Merchant File."
31.2 In the event that AGREEMENT is terminated for cause and MERCHANT is
obligated to MERCHANT for sums due and the principals of MERCHANT are
liable for such debts, a negative credit report may be submitted to a
credit reporting agency.
32. MEMBER SERVICE PROVIDER SERVICES
32.1 If MERCHANT is using a Member Service Provider's terminal, (i.e. dial
terminal or equivalent sales capture device), and the Member Service
Provider is providing the customer service, then such Member Service
Provider is a separate entity and is not an agent of FNBO.
32.2 MERCHANT agrees that FNBO's obligation to pay MERCHANT for SALES
captured by use of non-FNBO terminals is limited to the amount, less
DISCOUNT, received by FNBO from the Member Service Provider.
32.3 Any problems or complaints regarding such should be reported in writing
to Member Service Provider Coordinator, First National Bank of Omaha,
P.O. Box 3190 Omaha, Nebraska 68102-0190.
32.4 MERCHANT shall understand the AGREEMENT is between FNBO and MERCHANT.
Issues involving Member Service Provider shall be dealt with independent
of FNBO. In the event that issues are unresolved and relate to services
provided under the AGREEMENT, FNBO should be notified. Failure to pay
FNBO due to issues with Member Service Provider is not permitted.
33. SUBMISSION OF ALL SALES
33.1 In order to ensure that there is no duplicate processing of SALES by
multiple processors, MERCHANT agrees to submit all SALES from the
BUSINESS originating within the United States of America to FNBO under
AGREEMENT.
33.2 Subsequent Amendments to these RULES:
A. The AGREEMENT provides that MERCHANT will comply with the terms of
RULES as if they were specific terms of AGREEMENT set out therein.
Due to changes in the processing industry and the requirements of the
ASSOCIATIONS and FNBO, the RULES are amended from time to time and
amendments to these RULES are distributed to MERCHANT at the address
currently on record for the distribution of statements.
B. Submission of SALES at any time after seven (7) days from the date of
distribution of RULES to MERCHANT's Address for processing
statements, shall be evidence that MERCHANT has received the amended
RULES and has agreed to abide by them.
34. MERCHANT STATEMENTS
34.1 MERCHANT will receive periodic statements reflecting activity on its
account. MERCHANT agrees to examine and reconcile its MERCHANT statement
and notify FNBO of any error or discrepancy. Unless MERCHANT provides
written notice to FNBO of any error or discrepancy within ninety (90)
days of the statement date, the statement shall be deemed correct for
all purposes and FNBO shall not be liable for any error or discrepancy
reflected thereon. No legal proceedings or action may thereafter be
brought against FNBO to recover for any error or discrepancy.
20
<PAGE> 23
FIRST AMENDMENT TO THE MERCHANT TRANSACTION PROCESSING AGREEMENT
THIS Amendment ("AMENDMENT"), by and between FIRST NATIONAL BANK OF OMAHA
("FNBO"), a national banking association with principal offices at One First
National Center, Omaha, Nebraska, and CyberGold, Inc., ("MERCHANT"), a
California corporation with offices at 2921 Adeline St., Berkeley, Calif.
94703, shall become effective on the date executed by a duly authorized
representative of FNBO. FNBO and MERCHANT shall be collectively known hereafter
as the "PARTIES."
WHEREAS, FNBO and MERCHANT are parties to a Merchant Transaction Processing
Agreement, ("AGREEMENT"), of certain date under which FNBO provides processing
and other services regarding credit card sales transactions, ("SALES"), subject
to the terms and conditions more fully set out in AGREEMENT.
WHEREAS MERCHANT desires to have FNBO participate in the Pilot test ("PILOT")
of Visa card usage by MERCHANT for payments to MERCHANT's customers residing in
the United States for viewing commercial messages transmitted over the Internet
and for related activities as described in MERCHANT's program ("PROGRAM") which
is attached as Exhibit 1 to this AMENDMENT, and incorporated herein by this
reference.
1. GENERAL:
- ----------------
1.1 Capitalized terms which are not defined herein shall have the same
meaning as when defined in the AGREEMENT.
1.2 MERCHANT agrees to operate in accordance with Exhibit 1 which describes
the procedures used for the PROGRAM. If any deviation is made to the
PROGRAM, MERCHANT must notify FNBO in writing at least sixty (60) days
before the implementation to ensure that the change does not materially
change any Visa procedure.
1.3 MERCHANT understands that special conditions will apply to the PILOT
including the processing arrangements necessary to avoid VisaNet and
Visa issuers systems changes.
1.4 MERCHANT agrees that the PILOT will include the following products: Visa
Check Card and Visa Credit Card. All Visa commercial cards and all
non-U.S. Visa products will be excluded.
1.5 MERCHANT shall use the personal data provided by the cardholder during
the registration process only for the purpose of providing the PROGRAM.
MERCHANT shall obtain the cardholder's consent for any other
disclosures of cardholder data.
1.6 MERCHANT agrees to comply with all applicable laws and regulations.
2. PAYMENT OF SUMS DUE:
- ----------------------------
2.1 MERCHANT shall deposit transactions with FNBO on a daily basis.
MERCHANT agrees that under no conditions will transactions be created
more than thirty (30) days after the initial cardholder's use in a
given period; nor will such transactions pass through VisaNet more than
thirty-five (35) days after the initial cardholder's use in a given
period.
2.2 MERCHANT and FNBO shall establish one (1) designated account,
("DESIGNATED ACCOUNTS"), for the credit and debit of sums between the
PARTIES. MERCHANT agrees to maintain a minimum amount of ________ in
each account and if the total amount in any account becomes less than
this sum, FNBO may debit another account or MERCHANT may deposit funds
so that the balance required by FNBO is maintained. If this AGREEMENT
is terminated for any reason, MERCHANT agrees to maintain these
accounts for a period of six (6) months in order to secure the
obligation of MERCHANT hereunder unless otherwise agreed in writing by
the PARTIES.
2.3 MERCHANT agrees to pay FNBO the FEES set out in Exhibit 2, attached
hereto and incorporated herein by this reference. FNBO shall deduct
FEES from incoming transactions or debit the same from MERCHANT's
DESIGNATED ACCOUNT.
2.4 During the PILOT, MERCHANT shall (i) create a separate transaction for
any individual payment of twenty dollars ($20.00) or more and (ii) be
allowed to aggregate small value transactions until either twenty
dollars ($20.00) has been accumulated or thirty (30) days have passed
since the initial cardholder's use in a given period. When the dollar
amount or time limit has been reached, MERCHANT will create a
transaction for deposit with FNBO.
<PAGE> 24
2.5 MERCHANT agrees that no one cardholder shall receive more than one hundred
dollars ($100.00) per month in one Visa account during the PILOT, in order
to control fraud.
2.6 MERCHANT shall offer Visa cardholders a transfer of money into their
accounts. MERCHANT shall not accept Visa cards for purchases or allow
transfers from cardholders' accounts.
2.7 MERCHANT understands that credit card issuers may apply the credit to the
outstanding balance and MERCHANT shall offer only to transfer money into
the account and not to the cardholder. MERCHANT must make appropriate
disclosures to the cardholders.
2.8 If an Issuer returns a transaction to FNBO, MERCHANT is liable for any cost
and must resolve the disposition of the transactions directly with its
customers.
2.9 MERCHANT agrees that it is liable for all FEES, costs, fines, penalties,
charges, and or any administrative or legal fees and costs associated with
the PROGRAM or the PILOT.
3. TERM AND TERMINATION:
3.1 The PILOT shall commence on such date as the PARTIES agree upon in writing
and will terminate after twelve(12) full months of operation unless
terminated sooner in accordance with this AGREEMENT. At the end of PILOT,
FNBO will review the results to determine whether to allow the PROGRAM to
continue. FNBO has no obligation to continue the PROGRAM.
3.2 FNBO may terminate this PILOT on thirty (30) days notice.
3.3 MERCHANT understands that Visa may terminate this PILOT on thirty (30) days
notice in the event Visa determines, in its sole discretion, that
cardholder disputes and service events occur with greater than acceptable
frequency. If the PILOT is terminated by Visa, FNBO is not obligated to
continue with the PILOT.
3.4 MERCHANT agrees to a two (2) year exclusive arrangement with VISA, U.S.A.,
for the purpose of accepting the appropriate VISA products. This exclusive
agreement means that MERCHANT will not accept any card associated with
Mastercard, American Express, and Discover products in MERCHANT's PROGRAM.
If Visa cancels the use of VISA products, this exclusive arrangement is
terminated automatically.
4. OPERATING CONSIDERATIONS:
4.1 MERCHANT agrees to monitor performance and provide volume statistics for
such things as customer service visits to the MERCHANT web site and
telephone calls to the 800 number customer service desk.
4.2 MERCHANT shall use the best industry practices for the security of its
procedures and the interface with the Visa system. This includes but is not
limited to the registration process, protection of MERCHANT transactions on
the Internet, and database protection. MERCHANT must use a separate
procedure from the standard MERCHANT Internet registration process to
obtain the cardholder's account number and expiration date in order to
protect the Visa account number. MERCHANT shall have this procedure
approved by Visa. MERCHANT shall use the best industry practices to protect
the database of Visa account numbers from both internal and external
compromise. MERCHANT agrees that all appropriate industry and account
procedure controls will be in place at all times.
4.3 MERCHANT may use the VisaNet authorization system or Visa's address
verification service without additional cost.
4.4 MERCHANT must inform cardholders in a conspicuous manner that all disputes
are to be resolved by MERCHANT, either through its web site or toll-free
number, and not by the issuer.
4.5 MERCHANT shall monitor activity by Visa cardholders and report the results
to FNBO on a monthly basis, including but not limited to, customer service
hits on the Internet site and 1(800) service calls.
4.6 MERCHANT agrees to use its best efforts to implement the Secure Electronic
Transactions ("SET") procedures on the Internet in a timely manner once
they are available for general use.
4.7 MERCHANT agrees to establish a hyperlink to a Visa site to assist Visa,
U.S.A., in downline loading software to first time Visa cardholders who are
registering for PROGRAM and who do not have a digital signature.
4.8 MERCHANT agrees to work with Visa, U.S.A., in defining appropriate
procedures and make its best effort to assist Visa in the registration
process for Internet merchants.
<PAGE> 25
4.9 MERCHANT will supply Visa, U.S.A., with a copy of its registration template
so that Visa U.S.A. may evaluate the overlap between SET cardholder
registration data requirements and MERCHANT's registration data
requirements.
5. OTHER CONSIDERATIONS:
5.1 MERCHANT agrees that all marketing information, including but not limited
to press or news releases dealing with AGREEMENT or the PROGRAM must be
approved by FNBO prior to the release of any such information.
5.2 Under normal business conditions, MERCHANT will be able to inform the
public that it accepts the agreed-upon Visa products. MERCHANT agrees that
no expressed or implied endorsement by Visa or FNBO of MERCHANT or its
PROGRAM can be claimed or implied. Nothing in this AGREEMENT grants
MERCHANT the right to use the Visa marks without the express written
consent of Visa, U.S.A. Nothing in this AGREEMENT grants MERCHANT the right
to use the FNBO trademarks without the express written consent of FNBO.
Upon termination of this AGREEMENT, MERCHANT shall immediately cease use of
all Visa or FNBO marks.
5.3 This AMENDMENT and AGREEMENT constitutes the entire understandings of the
PARTIES and supersedes all prior contracts, agreements, and negotiations
between the PARTIES whether verbal or written, as to the matter contained
herein.
IN WITNESS WHEREOF, the PARTIES hereto have caused this AGREEMENT to be
executed by their duly authorized officers, effective as of the date executed
by FNBO.
<TABLE>
<S> <C>
First National Bank of Omaha CyberGold Inc.
By: /s/ First National Bank of Omaha By: /s/ A. NATHANIEL GOLDHABER
------------------------------------- ---------------------------------
Print Name: First National Bank of Omaha Print Name: A. NATHANIEL GOLDHABER
----------------------------- -------------------------
Title: Executive Vice President Title: President
---------------------------------- ------------------------------
Date: July 21, 1997
-----------------------------------
</TABLE>
<PAGE> 26
EXHIBIT 1
The PROGRAM description
- --------------------------------------------------------------------------------
THE CYBERGOLD PROGRAM
- --------------------------------------------------------------------------------
CyberGold is an Internet direct marketing product that allows advertisers
to draw consumers to their content by paying them directly for their active
attention on the Internet.
CyberGold can offer Visa cardholders a bonus - the opportunity to earn cash
on the Internet, transfer it to their Visa card and spend it.
THE CONSUMER CYBERGOLD EXPERIENCE
1) Consumers are alerted to a CyberGold reward opportunity by seeing a
CyberGold coin symbol; initially only on another Internet site and
eventually on our CyberGold site where consumers will go to view ads
presented to them based on their demographic profiles as well. The
coins direct consumers' attention to the advertisers content/message.
2) Consumers read and then demonstrate their understanding of the
advertiser's message by completing an attention test and interacting
with content/message. This could include their answering questions on
the content, playing an interactive game or completing a survey. They
could also receive an instant rebate for buying on-line. On
successful completion they are eligible to receive their reward.
3) First time users of the system are directed to the CyberGold Web site
(if they're not already there) to register. They choose a login name
and password. They then enter identity information including their
name, email and home address and phone number. Once this step is
complete, their CyberGold reward is automatically deposited in their
CyberGold account.
4) Once consumers have registered, they have access to their CyberGold
account on the CyberGold site through their login name and password.
Their account aggregates payments from multiple advertisers and
opportunities. Consumers can get item-level details of all CyberGold
transactions at the CyberGold site.
5) Consumers can transfer monies from their CyberGold account; today to
their bank account, into a CyberCash wallet or donate to charity.
Tomorrow they will be able to transfer to their Visa account.
CYBERGOLD/VISA TRANSFERS
o Transactions between CyberGold and Visa will be transmitted through a
secure channel that will meet 100% of Visa's requirements.
o Consumers can be given the option of entering their Visa account
number every time they request a transfer or leaving it "in Trust"
with CyberGold in which event it will be secured as bank account
numbers and passwords are currently secured.
1
<PAGE> 27
o Consumers can be limited to crediting their Visa account either by a
minimum dollar amount or time frame or both as selected by Visa; for
example, once per month or with a $20 minimum.
SECURITY
o All financial transactions between the consumer and CyberGold are
encrypted using SSL and DES technology.
o CyberGold's financial databases are protected through triple firewalls,
Sybase stored procedure database security and encoded account numbers.
o All reports, printed or electronic, have sensitive information removed
automatically before they are created.
o The Databases are physically secure in a locked facility with 24 hour
security.
o All backup tapes are subject to the same security applicable to computers
containing the information.
o All financial transactions are separately logged and tracked.
SYSTEM PERFORMANCE:
o High volume: The system is architected to handle 300 transactions per
second with an essentially unlimited number of user accounts. CyberGold
is projected to handle $4 million in payments in 1997, over $20 million
in 1998 and over $100 million by the year 2000.
o Scalability: CyberGold currently features multiple, redundant high
performance UNIX servers for handling transactions. The architecture is
fully scaleable - performance can be ramped up merely by adding
additional hardware.
CUSTOMER SERVICE AND AUDITS
o Customer service: Consumers can contact CyberGold 24 hours a day through
CyberGold's on line Customer Service System which is based on Lotus
Notes. Credits to cardmember's accounts list www.cybergold.com as the
merchant to remind consumers to contact CyberGold's web site where they
will be able to review item-level detail to determine for themselves the
state of their account and the amount of the Visa transfer. All account
inquires are handled through CyberGold's centralized customer service
database.
o Auditing: Auditing procedures are reviewed by Arthur Andersen & Co.
2
<PAGE> 28
EXHIBIT 2
FEES
MERCHANT agrees to pay FNBO the following:
1. DISCOUNT Rate: [***]* % + $[***]* per item.
2. Monthly Minimum fee: $[***]* for first two months
(begins when FNBO receives first $[***]* for next two months
transaction from MERCHANT) $[***]* for next two months
$[***]* for next two months
$[***]* for next two months
$[***]* per month thereafter
3. Service/Programming fee: $[***]*, one time fee
4. Chargeback fee: $[***]* per chargeback
5. Rejected Item fee: $[***]* per rejected item at Visa
6. Retrieval fee: $[***]* per ticket retrieval request
- -------------
* Confidential Treatment Requested. Confidential portion has been filed
with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.8
LETTER OF AGREEMENT BETWEEN CYBERGOLD AND EARTHLINK NETWORK
CyberGold and EarthLink Network, Inc. agree to extend their partnership as
follows:
PURCHASE INCENTIVE PROGRAM:
CyberGold will provide the mechanism for an EarthLink mall-wide and site-wide
purchase incentive program. The program will reward EarthLink users for
any purchase performed with an EarthLink Partner Merchant through the EarthLink
site. The rewards will take the form of rebates paid by EarthLink to consumers
in CyberGold currency, with the rewards deposited into users' online CyberGold
accounts. EarthLink will determine the percentage of the rebates, which may
change over time, and EarthLink will pay to CyberGold the rebate amounts, which
CyberGold will in turn credit to the users' CyberGold accounts. In addition to
paying the rebate sums, EarthLink will pay CyberGold a transaction-processing
fee of $[***]* for each incentive rebate transaction processed through this
program. Further, EarthLink will pay CyberGold a one-time non-recurring
engineering and setup fee of $[***]* upon executing this agreement. All
other billing associated with this program will be done monthly, with net 30
payment terms.
ADDITIONAL PROGRAMS AND CONSIDERATIONS:
Revenue Sharing: If EarthLink introduces CyberGold to a merchant, and that
merchant, as a result of EarthLink's introduction, chooses to run an incentive
promotion program with CyberGold off of the EarthLink site (e.g. at the
CyberGold site or at partner sites), then CyberGold will pay to EarthLink
[***]*% of the transaction fee revenue generated by that merchant's CyberGold
incentive programs during the term of this agreement.
If at some future time EarthLink Partner Merchants offer users CyberGold
incentive rewards on the EarthLink site for which the Partner Merchants pay,
EarthLink and CyberGold will share the transaction fees generated by those
reward transactions as follows. In cases where EarthLink originally acquired the
merchant and brought the merchant to the EarthLink-CyberGold partnership,
EarthLink will earn [***]*% of the transaction fee and CyberGold will earn
[***]*% of the transaction fee, with a minimum fee to CyberGold of $[***]*. In
cases where CyberGold originally acquired the merchant and brought the merchant
to the EarthLink-CyberGold partnership, CyberGold will earn [***]*% of the
transaction fee and EarthLink will earn [***]*% of the transaction fee, with a
minimum fee to CyberGold of $[***]*. At present we do not know what such fees
will be, since at present EarthLink will be paying the entire consumer reward.
Sprint Promotions: CyberGold and EarthLink will run co-promotions using
CyberGold incentive rewards to drive adoption of Sprint Long Distance, Sprint
PCS, and Sprint/EarthLink ISP services. These promotions will run at the
EarthLink site, at the CyberGold site, and broadly at other Internet Partner
sites and on banners throughout the Internet. The specific reward amounts, fee
structures, and terms of these promotions have yet to be determined.
- -------------
* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
<PAGE> 2
Micropayments: CyberGold will develop a micropayment-billing product that
requires minimal action by EarthLink I.S. resources to implement. CyberGold
will aggregate microbillings on the CyberGold server and ship data to EarthLink
regularly, at periods to be determined. EarthLink will add these aggregated
microbillings to the monthly credit card billings that EarthLink already makes
to each of its ISP customers. Once this micropayment billing system is
operational, EarthLink will assist CyberGold with promoting it to EarthLink
Partner Merchants. EarthLink's participation is contingent upon a technical
feasibility evaluation by EarthLink's MIS staff.
Exclusivity: With the exception of FreeRide, with whom EarthLink is already
doing Business, CyberGold will be the exclusive incentive-payment and loyalty
program provider for Earthlink during the term of this agreement. CyberGold
will not promote AT&T, MCI Worldcom or any non-EarthLink Internet or online
access service (excepting only AOL's Instant Messenger or related services
service, and any access service to be offered by Qwest in the future) on the
CyberGold site during the term of this agreement.
Partnership: CyberGold will become an EarthLink Platinum Partner. Fees for this
status are still to be determined.
PR Activities: EarthLink and CyberGold will issue joint Press Releases and
engage in other joint PR activities to promote the purchase rebate program, and
other programs they undertake together in the future.
Term:
This agreement is valid for one year and is renewable by EarthLink in the event
CyberGold earns net revenues of $[***]* or greater from all sources relating
to the promotions contemplated herein.
Agreed:
/s/ HOWARD LEFKOWITZ /s/ NAT GOLDHABER
- ------------------------------------ ---------------------------------------
Howard Lefkowitz Nat Goldhaber
VF Business Development CEO
EarthLink Network, Inc. CyberGold
Dated: 8/7/98 Dated: 8/10/98
------------------- --------------------
<PAGE> 1
EXHIBIT 10.11
AGREEMENT
THIS AGREEMENT is made and entered into as of the 17 day of March, 1997 by
and between AUDITS & SURVEYS WORLDWIDE, INC., a Delaware corporation ("ASW"),
with its principal business address of 650 Avenue of the Americas, New York, NY
10011, and CYBERGOLD, INC., a California corporation ("CyberGold"), with its
principal business address of 2921 Adeline Street, Berkeley, CA 94703.
RECITALS:
A. CyberGold has developed and owns the rights to a site on the World
Wide Web of the Internet (the "Web") known as the CyberGold Site and having the
domain name of "CyberGold.com" (the "CyberGold Site"), and CyberGold owns or is
authorized to use certain proprietary computer software for on-line real-time
access through the CyberGold Site to advertisements and other types of
incentive and informational products on the CyberGold Site or on other sites on
the Web, all as described in CyberGold's promotional materials (collectively
with the CyberGold Site, the "CyberGold System").
B. In connection with the CyberGold System, CyberGold utilizes a direct
compensation program which encourages Internet users to establish CyberGold
accounts (whereupon they become "CyberGold Members") and to read the
advertisements and other incentive and informational products available on or
through the CyberGold Site.
C. CyberGold compensates CyberGold Members for reading those
advertisements and products by "paying" to those CyberGold Members an
intangible, non-legal currency referred to as "cybergold" which is deposited in
the respective CyberGold Member's on-line account with CyberGold.
D. CyberGold intends to create and own a database (the "CyberGold
Database") containing profile information regarding each CyberGold Member,
including such CyberGold Member's name and address, demographic information,
product preferences (as provided by such CyberGold Member), as well as
historical data regarding that CyberGold Member's exposure to particular
advertisements and other products.
E. ASW is a full service marketing research firm offering leading
commercial, technological, financial and institutional clients a wide variety
of custom and syndicated research services designed to provide solutions to
complex marketing, strategy and policy problems (the "ASW Business").
F. ASW desires to provide to CyberGold certain survey and audit research
services regarding the CyberGold Members and certain analysis regarding the
data comprising the CyberGold Database, and CyberGold desires to obtain such
services from ASW, all in accordance with the terms and conditions set forth in
this Agreement.
G. ASW desires to use the CyberGold Site and have access to the
CyberGold Database to better enable ASW to conduct on the Internet the ASW
Business.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties, intending to be legally
bound hereby, agree as follows:
1. Recitals: The foregoing recitals are incorporated herein by reference
thereto.
2. Term: The term of this Agreement shall commence on the date hereof and
shall continue until February 1, 2001. Thereafter, the term of this Agreement
shall automatically renew for consecutive renewal terms of one year each unless
and until either party gives to the other at least 180 days' prior written
notice that the term of this Agreement shall not so renew. Any amounts accruing
prior to the expiration or termination of the term of this Agreement and
remaining unpaid as of such expiration or termination shall remain due and
owning until fully paid.
3. Development of the CyberGold Database.
3.1 On or before August 1, 1997, CyberGold will create or cause to be
created the initial CyberGold Database after consultation with ASW. From and
after the creation of the CyberGold Database, CyberGold hereby grants to ASW,
for the term of this Agreement, a non-exclusive, nontransferable license to use,
without payment of any fee or royalty whatsoever for such right, the CyberGold
Database, but only to the extent expressly contemplated in this Agreement, most
particularly as provided for in section 5 hereof, and necessary for ASW to
conduct the ASW Business on the Internet and to carry out its obligations under
this Agreement and to obtain for itself the benefits to it contemplated in this
Agreement.
3.2 ASW acknowledges that the CyberGold Database represents and will
continue to represent the valuable, confidential and proprietary property of
CyberGold and the CyberGold Site represents the valuable property of CyberGold.
CyberGold is not by this Agreement conveying to ASW any exclusive proprietary
or other rights in the CyberGold Database or the CyberGold Site, including, but
not limited to, any patent, copyright, trademark, service mark, trade secret,
trade name or other intellectual property rights (collectively, the "CyberGold
Proprietary Rights"), except that ASW will have the limited rights expressly set
forth in this Agreement. Accordingly, ASW acknowledges that, except as expressly
provided for in this Agreement, ASW possesses no title to or ownership of the
CyberGold Database or the CyberGold Site or any portion thereof. ASW will use
reasonable efforts to protect the CyberGold Proprietary Rights and will not
sell, license, transfer or otherwise dispose of any of the CyberGold Proprietary
Rights.
3.3 The parties recognize the importance of accurate, complete and timely
data on the CyberGold Database. Accordingly, as an initial matter, the parties
will work together in good faith to develop a plan to "clean" the data on the
CyberGold and to maintain as an on-going matter the data on the CyberGold
Database. All manipulation of such data in connection with such "cleaning" and
maintenance will be performed solely by CyberGold or its agents.
4. Creation of the ASW Site and Establishment of a Link From the
CyberGold Site to the ASW Site and vice versa.
-2-
<PAGE> 3
4.1 On or before August 1, 1997, ASW will create and establish its own
site on the Web with a domain name of its choosing (the "ASW Site"). The ASW
Site will be designed in a manner as consistent as is reasonable possible in
quality and user impression with the CyberGold Site, with the intent that the
ASW Site will appear to CyberGold Members as an extension of the CyberGold
Site. CyberGold will provide to ASW, at no cost to ASW, creative and technical
assistance in connection with the design and development of the ASW Site, but
ASW will undertake the creation of the ASW Site itself, at its own cost and
expense.
4.2 CyberGold acknowledges that the ASW Site will represent the valuable
property of ASW. ASW is not by this Agreement conveying to CyberGold any
proprietary or other rights in the ASW Site, including, but not limited to, any
patent, copyright, trademark, service mark, trade secret, trade name or other
intellectual property rights (collectively, the "ASW Proprietary Rights").
Accordingly, CyberGold acknowledges that, except as expressly provided for in
this Agreement, CyberGold possesses no title to or ownership of the ASW Site or
any portion thereof. CyberGold will use reasonable efforts to protect the ASW
Proprietary Rights and will not sell, transfer or otherwise dispose of any of
the ASW Proprietary Rights.
4.3 Within thirty days after the creation of the ASW Site, CyberGold will
establish on the CyberGold Site home an exclusive "surveys" link to the ASW
Site, and ASW will establish on the ASW Site home page an exclusive link to the
CyberGold Site, with each such link accompanied by prominent descriptive and/or
persuasive text. The parties will jointly develop, and will jointly own, the
interface between the CyberGold Site and the ASW Site and any other interface
required to accomplish the purposes of this Agreement.
5. Surveys, Audits and Analysis.
5.1 ASW will have the exclusive right to use the CyberGold Database for
the survey and analytical purposes contemplated in this Agreement; provided,
however, that ASW's access to the CyberGold Database will be electronic (i.e.,
no hard copy will be provided) and such access shall be restricted to "read
only". CyberGold shall make the CyberGold Database reasonably available to ASW
as necessary to facilitate ASW's timely performance of its obligations
hereunder and to obtain for itself the benefits contemplated under this
Agreement, subject always to the security provisions set forth elsewhere in
this Agreement.
5.2 During the term of this Agreement, ASW will perform, from time to
time and at its own cost and expense unless otherwise agreed by the parties,
surveys and audit research among the CyberGold Members and analysis of the
CyberGold Database for the benefit of CyberGold. Among the goals of such
surveys, audits and analysis by ASW will be the development of profiles and
other aggregate-level analysis of the CyberGold Members. The frequency and
extent of the services to be provided hereunder by ASW shall be determined by
the mutual agreement of the parties from time to time during the term of this
Agreement.
5.3 In connection with ASW's performance of its obligations under this
section 5, ASW will at the request of CyberGold design the research to be
undertaken, develop appropriate questionnaires to be completed by CyberGold
Members, undertake such research, question the CyberGold Members and tabulate
and analyze the results thereof. ASW will conduct all such activities in
accordance with a plan or plans theretofore prepared by ASW and
-3-
<PAGE> 4
submitted to CyberGold. At ASW's request, CyberGold will (i) conduct some or all
of the planned surveys of CyberGold Members, if deemed appropriate in any
particular instance by CyberGold, and (ii) provide at its own cost and expense,
or that of any sponsor it may obtain, incentive compensation for responding
CyberGold Members.
CyberGold will maintain a separate redacted database containing all data
accumulated with respect to each member except identifiers for individual
members and information which may be deemed proprietary by CyberGold, if any.
Each member in the redacted database will be identified by a unique associated
ID# also associated with the members records in the main database. This database
will be made available to ASW to analyze the characteristics of CyberGold's
database for research purposes only. To the extent ASW research requires member
contact, CyberGold will match the ID#'s ASW chooses from the redacted database
and deliver the information previously withheld from the main database, for the
purpose of research only, if authorized in advance by the member directly to
CyberGold or through ASW at its site, satisfactory evidence of which is
delivered to CyberGold. CyberGold will then, at the expense of ASW, send e-mails
to the other prospective panel members requesting their approval, forwarding
information ASW requires where approval is obtained. ASW may continue the
process until it fills its panel. No research reports based on the provision of
information aforesaid will contain identifiers of any CyberGold member.
Notwithstanding anything to the contrary in this section 5.3 or elsewhere
in this Agreement, ASW will not directly or indirectly contact any CyberGold
Member without, as to each program it proposes to undertake for the creation of
Panels or otherwise (but not as to each individual contact pursuant to such
program), the prior written consent of CyberGold, which consent will not
unreasonably be withheld.
5.4 ASW shall deliver to CyberGold, at no cost or expense to CyberGold,
copies of all reports prepared by ASW for CyberGold pursuant to its obligations
herein set forth, which reports shall be reasonably acceptable as to form and
substance to CyberGold. CyberGold and ASW will jointly own all such reports, but
CyberGold shall have the use thereof without cost. The parties intend that such
reports shall be appropriately prepared for presentation to a professional
advertising industry audience. The parties contemplate that ASW will provide
such services to CyberGold at no cost to CyberGold; provided, however, that if,
in ASW's reasonable opinion, the frequency and/or complexities of such services
create an undue and unanticipated financial burden on ASW, the parties will
negotiate in good faith the equitable allocation of such costs between them.
5.5 Subject to the last sentence 5.3 above, ASW shall, from time to time,
create panels ("Panels") comprised of individuals, both CyberGold Members and
individuals who are not CyberGold Members, who voluntarily agree to serve
thereon and who express a willingness to participate occasionally in surveys.
The individuals shall have a separate and distinct contractual relationship with
ASW in respect of any such Panel, and CyberGold will not be a party thereto. In
respect of each Panel, ASW will, at its own costs and expense, conduct
enrollment surveys, build a database that includes detailed information
regarding each member of the Panel, maintain regular contact with each member of
the Panel, and otherwise maintain the Panel. When Panel members are paid
incentive compensation for participation in a survey, compensation shall be
offered, in the form of CyberGold currency, subject always to the respondent's
right to refuse it as an incentive. To the extent the members of a Panel are
-4-
<PAGE> 5
not CyberGold Members, ASW will encourage such Panel members to become
CyberGold Members. All Panel information, survey data, databases or other
information created, collected or assembled by ASW from any such Panel will
remain the property of ASW, regardless of the future relationship between, or
status of, ASW, CyberGold, or any other parties to or agents of the CyberGold
business.
5.6 ASW may also provide research and strategic marketing services to
third parties, including without limitation advertisers on and through the
CyberGold Site, and will recruit, through CyberGold, CyberGold Members for the
Panels. CyberGold shall refer to ASW any CyberGold advertisers or content
providers requesting surveys, reporting and analysis pertaining to the
CyberGold Database, but such advertisers or content providers shall not be
required to use or retain ASW. All surveys, reporting and analysis conducted by
ASW, whether for third parties (including CyberGold clients), for publicity, or
for other ASW uses, will be conducted by ASW at no cost or expense to
CyberGold. In all of these instances, as between CyberGold and ASW, ASW shall
bear the cost of CyberGold electronic "cybergold" paid to any CyberGold Member
when that cybergold is used for respondent incentives.
5.7 ASW may create databases that combine data for reporting on an
aggregate basis only (i.e., no CyberGold Member-specific data) from the
CyberGold Database with demographic or other information lawfully available to
ASW for research, analytic, publicity or other purposes. ASW may also use the
CyberGold Database to conduct surveys for CyberGold clients at the request of
CyberGold or any CyberGold client, and to conduct surveys for other clients and
for other ASW purposes. Unless the parties agree otherwise, all such surveys
will be conducted by ASW on the ASW Site. Even if respondents to such surveys
are not then CyberGold Members, ASW will offer cybergold currency as respondent
incentive in any cases in which ASW offers financial incentives to respondents
subject to respondent's refusal. Any respondent who is not then a CyberGold
Member who accepts cybergold as an incentive will be required by ASW, as a
condition to such response, to (i) provide directly to CyberGold (or to ASW who
will transfer it to CyberGold) the information necessary to establish a
CyberGold account in such respondent's name and (ii) enter the CyberGold Site
to acquire a CyberGold password and PIN number.
5.8 Notwithstanding anything to the contrary elsewhere in this Agreement,
custom surveys or analysis based on the CyberGold Database may be conducted by
third parties, but any samples or other data drawn for this purpose from the
CyberGold Database will be drawn by ASW, which may charge such third party a
fee for drawing such data, which fee, if any, will be shared by ASW with
CyberGold as agreed. CyberGold will consult with ASW on each such request.
During the term of this Agreement, CyberGold will not sell individual
registration, transaction or other data from the CyberGold Database to
advertisers or their agents, or to any party for research or analytical
purposes, without the prior written consent of ASW, which consent shall not
unreasonably be withheld, but nothing in this section 5.8 shall be interpreted
so as to, or shall be deemed to, restrict in any way the right of CyberGold to
prepare and to deliver to third parties detailed aggregated reports based upon
or developed from the data on the CyberGold Database relating to the activity
they sponsor.
5.9 Notwithstanding anything to the contrary elsewhere in this Agreement,
CyberGold acknowledges and agrees that ASW shall not be required under this
Agreement to provide any measurement or validation analysis of traffic or
"hits" on the CyberGold Site.
-5-
<PAGE> 6
5.10 CyberGold will be paid its cost of managing any CyberGold credit
transaction interaction on behalf of ASW or its clients, currently estimated at
approximately [***]*.
6. Reciprocal Promotion.
6.1 During the term of this Agreement, (i) CyberGold will prominently
feature ASW and its services in appropriate CyberGold public relations,
marketing and promotional materials, subject in each instance to ASW's prior
approval thereof; and ASW will prominently feature CyberGold and its services in
appropriate ASW public relations, marketing and promotional materials, subject
in each instance to CyberGold's prior approval thereof.
6.2 During the term of this Agreement, the parties will work together in
good faith to aggressively and consistently market their own and the other's
services to selected CyberGold and ASW clients and potential clients. In
connection therewith, either party may, from time to time, convene a meeting of
the parties upon 15 business days' prior notice to discuss marketing strategy,
which meeting may, at the request of either party, be telephonic. Upon any such
request, each party shall cause its representative to participate in such
meeting. Beyond such participation, neither party shall have any obligation in
respect of any such meeting.
7. Confidentiality. ASW agrees that it will maintain in confidence the
identity of, and any other information relating specifically to, any individual
CyberGold Member. Under no circumstances will ASW release or use, or suffer the
releasing or using of, any name or other information relating specifically to
any individual CyberGold Member that is obtained by ASW from CyberGold or
through its access hereunder to the CyberGold Database; provided that nothing
herein should limit ASW's contractual relationship and/or agreements with
CyberGold Members who are also members of any Panel created by ASW. ASW will
inform its employees, agents and other representatives of the restrictions set
forth in this section 7, and ASW will be responsible for any unauthorized
disclosures of information by any such employee, agent or representative.
8. Security Measures Regarding the CyberGold Database. ASW acknowledges
the importance to CyberGold and its members of maintaining the maximum security
of the content of the CyberGold Database and agrees to take all steps and
implement all procedures internally required to do so as recommended from time
to time by CyberGold.
9. Joint Participation in Product Planning, Development Marketing and
Operations.
During the term of this Agreement, CyberGold and ASW will cooperate in planning,
implementing and operating the research aspect of CyberGold's operations;
provided, however, that the foregoing shall not be construed to entitle ASW to
control or direct in any manner whatsoever the conduct by CyberGold of its
business or operations or vice versa. This cooperative effort will encompass,
among other things as may, from time to time, be agreed to between the parties,
the following:
(i) joint participation in the development of marketing and promotional
materials;
- --------------
* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
-6-
<PAGE> 7
(ii) joint participation in "co-selling" CyberGold and the ASW Business
and research programs relating thereto, including without limitation
introductions to and common sales calls on, and joint presentations to, ASW and
CyberGold clients and prospects;
(iii) the active participation of CyberGold's and ASW's technology staffs
in integrating the CyberGold Site, the CyberGold Database and other technology
with the ASW Site and any other requirements of ASW, for survey research and
analytical purposes; and
(iv) designing and implementing ASW Site pages and applications which may
from time to time be developed by ASW at its own cost and expense, whether they
are to be run on the ASW Site or the CyberGold Site, to be used for research
purposes in conjunction with the CyberGold Site.
10. Representation of Parties in Publicly Released Materials.
CyberGold and ASW will cooperate in good faith in an attempt to reach mutual
agreement on the following:
(i) how ASW and its participation under this Agreement with CyberGold will
be represented to third parties, and on where such references are to be
positioned, in materials, including promotional documents and news releases, to
be released to clients, prospects and/or the public by CyberGold; and
(ii) how and when CyberGold will be represented in reports, surveys, etc.
issued by ASW based on Internet research.
11. Note on Early Stages.
During the initial period of approximately six months, in which the "Popup"
version of the CyberGold Site will be in use, the ASW/CyberGold relationship
under this Agreement will be in an early state. ASW activities under this
Agreement during such six-month period are anticipated to include the following:
(i) Implementing interviewing software and web site;
(ii) Pilot studies & database analysis for CyberGold for purposes of
measuring the effectiveness of the advertising on the CyberGold Site,
the effect of such advertising on product awareness and the
demographics of people who read the ads;
(iii) Review of academic study;
(iv) Research product development; and
(v) Early panelist recruiting.
Links to surveys, probably hosted on the CyberGold Site at first, might be
appropriate in at least four places: following CyberGold signup, following
refusal of CyberGold signup, after
-7-
<PAGE> 8
login of existing member, and after completion of other CyberGold business.
12. Confidentiality.
Each party acknowledges that its violation of its confidentiality or
nondisclosure obligations under this Agreement may cause irreparable damage to
the other that cannot be fully remedied by money damages. Accordingly, in the
event of any such violation or threatened violation, the injured party will be
entitled, in addition to pursuing any other remedy available to it under this
Agreement or at law, to obtain injunctive or other equitable relief from any
court of competent jurisdiction as may be necessary or appropriate to prevent
any further violations thereof.
13. Infringement.
The parties each agree that as to its respective Web site and other
intellectual property that is the subject of, or that becomes the subject of,
litigation it will defend, at its own expense, any action brought against the
other party to the extent that such action is based solely on a claim that use
of its Web site or other intellectual property, infringes a United States
patent or copyright or the trade secret or other proprietary right of a third
party, and the indemnifying party will hold the other party harmless from any
resulting losses, liabilities, damages, costs and expenses, including, without
limitation, reasonable attorneys' fees, provided that the other party provides
it with prompt written notice of such actions.
14. General Provisions.
A. Notices. Any and all notices given under this Agreement will be
in writing and will be effective (a) when mailed to the address set forth
herein (or such substitute address provided in writing) by certified or
registered mail bearing proper postage, or (b) if by other means when received.
Notices will be sent to the following addresses:
If to ASW:
Audits & Surveys Worldwide, Inc.
650 Avenue of the Americas
New York, NY 10011
Attn: H. Arthur Bellows, Jr., President
If to CyberGold:
CyberGold, Inc.
2921 Adeline Street
-8-
<PAGE> 9
Berkeley, CA 94703
Attn: A. Nathaniel Goldhaber, President
with a copy (which shall not constitute notice) to:
Eckert Seamans Cherin & Mellott
1700 Market St., Suite 3232
Philadelphia, PA 19103
Attn: Abraham H. Frumkin, Esq.
B. Binding Effect. This Agreement will inure to the benefit of and
be binding upon ASW and CyberGold and their respective successors and permitted
assigns.
C. Non-Waiver. No delay or omission or failure to exercise any
right or remedy provided for herein will be deemed to be a waiver thereof or
acquiescence to the event giving rise to such right or remedy, but every such
right and remedy may be exercised from time to time and so often as may be
deemed expedient by the party exercising such right or remedy.
D. Captions. The captions of the sections herein are for
convenience only and do not affect in any way the scope, intent or meaning of
the provisions to which they refer.
E. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
its conflicts of laws provisions.
F. Severability. In the event that any provision of this Agreement
is held to be illegal, invalid or unenforceable under present or future laws by
any court of competent jurisdiction, then such provision will be fully
severable and this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision were not a part hereof.
G. Attorney Fees and Costs. In the event that this Agreement is
placed with an attorney to enforce any of its material provisions, then the
prevailing party will be entitled to recover its attorneys' fees and related
costs from the other party.
H. Entire Agreement and Modification. This Agreement constitutes
the full and complete understanding and agreement of ASW and CyberGold and
supersedes all prior negotiations, understandings and agreements between the
parties related to the subject matter hereof. Except as expressly stated in
this Agreement, any waiver, modification or amendment of any provision of this
Agreement will be effective only if in a writing signed by ASW and CyberGold.
IN WITNESS WHEREOF, each party has caused its duly authorized
representative to execute this Agreement as of the day and year first above
written.
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<PAGE> 10
AUDITS & SURVEYS WORLDWIDE, INC.
By: /s/ AUDITS & SURVEYS WORLDWIDE, INC.
------------------------------------
Its: President
-----------------------------------
CYBERGOLD, INC.
By: /s/ A. NATHANIEL GOLDHABER
------------------------------------
Its: President
-----------------------------------
<PAGE> 1
EXHIBIT 10.12
CYBERGOLD, INC.
A F F I N I T Y A G R E E M E N T
This Agreement is entered into as of this 20th day of November, 1998 (the
"Effective Date") by and between MBNA AMERICA BANK, N.A., a national banking
association having its principal place of business in Wilmington, Delaware
("MBNA America"), and CYBERGOLD, INC., a corporation having its principal place
of business in Berkeley, California ("CYBERGOLD") for themselves, and their
respective successors and assigns.
1. DEFINITIONS
When used in this Agreement,
(a) "Agreement" means this agreement and Schedules A, B, C and D.
(b) "Credit Card Account" means a credit card account opened by a Member in
response to marketing efforts made pursuant to the Program.
(c) "Customer" means any Member who is a participant in the Program.
(d) "Financial Service Products" means credit card programs, charge card
programs, and debit card programs (that either contain a credit feature or that
utilize a MasterCard, Visa, American Express, Novus system or other major debit
card system). The definition of Financial Service Products shall not include
private label card programs (i.e. individual store branded card program)
provided no Trademarks appear on the front/face of the credit device.
(e) "Group Incentive Program" or "GIP" means any marketing or other program
whereby CYBERGOLD conducts solicitation efforts for the Program, and the
parties mutually agree that such marketing or other program shall constitute a
GIP.
(f) "GIP Account" means a Credit Card Account opened by a Member pursuant to a
GIP in which CYBERGOLD complies with the GIP provisions of this Agreement.
(g) "Mailing Lists" means updated and current lists and/or magnetic tapes (in a
format designated by MBNA America) containing names, postal addresses and, when
available, telephone numbers of Members segmented by zip codes or reasonably
selected membership characteristics.
(h) "Member" means a member of CYBERGOLD and/or other potential participants
mutually agreed to by CYBERGOLD and MBNA America.
(i) "Program" means those programs and services of the Financial Service
Products MBNA America agrees to offer pursuant to this Agreement to the Members
from time to time.
(j) "Royalties" means the compensation set forth in Schedule B.
<PAGE> 2
(k) "Trademarks" means any design, image, visual representation, logo, service
mark, trade dress, trade name, or trademark used or acquired by CYBERGOLD
during the term of this Agreement.
(l) "CYBERGOLD Affiliate" means any entity controlling, controlled by or under
the common control with CYBERGOLD.
2. RIGHTS AND RESPONSIBILITIES OF CYBERGOLD
(a) CYBERGOLD agrees that during the term of this Agreement it will endorse
the Program exclusively and that neither CYBERGOLD nor any CYBERGOLD Affiliate
shall, by itself or in conjunction with others, directly or indirectly: (i)
sponsor, advertise, aid, develop, market, solicit proposals for programs
offering, or discuss with any organization (other than MBNA America) the
providing of, any Financial Service Products issued and/or marketed in the
United States or its territories of any organization other than MBNA America;
(ii) license or allow others to license issued and/or marketed in the United
States or its territories the Trademarks in relation to or for promoting any
Financial Service Products of any entity other than MBNA America; and (iii)
sell, rent or otherwise make available or allow others to sell, rent or
otherwise make available any of its mailing lists or information about any
current or potential Members in relation to or for promoting any Financial
Service Products of any entity other than MBNA America. Notwithstanding
anything else in this Agreement to the contrary, CYBERGOLD may accept
advertising from any financial institution provided that the advertisement does
not contain an express or implied endorsement by CYBERGOLD of said financial
institution or an express or implied endorsement by CYBERGOLD of the advertised
Financial Service Product.
(b) CYBERGOLD agrees to provide MBNA America with such information and
assistance as may be reasonably requested by MBNA America in connection with
the Program.
(c) CYBERGOLD authorizes, upon CYBERGOLD's approval, MBNA America to solicit
its Members by mail, direct promotion, advertisements and/or telephone for
participation in the Program.
(d) CYBERGOLD shall have the right of prior approval of all Program
advertising and solicitation materials to be used by MBNA America, which
contain CYBERGOLD's Trademark; such approval shall not be unreasonably withheld
or delayed. In the event that MBNA America incurs a cost because of a change in
the Trademarks (e.g., the cost of reissuing new credit cards), MBNA America may
deduct such costs from Royalties due CYBERGOLD. In the event such costs exceed
Royalties then due CYBERGOLD, CYBERGOLD shall promptly reimburse MBNA America
for all such costs.
(e) Upon the request of MBNA America, CYBERGOLD shall provide MBNA America
with Mailing Lists free of any charge (the parties understand and agree that
any Mailing List provided by CYBERGOLD pursuant to this Agreement may not
include those names and addresses of Members who have expressly prohibited
CYBERGOLD from transferring their names and
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<PAGE> 3
addresses to third parties. Upon the request of MBNA America, CYBERGOLD shall
provide MBNA America with the e-mail addresses of Customers free of any charge
(the parties understand and agree that any e-mail addresses provided by
CYBERGOLD pursuant to this Agreement may not include those e-mail addresses of
Customers who have expressly prohibited CYBERGOLD from transferring their
e-mail addresses to third parties).
(f) CYBERGOLD shall only provide information to or otherwise communicate with
Members or potential Members about the Program with MBNA America's prior
written approval, except for current advertising and solicitation materials
provided by MBNA America to CYBERGOLD. Notwithstanding the above, CYBERGOLD may
respond to individual inquiries about the Program from its Members on an
individual basis, provided that said responses are accurate and consistent with
the then-current materials provided by MBNA America to CYBERGOLD. Any
correspondence (i.e., mail, e-mail, etc.) received by CYBERGOLD that is
intended for MBNA America (e.g., applications, payments, billing inquiries,
etc.) shall be forwarded to the MBNA America account executive via overnight
courier within 24 hours of receipt. All charges incurred for this service will
be paid by MBNA America.
(g) CYBERGOLD hereby grants MBNA America and its affiliates a limited,
exclusive license to use the Trademarks solely in conjunction with the Program,
including the promotion thereof. This license shall be transferred upon
assignment of this Agreement. This license shall remain in effect for the
duration of this Agreement and shall apply to the Trademarks, notwithstanding
the transfer of such Trademarks by operation of law or otherwise to any
permitted successor, corporation, organization or individual. CYBERGOLD shall
provide MBNA America all Trademark production materials (e.g., camera ready
art) required by MBNA America for the Program, as soon as possible but no later
than thirty (30) days after CYBERGOLD's execution of this Agreement. Nothing
stated in this Agreement prohibits CYBERGOLD from granting to other persons a
license to use the Trademarks in conjunction with the providing of any other
service or product, except for any Financial Service Products.
(h) During the term of this Agreement and for a period after the termination
of this Agreement (as such period is set forth in Schedule D), CYBERGOLD, at
its sole cost and expense (except as otherwise provided herein), shall provide
the Customers with the benefits and services set forth in Schedule D, in
accordance with the terms and provisions contained therein.
3. RIGHTS AND RESPONSIBILITIES OF MBNA AMERICA
(a) MBNA America shall design, develop and administer the Program for the
Members.
(b) Except as otherwise provided in Section 4(a), MBNA America shall design
all advertising, solicitation and promotional materials with regard to the
Program. MBNA America reserves the right of prior written approval of all
advertising and solicitation materials concerning or related to the Program,
which may be developed by or on behalf of CYBERGOLD.
(c) MBNA America shall bear all costs of producing and mailing materials for
the Program.
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(d) MBNA America shall make all credit decisions and shall bear all credit
risks with respect to each Customer's account(s) independently of CYBERGOLD.
(e) MBNA America shall use the Mailing Lists (and e-mail addresses provided by
CYBERGOLD) provided pursuant to this Agreement consistent with this Agreement
and shall not permit those entities handling these Mailing Lists to use them
for any other purpose. MBNA America shall have the sole right to designate
Members on these Mailing Lists to whom promotional material will not be sent.
These Mailing Lists are and shall remain the sole property of CYBERGOLD.
However, MBNA America may maintain separately all information which it obtains
as a result of an account relationship or an application for an account
relationship. This information becomes a part of MBNA America's own files and
shall not be subject to this Agreement; provided however that MBNA America will
not use this separate information in a manner that would imply an endorsement
by CYBERGOLD.
4. GROUP INCENTIVE PROGRAM
(a) MBNA America shall design all advertising, solicitation and promotional
material with regard to the Program, except with respect to those materials
designed by CYBERGOLD pursuant to any GIP. In that regard, CYBERGOLD shall give
MBNA America thirty (30) days prior notice of its desire to engage in marketing
efforts regarding the Program itself, specifying that accounts generated from
such efforts will entitle CYBERGOLD to the Royalty specified in Schedule B,
subject to the other terms and conditions of this Agreement. The parties agree
to use commercially reasonable efforts to begin marketing the Program as
quickly as possible after the Effective Date. The parties understand and agree
that notwithstanding such efforts, marketing of the Program will not begin
until after December 15, 1998.
(b) All marketing materials generated as a result of such GIP programs shall
be source coded by CYBERGOLD for tracking purposes with source codes provided
by MBNA. Marketing materials or telemarketing inquiries from Members which, in
either case, do not contain or reference such coding shall not be considered
eligible for any of the GIP Royalty as set forth in Schedule B.
(c) In addition to all other rights it may have under this Agreement, MBNA
America shall have the right of prior approval of all advertising and
solicitation materials distributed by CYBERGOLD pursuant to any GIP. MBNA
America shall have approval and control of the scope, timing, content and
continuation of any GIP.
(d) All costs incurred by MBNA America in producing and mailing materials
created pursuant to any GIP or of supporting the marketing efforts of CYBERGOLD
pursuant to any GIP shall be deducted from any or all Royalty payments due
CYBERGOLD under this Agreement.
(e) CYBERGOLD shall comply with MBNA America's instructions and all applicable
laws, including, without limitation, the Truth in Lending Act and the Equal
Credit Opportunity Act, with regard to any GIP.
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<PAGE> 5
(f) Subject to MBNA America's approval and the provisions in this Agreement,
CYBERGOLD shall conduct a minimum of three (3) marketing efforts to all of its
Members (excluding those Members who have expressly requested that CYBERGOLD not
correspond with such Member through e-mail) each calendar year of the Agreement.
Such marketing efforts will be conducted via e-mail solicitation and the e-mail
message will prominently feature and promote the Program. In addition, during
the term of this Agreement, CYBERGOLD agrees to prominently advertise the
Program continuously on their Website.
5. REPRESENTATIONS AND WARRANTIES
(a) CYBERGOLD and MBNA America each represents and warrants to the other that
as of the Effective Date and throughout the term of this Agreement:
(i) It is duly organized, validly existing and in good standing.
(ii) It has all necessary power and authority to execute and deliver
this Agreement and to perform its obligations under this Agreement.
(iii) This Agreement constitutes a legal, valid and binding obligation of
such party, enforceable against such party in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, receivership,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity.
(iv) No consent, approval or authorization from any third party is
required in connection with the execution, delivery and performance of this
Agreement, except such as have been obtained and are in full force and effect.
(v) The execution, delivery and performance of this Agreement by such
party will not constitute a violation of any law, rule, regulation, court order
or ruling applicable to such party.
(b) CYBERGOLD represents and warrants to MBNA America as of the date hereof and
throughout the term of this Agreement that it has the right and power to license
the Trademarks to MBNA America for use as contemplated by this Agreement.
CYBERGOLD will hold MBNA America, its directors, officers, agents, employees,
affiliates, successors and assigns harmless from and against all liability,
causes of action, and claims, and will reimburse MBNA America's reasonable and
actual costs in connection therewith, arising from the Trademark license granted
herein or from MBNA America's use of the Trademarks in reliance thereon. Each
party shall promptly notify the other party in the manner provided herein upon
learning of any claims or complaints relating to such license or the use of any
Trademarks.
(c) CYBERGOLD and MBNA America each will indemnify and hold harmless the other
party, its directors, officers, agents, employees, affiliates, insurers,
successors and assigns (the "Indemnitees") from and against any and all
liability, causes of action, claims, and the reasonable and actual costs
incurred in connection therewith ("Losses"), resulting from the material breach
of this Agreement by CYBERGOLD or MBNA America, respectively as the case may be,
or its
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<PAGE> 6
directors, officers or employees. CYBERGOLD will indemnify and hold harmless
MBNA America and its Indemnities from and against any and all Losses arising
from the Trademark license granted herein or from MBNA America's use of the
Trademarks in reliance thereon. Each party shall promptly notify the other
party in the manner provided herein upon learning of any claims or complaints
that may reasonably result in the indemnification by the other party.
6. ROYALTIES.
(a) During the term of this Agreement, MBNA America shall pay Royalties to
CYBERGOLD. Royalties will not be paid without a completed Schedule C. Except as
otherwise provided in Schedule B, payment of Royalties then due shall be made
approximately forty-five (45) days after the end of the calendar quarter.
(b) On or before the forty fifth (45th) day after the end of each calendar
quarter during the term of this Agreement, MBNA America will provide CYBERGOLD
with a statement showing the number of Credit Card Accounts opened, the number
of Credit Card Accounts renewed and the number of retail purchase transactions
(excluding those transactions that relate to refunds, returns and unauthorized
transactions), made during the preceding calendar period.
(c) If during the term of this Agreement and for any Winddown Period (as such
term is defined herein), CYBERGOLD is unable or fails to fulfill its
obligations under Schedule D of this Agreement, MBNA America may, in addition to
any other right or remedy it has under this Agreement, utilize any Royalties
accrued by CYBERGOLD and otherwise payable to CYBERGOLD to perform some or all
of CYBERGOLD'S obligations set forth in Schedule, as appropriate, or to provide
the Customers with a benefit similar in quality and value to the benefits set
forth in Schedule D.
7. PROGRAM ADJUSTMENTS
A summary of the current features of the Program are set forth in Schedule A.
MBNA America reserves the right to make periodic adjustments to the Program and
its terms and features.
8. CONFIDENTIALITY OF AGREEMENT
The terms of this Agreement, any proposal, financial information and
proprietary information provided by or on behalf of one party to the other party
prior to, contemporaneously with, or subsequent to, the execution of this
Agreement ("Information") are confidential as of the date of disclosure. Such
Information will not be disclosed by such other party to any other person or
entity, except as permitted under this Agreement or as mutually agreed in
writing. MBNA America and CYBERGOLD shall be permitted to disclose such
Information (i) to their accountants, legal, financial and marketing advisors,
and employees as necessary for the performance of their respective duties,
provided that said persons agree to treat the Information as confidential in the
above described manner and (ii) as required by law or by any governmental
regulatory authority.
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<PAGE> 7
9. TERM OF AGREEMENT
The initial term of this Agreement will begin on the Effective Date and
end on November 30, 2003. This Agreement will automatically extend at the end of
the initial term or any renewal term for successive two-year periods, unless
either party gives written notice of its intention not to renew at least ninety
(90) days, but not more than one hundred eighty (180) days, prior to the last
date of such term or renewal term, as applicable.
10. STATE LAW GOVERNING AGREEMENT
This Agreement shall be governed by and subject to the laws of the State
of Delaware (without regard to its conflict of laws principles) and shall be
deemed for all purposes to be made and fully performed in Delaware.
11. TERMINATION
(a) In the event of any material breach of this Agreement by MBNA America or
CYBERGOLD, the other party may terminate this Agreement by giving notice, as
provided herein, to the breaching party. This notice shall (i) describe the
material breach; and (ii) state the party's intention to terminate this
Agreement. If the breaching party does not cure or substantially cure such
breach within sixty (60) days after receipt of notice, as provided herein (the
"Cure Period"), then this Agreement shall terminate sixty (60) days after the
Cure Period.
(b) If either MBNA America or CYBERGOLD becomes insolvent in that its
liabilities exceed its assets, or is adjudicated insolvent, or takes advantage
of or is subject to any insolvency proceeding, or makes an assignment for the
benefit of creditors or is subject to receivership, conservatorship or
liquidation then the other party may immediately terminate this Agreement.
(c) Upon termination of this Agreement, MBNA America shall, in a manner
consistent with Section 11(d) of this Agreement, cease to use the Trademarks.
MBNA America agrees that upon such termination it will not claim any right,
title, or interest in or to the Trademarks or to the Mailing Lists provided
pursuant to this Agreement. However, MBNA America may conclude all solicitation
that is required by law.
(d) MBNA America shall have the right to prior review and approval of any
notice in connection with, relating or referring to the termination of this
Agreement to be communicated by CYBERGOLD to the Members. Such approval shall
not be unreasonably withheld. Upon termination of this Agreement, CYBERGOLD
shall not attempt to cause the removal of CYBERGOLD's identification or
Trademarks from any person's credit devices, checks or records of any Customer
existing as of the effective date of termination of this Agreement.
(e) In the event that any material change in any applicable law, statute,
operating rule or regulation, or any material change in any operating rule or
regulation of either VISA or MasterCard makes the continued performance of this
Agreement under the then current terms and conditions unduly burdensome, then
MBNA America shall have the right to terminate this
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Agreement upon ninety (90) days advance written notice. Such written notice
shall include an explanation and evidence of the burden imposed as a result of
such change.
(f) For a one (1) year period following the termination of this Agreement for
any reason, CYBERGOLD agrees that neither CYBERGOLD nor any CYBERGOLD Affiliate
shall, by itself or in conjunction with others, directly or indirectly,
specifically target any offer of a credit or charge card or credit or charge
card related product to persons who were Customers. Notwithstanding the
foregoing, CYBERGOLD may, after termination of this Agreement, offer persons
who were Customers the opportunity to participate in another credit or charge
card program endorsed by CYBERGOLD provided the opportunity is not only made
available to such persons but rather as a part of a general solicitation to all
Members and provided further no such persons are directly or indirectly
identified as a customer of MBNA America, or offered any terms or incentives
different from that offered to all Members.
12. CUSTOMER LIST
(a) So long as CYBERGOLD continues to provide the Customers with the
enhancements that require CYBERGOLD to receive a Customer List, as defined
below, each month MBNA America shall provide CYBERGOLD with a list of
information (e.g., names and addresses) about Customers as may be mutually
agreed upon by the parties (hereinafter the "Customer List"). When used in this
Agreement, the term "Customer List" includes any whole or partial copies or
compilations of a Customer List in any form or any medium, any information
derived solely from a Customer List, and all Customer Information, as
hereinafter defined.
(b) CYBERGOLD shall return to MBNA America each Customer List, in the same
form as received by CYBERGOLD within thirty (30) days of receipt of such
Customer List. CYBERGOLD agrees that upon termination of the Agreement it
shall: (i) immediately destroy and purge from all its systems all information
within each Customer List to the extent that such information in any way
relates to MBNA America, the Program or Credit Card Accounts ("Customer
Information"), except CYBERGOLD may retain on the respective Customer's
CYBERGOLD account the merchant account transactions between the Customer's
Credit Card Account and the Customer's CYBERGOLD account ("Individual History")
(provided however that such Individual History shall continue to be governed by
this Section and the Agreement); and (ii) return or destroy within thirty (30)
days all Customer Information (excluding Individual History) that is in
tangible form, including any and all full or partial copies, or reproductions
thereof in any medium whatsoever. All destruction of Customer Lists shall be
done in strict accordance with MBNA America's then current reasonable
destruction policy.
(c) Any Customer List provided to CYBERGOLD may contain "dummy" information
(e.g., names, account information, addresses, etc.) so that unauthorized use of
a Customer List may be detained. This information will be unknown to CYBERGOLD.
A violation of this Section if conclusively proven and the damages named
hereinafter shall be deemed owed when MBNA America establishes the following:
(i) that MBNA America placed "dummy" information on the list (e.g.,
name(s), account information, address(es), etc.);
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(ii) that the "dummy" information received any mailings which were sent or
generated outside the scope of the permitted use of the Customer
List; and
(iii) that identical "dummy" information was not provided by MBNA America
or its affiliates to any third party.
(d) All Customer Lists are (i) confidential and proprietary and (ii) shall
remain the sole property of MBNA America. CYBERGOLD expressly acknowledges and
agrees that CYBERGOLD has no property right or interest whatsoever in any
Customer List. CYBERGOLD shall hold all Customer Lists in strict and absolute
confidence and shall not provide, trade, give away, barter, lend, send, sell or
otherwise disclose (collectively "transfer") any Customer List and shall not
make any copies of a Customer List of any type whatsoever except as expressly
approved in a separate writing by MBNA America. (This paragraph would prohibit,
by means of example only, transferring a list composed substantially of MBNA
America cardholders names, or target market or solicit (unless otherwise agreed
to by MBNA America) a list composed substantially of MBNA America cardholders
names). At all times CYBERGOLD shall keep in confidence and trust all Customer
Lists. CYBERGOLD further agrees that it shall not transfer any Customer List to
any other organization or individual under any circumstances, and CYBERGOLD
specifically but not by way of limitation agrees that no subcontractors and/or
affiliates shall be transferred any Customer List unless agreed to in writing by
MBNA America prior to any such transfer. (This paragraph would prohibit, by
means of example only, transferring any list of MBNA America cardholders to any
financial institution during the term of the Agreement or after the termination
of the Agreement.)
(e) CYBERGOLD shall have no authority to use the Customer List for any purpose
not expressly permitted by MBNA America to fulfill CYBERGOLD's obligations under
the Loyalty Program (as such term is defined in Schedule D) or otherwise agreed
to by MBNA America in a separate writing. CYBERGOLD shall comply with any
reasonable request of MBNA America with respect to security precautions to
maintain the security of the Customer List. CYBERGOLD agrees to secure and
safeguard the Customer List in strict accordance with the requirements of this
Section and MBNA America's instructions, as communicated by MBNA America to
CYBERGOLD from time to time. CYBERGOLD shall only permit access to the Customer
List to those employees, volunteers, agents and/or representatives of CYBERGOLD
who need such access to perform their duties for CYBERGOLD. In view of the
confidential nature of the Customer List, CYBERGOLD warrants that CYBERGOLD and
all its employees, volunteers, agents and/or representatives who work with any
Customer List shall be made aware of the obligations contained in this Section
and shall be under strict legal obligation not to copy any Customer List,
transfer any Customer List or make any other use of any Customer List other than
as specifically approved by this Section.
(1) Because the nature of the Customer List makes an evaluation of damages
after a violation of this Section impossible, then in the event that any
Customer List is handled or used in a fashion that violates this Section by
CYBERGOLD or its employees, volunteers, agents, and/or representatives, MBNA
America will be entitled to damages of twenty dollars ($20.00) for each use of
each category of information (e.g., names, addresses, etc.) used in violation of
this Section, with the amount of damages not to exceed one hundred fifty
thousand dollars ($150,000.00) per breach. In addition, CYBERGOLD agrees that
MBNA America shall be
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<PAGE> 10
entitled to injunctive relief to prevent violation or further violation by
CYBERGOLD and/or its employees, volunteers, agents or representatives of this
Section, and consents to submit to jurisdiction of the courts of the State of
Delaware and of the United States of America located in the State of Delaware
for any actions, suits or proceedings arising out of or related to this Section
or the Agreement. Nothing herein shall be construed as prohibiting MBNA America
from pursuing any other remedy on account of such breach or threatened breach.
(g) In the event CYBERGOLD receives a request to disclose a Customer List
pursuant to a subpoena, order of court of competent jurisdiction or by judicial
or administrative agency or legislative body or committee, CYBERGOLD agrees to:
(i) immediately notify MBNA America of the existence, terms and circumstances
surrounding such request; (ii) consult with MBNA America on the advisability of
taking legally available steps to resist or narrow such request; and (iii) if
disclosure of such Customer List is required or deemed advisable, exercise its
best efforts to obtain an order or other reliable assurance that confidential
treatment will be accorded to such portion of the Customer List to be disclosed
which MBNA America designates.
13. MISCELLANEOUS
(a) This Agreement cannot be amended except by written agreement signed by the
authorized agents of both parties hereto.
(b) The obligations in Sections 2(h), 5(b), 5(c), 6(c), 8, 11(c), 11(d), 11(f),
12(b), 12(c), 12(d), 12(e), 12(f), 12(g), and 13(b) shall survive any
termination of this Agreement.
(c) The failure of any party to exercise any rights under this Agreement shall
not be deemed a waiver of such right or any other rights.
(d) The section captions are inserted only for convenience and are in no way to
be construed as part of this Agreement.
(e) If any part of this Agreement shall for any reason be found or held invalid
or unenforceable by any court or governmental agency of competent jurisdiction,
such invalidity or unenforceability shall not affect the remainder of this
Agreement which shall survive and be construed as if such invalid or
unenforceable part had not been contained herein.
(f) All notices relating to this Agreement shall be in writing and shall be
deemed given (i) upon receipt by and delivery, facsimile or overnight courier,
or (ii) three (3) business days after mailing by registered or certified mail,
postage prepaid, return receipt requested. All notices shall be addressed as
follows:
(1) If to CYBERGOLD:
CYBERGOLD, INC.
2921 Adeline Street
Berkeley, CA 94703
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<PAGE> 11
ATTENTION: Mr. Pieter Hartsook,
Vice President, Business Development
Fax #: (510) 845-5257
(2) If to MBNA America:
MBNA AMERICA BANK, N.A.
Rodney Square
Wilmington, Delaware 19713
ATTENTION: Terrance R. Flynn,
Vice Chairman, Business Development
Fax#: (302) 432-0842
Any party may change the address to which communications are to be sent by
giving notice, as provided herein, of such change of address.
(g) This Agreement contains the entire agreement of the parties with respect
to the matters covered herein and supersedes all prior promises and agreements,
written or oral, with respect to the matters covered herein. Without the prior
written consent of MBNA America, which shall not be unreasonably withheld,
CYBERGOLD may not assign any of its rights or obligations under or arising from
this Agreement. MBNA America may assign any of its rights or obligations under
this Agreement to any other person without the prior written consent of
CYBERGOLD. MBNA America may utilize the services of any third party in
fulfilling its obligations under this Agreement.
(h) MBNA America and CYBERGOLD are not agents, representatives or employees
of each other and neither party shall have the power to obligate or bind the
other in any manner except as otherwise expressly provided by this Agreement.
(i) Nothing expressed or implied in this Agreement is intended or shall be
construed to confer upon or give any person other than CYBERGOLD and MBNA
America, their successors and assigns, any rights or remedies under or by
reason of this Agreement.
(j) CYBERGOLD recognizes and agrees that MBNA America's goodwill and
reputation in the marketplace are valuable and intangible assets; therefore,
CYBERGOLD agrees that it shall not conduct itself or engage in any activity in
a manner which may adversely affect these assets. In the event MBNA America
determines that CYBERGOLD does not so conduct itself, MBNA America may
terminate this Agreement, effective immediately.
(k) Neither party shall be in breach hereunder by reason of its delay in the
performance of or failure to perform any of its obligations herein if such delay
or failure is caused by strikes, acts of God or the public enemy, riots,
incendiaries, interference by civil or military authorities,
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compliance with governmental laws, rules, regulations, delays in transit or
delivery, or any event beyond its reasonable control or without its fault or
negligence.
SIGNATURE PAGE AND SECTION 13(l) CONTINUE ON NEXT PAGE
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<PAGE> 13
(l) 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.
IN WITNESS WHEREOF, each of the parties, by its representative, has executed
this Agreement as of the Effective Date.
CYBERGOLD, INC. MBNA AMERICA BANK, N.A.
By: /s/ NAT GOLDHABER By: /s/ JOHN C. RICHMOND
------------------------------ -----------------------------------
Name: Nat Goldhaber Name: John C. Richmond
------------------------------ -----------------------------------
Title: CEO/President Title: SEVP
----------------------------- ----------------------------------
Date: 11/20/98 Date: 11/20/98
------------------------------ -----------------------------------
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<PAGE> 14
SCHEDULE A
TERMS AND FEATURES
Subject to (i) MBNA America's right to vary the Program and its terms and
features, and (ii) the applicable agreement entered into between MBNA America
and each Customer:
A. CREDIT CARD ACCOUNTS
1. There is NO annual fee for the first year.
2. The current annual percentage rate will be a fixed rate of 12.99%.
3. Customers may be offered opportunities to select credit insurance
as a benefit under the Program.
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SCHEDULE B
ROYALTY ARRANGEMENT
During the term of this Agreement, MBNA America will pay CYBERGOLD a Royalty
calculated as follows, for those accounts with active charging privileges. MBNA
America may create a special class of accounts for CYBERGOLD employees under the
Program, and will not pay compensation for such designated accounts. All Royalty
payments due hereunder are subject to adjustment by MBNA America for any prior
overpayment of Royalties by MBNA America:
A. CREDIT CARD ACCOUNTS
1. $[***]* ([***]*) for each new Credit Card Account opened, which
remains open for at least [***]* consecutive days and which is
utilized by the Customer for at least one purchase or cash advance
which is not subsequently rescinded, the subject of a charge back
request, or otherwise disputed.
2. $[***]* ([***]*) for each Credit Card Account for which the annual fee
is paid by the Customer. If no annual fee is assessed by MBNA America
(other than as a result of a courtesy waiver by MBNA America), then
such royalty will be paid for each Credit Card Account which: 1) has a
balance great than zero as of the last business day of every twelfth
month after the opening of that Credit Card Account; and 2) has had
active charging privileges for each of the preceding twelve months.
3. [***]*% ([***]* percent) of all retail purchase transaction dollar
volume generated by Customers using a Credit Card Account (excluding
those transactions that (1) relate to refunds, returns and/or
unauthorized transactions, and/or (2) are cash equivalent transactions
(e.g., the purchase of wire transfers, money orders, bets, lottery
tickets, or casino gaming chips)).
B. GIP ACCOUNTS
$[***]* ([***]*) for each GIP Account opened, which remains open for at
least [***]* consecutive days and which is utilized by the Customer for at
least one purchase or cash advance during the aforementioned [***]* day
period which is not subsequently rescinded, the subject of a charge back
request, or otherwise disputed. Such GIP Accounts will not qualify for any
other opening-of-an-account Royalty.
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- ----------------
* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
<PAGE> 16
SCHEDULE C
TAXPAYER IDENTIFICATION NUMBER REQUEST
<TABLE>
<S> <C> <C>
FORM W-9 For Accounts Payable Use Only
To: ____________________________ Account Number: ____________ Oracle Vendor #: ________________
</TABLE>
Please complete the following information. We are required by law to obtain this
information from you when making a reportable payment to you. If you do not
provide us with this information, your payments may be subject to 31% federal
income tax backup withholding. Additionally, you may be subject to a $50 penalty
imposed by the Internal Revenue Service under section 6723.
INSTRUCTIONS: Complete Part 1 by filling in the row of boxes that corresponds
to your tax status.
Complete Part 2 if you are exempt from 1099 reporting.
Complete Part 3 to sign and date the form, and return it to us.
PART 1 - TAX STATUS: (Complete one row of boxes)
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------
INDIVIDUAL: Individual's Name Individual's Social Security Number
__ __ __ - __ __ - __ __ __ __
- -----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
SOLE PROPRIETOR: Business Owner's Name Business Owner's Social Security Number Business or Trade Name
__ __ __ - __ __ - __ __ __ __
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PARTNERSHIP: Name of Partnership Partnership's Employer Identification Number Partnership's Legal Name
(Name of first partner)
__ __ __ - __ __ - __ __ __ __
- ----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
CORPORATION, Name of Corporation or entity Employer Identification Number
EXEMPT CHARITY,
OR OTHER ENTITY: __ __ __ - __ __ - __ __ __ __
- -----------------------------------------------------------------------------------------
</TABLE>
PART 2 - EXEMPTION: IF EXEMPT FROM BACKUP WITHHOLDING AND FORM 1099
REPORTING, CHECK HERE: [ ] AND CIRCLE YOUR QUALIFYING
EXEMPTION REASON BELOW.
1. Corporation
2. Tax Exempt Charity under Section 501 (a) or IRA
3. The United States or any of its agencies or
instrumentalities
4. A state, the District of Columbia, a possession of
the United States, or any of their political
subdivisions or instrumentalities
5. A foreign government or any of its political
subdivisions, agencies or instrumentalities
PART 3 - CERTIFICATION: I certify under penalties of perjury that the Taxpayer
Identification Number I have provided is correct.
<TABLE>
<S> <C>
Person completing this form: _________________________________ Please provide address if different:
Signature: ___________________________________________________ ____________________________________
Date: ________________________________________________________ ____________________________________
Phone: ( _____ ) _____________________________________________
</TABLE>
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SCHEDULE D
ENHANCEMENTS
CYBERGOLD shall develop a loyalty enhancement program that encourages
participation in the Program and Credit Card Account retail purchase
transactions from the Customers (the "Loyalty Program").
Except as otherwise provided herein, CYBERGOLD agrees to provide and administer,
at its cost and expenses, the Loyalty Program generally described in this
Schedule for the Program or any other program agreed to by the parties.
MBNA America will provide the appropriate monthly reports to enable CYBERGOLD
to fulfill the requirements set forth in this Schedule D.
A. New Account Activation Enhancements for the Loyalty Program
1. If a Customer makes a retail purchase transaction on a Credit Card Account
in the first month after the Credit Card Account is opened, then CYBERGOLD
will credit $5 in CYBERGOLD dollars to the Customer's account with
CYBERGOLD and then immediately credit the Customer's Credit Card Account
$5. Said credit will appear on the Customer's Credit Card Account
within 10 calendar days after CYBERGOLD receives the necessary reports
from MBNA America.
2. If a Customer makes a retail purchase transaction on a Credit Card Account
in the second month after the Credit Card Account is opened, then
CYBERGOLD will credit $5 in CYBERGOLD dollars to the Customer's
account with CYBERGOLD and then immediately credit the Customer's Credit
Card Account $5. Said credit will appear on the Customer's Credit
Card Account within 10 calendar days after CYBERGOLD receives the
necessary reports from MBNA America.
3. If a Customer makes a retail purchase transaction on a Credit Card Account
in the third month after the Credit Card Account is opened, then CYBERGOLD
will credit $10 in CYBERGOLD dollars to the Customer's account with
CYBERGOLD and then immediately credit the Customer's Credit Card Account
$10. Said credit will appear on the Customer's Credit Card Account
within 10 calendar days after CYBERGOLD receives the necessary reports
from MBNA America.
4. MBNA America will share in [***]* of the interchange/merchant costs (up to
[***]* ($[***]*) per transaction) incurred by CYBERGOLD to process the
each of credits described in Section A.2., A.3., and A.4., above, from
each Customer's CYBERGOLD account to the Customer's Credit Card Account
through the MasterCard/Visa interchange system.
5. In the event the Customer does no have a CYBERGOLD account, CYBERGOLD will
immediately establish such an account for the Customer.
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* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
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6. No change to the structure or operation of the New Account Activation
Enhancements for the Loyalty Program in this Section A or any premium
to be offered in connection therewith shall be instituted without the
mutual agreement of the parties.
7. The provisions in this Section A of Schedule D, shall survive
termination of the Agreement.
B. Ongoing Enhancements for the Loyalty Program
Each qualifying Customer shall have the opportunity to continuously participate
in ongoing enhancements for the Loyalty Program ("Ongoing Enhancements")
established, fulfilled and funded by CYBERGOLD. Said Ongoing Enhancement shall
be initially established within 60 days of the Effective Date.
1. CYBERGOLD will continuously test a variety of reward programs to
encourage use and promotion of the Program and the co-branded
CYBERGOLD/MBNA credit card. CYBERGOLD will utilize all of the
compensation paid to CYBERGOLD pursuant to Subpart 3, Schedule B
towards the funding of the Ongoing Enhancements.
2. The Ongoing Enhancements established by CYBERGOLD will also provide
rewards of no less than[***]* basis points of the compensation paid to
CYBERGOLD pursuant to Subpart A.3 of Schedule B, in the aggregate, to
the active Customers.
3. The Ongoing Enhancements may be in the form of chances to win prizes
or the establishment of a point program. The Ongoing Enhancements
will include, but are not limited to chances to win vacation trips,
computer equipment, consumer electronics, and payment of internet
services. The number of chances the Customer of a Credit Card Account
receives and the value of the prizes will depend on the level of the
Customer's Credit Card Account purchase transactions. CYBERGOLD will
shall be solely responsible for all development and fulfillment of
all Ongoing Enhancements including, but not limited to all sweepstakes
or similar promotions, and shall be responsible for all costs related
to such programs, including but not limited to, marketing,
operational and administration costs.
C. Any tax or similar reporting or remittance obligations imposed by any
authority upon the awarding of points, sweepstakes or other Ongoing
Enhancements shall be solely and exclusively the responsibility of CYBERGOLD.
D. No material change to the structure of operation of the Ongoing
Enhancements or any premium to be offered in connection therewith shall be
instituted without the mutual agreement of the parties.
E. CYBERGOLD agrees that this Schedule D, the Loyalty Program, and the
respective rights and obligations hereunder, shall be subject to, and CYBERGOLD
shall comply with, the provisions and/or requirements of all applicable state,
federal and local law.
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* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
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F. During the term of this agreement, CYBERGOLD and MBNA America on an
ongoing basis, will work together to further develop the Loyalty Program (at
CYBERGOLD's expense, unless otherwise agreed to by the parties).
G. As between CYBERGOLD and MBNA America, the parties agree that CYBERGOLD
is solely and exclusively responsible and liable for all suits, causes of
action, express or implied warranties, damages, losses and claims of negligence
or product liability arising from any and all items provided by, or sold or to
be sold by or on behalf of CYBERGOLD, or services provided or to be provided by
or on behalf of CYBERGOLD, in each case regardless of whether such items or
serves were provided for a price or free of charge.
H. CYBERGOLD must notify the Cardholders (in a format mutually agreed to by
CYBERGOLD MBNA America) of the mutual termination of the Loyalty Program, (the
termination of Loyalty Program either through the mutual Agreement by the
parties, or through the termination of the Agreement) in writing at least one
hundred and eighty (180) days prior to the effective date of the termination
("Winddown Period"). CYBERGOLD agrees to fulfill any point rewards, premiums,
sweepstakes, or other enhancements during the Winddown Period, unless CYBERGOLD
issued certificates, coupons or marketing materials that indicated CYBERGOLD
would redeem such Ongoing Enhancements for a longer period of time. CYBERGOLD
shall then redeem such Ongoing Enhancements for the time period represented to
the Customers.
I. The parties agree that if the Winddown Period of the Loyalty Program (as
described in Section H above) occurs after the termination of this Agreement,
then MBNA America agrees to pay only the following compensation after
termination of the Agreement during any period of time that Customers may be
eligible to continue to accrue points (if any) for the Ongoing Enhancements
(but not longer than 3 full calendar months after the termination of the
Program):
[***]*% ([***]* percent) of all retail purchase transaction dollar
volume generated by Customers using a Credit Card Account (excluding those
transactions that (1) relate to refunds, returns and/or unauthorized
transactions, and/or (2) are cash equivalent transactions (e.g., the
purchase of wire transfers, money orders, bets, lottery tickets, or casino
gaming chips)).
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* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
<PAGE> 1
Exhibit 10.13
OFFICE BUILDING LEASE
1330 BROADWAY BUILDING
This instrument is dated for reference purposes only July 15, 1999.
1.1 Address of Premises: 1330 Broadway
Suite 1200
Oakland, CA 94612 (Article 3)
1.2 Parties and Notice Addresses:
(a) Landlord: 1330 BROADWAY
c/o Zimmerman Investments
1330 Broadway, Suite 1050
Oakland, CA 94612
(b) Tenant: CYBERGOLD, INC., A CALIFORNIA CORPORATION
1330 Broadway, Suite 1200
Oakland, CA 94612
with a copy to:
Kenneth S. Katzoff
Katzoff & Riggs
3088 Claremont Avenue
Berkeley, CA 94705 (Article 2)
1.3 Rentable Area of Premises: Approximately 14,247 square feet
(Article 3)
1.4 Term: (a) Commencement Date: July 15, 1999
(b) For a term of: Thirty-Six (36) months (Article 4)
(c) Option to Extend for Sixty (60) months (Article 36)
1.5 Base Rent: $25,644.60 per month. (Article 6)
1.6 Security Deposit: $20,000.00 (Article 7)
1.7 Proportionate Share: 4.86 Percent (Article 8)
1.8 Broker: California Commercial Investments / Len Epstein (Tenant's
Representative) (Article 31)
1.9 Contents of Lease: Pages 1 through 30
Articles 1 through 36
Exhibits: A -- Rules & Regulations
B -- Floor Plan/Construction Obligations
C -- Acknowledgment of Commencement
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OFFICE BUILDING LEASE
1330 BROADWAY BUILDING
This instrument is dated for reference purposes only July 15, 1999.
1.1 Address of Premises: 1330 Broadway
Suite 1200
Oakland, CA 94612 (Article 3)
1.2 Parties and Notice Addresses:
(a) Landlord: 1330 BROADWAY
c/o Zimmerman Investments
1330 Broadway, Suite 1050
Oakland, CA 94612
(b) Tenant: CYBERGOLD, INC., A CALIFORNIA CORPORATION
1330 Broadway, Suite 1200
Oakland, CA 94612
with a copy to:
Kenneth S. Katzoff
Katzoff & Riggs
3088 Claremont Avenue
Berkeley, CA 94705 (Article 2)
1.3 Rentable Area of Premises: Approximately 14,247 square feet
(Article 3)
1.4 Term: (a) Commencement Date: July 15, 1999
(b) For a term of: Thirty-Six (36) months (Article 4)
(c) Option to Extend for Sixty (60) months (Article 36)
1.5 Base Rent: $25,644.60 per month. (Article 6)
1.6 Security Deposit: $20,000.00 (Article 7)
1.7 Proportionate Share: 4.86 Percent (Article 8)
1.8 Broker: California Commercial Investments / Len Epstein (Tenant's
Representative) (Article 31)
1.9 Contents of Lease: Pages 1 through 30
Articles 1 through 36
Exhibits: A -- Rules & Regulations
B -- Floor Plan/Construction Obligations
C -- Acknowledgment of Commencement
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2. PARTIES. This lease (the "Lease"), is made by and between the landlord
whose name and notice address is specified in Section 1.2(a) (the "Landlord")
and the tenant whose name and notice address is specified in Section 1.2(b)
(the "Tenant").
3. PREMISES. Landlord leases to Tenant and Tenant hires from Landlord that
certain office space (the "Premises") indicated on Exhibit "B", said Premises,
being agreed, for the purpose of this Lease, to contain approximately the
rentable area specified in Section 1.3 and being situated within the building
specified in Section 1.1 which together with all improvements thereon and
appurtenances thereto, and the interest of Landlord, if any, in adjacent public
streets, is hereinafter referred to as the "Building". Landlord reserves the
exclusive right to the use of the exterior walls and exterior portions of the
Premises, the area beneath said Premises, and the area above said Premises. The
use thereof together with the right to install, maintain, use, repair, and
replace pipes, ducts, conduits, wires, and structural elements leading through
the Premises serving other parts of the Building are hereby reserved unto
Landlord. Such reservation in no way affects maintenance obligations imposed
herein.
As used herein, the term "rentable area" shall mean the following: (i) On a
single tenancy floor the area measured to the inside finish of the Building
exterior glass (or walls in the case of windowless exterior walls) with no
deductions for columns and projections, excluding emergency stairs, elevator
shafts and flues, and their enclosing walls, but including restrooms, air
conditioning rooms, fan rooms, janitor closets, telephone and electrical and
other utility closets, together with any floor penetrations exclusively serving
the Premises; (ii) on a multiple tenancy floor, the area measured to the inside
finish of the Building exterior glass (or walls in the case of windowless
exterior walls), to the corridor side of public corridors and/or other
permanent partitions and to the center of partitions which separate the
adjoining areas with no deductions for columns and projections or any floor
penetrations exclusively serving the Premises, excluding emergency stairs,
elevator shafts and flues together with a pro-rata share of Common Facilities
situated on such floor. Common Facilities shall include common corridors,
restrooms, air conditioning rooms, fan rooms, janitor closets, telephone and
electrical and other utility closets and other areas which service exclusively
that floor; (iii) Rentable area of the Premises shall also include its
allocable share of Building public areas, such being the portion of the first
two floors of the Building which be design and configuration are intended for
use by all occupants of the Building.
4. TERM.
a. Commencement Date. Subject to Section 4.b. hereof, the term of this
Lease shall commence on the date specified in Section 1.4(a) hereof (the
"Commencement Date") and shall be for the term specified in Section 1.4(b)
hereof, plus any partial month at the commencement of the term.
b. Acknowledgement of Commencement. After delivery of the Premises to
Tenant, Tenant shall execute a written acknowledgement of the date of
commencement in the form attached hereto as Exhibit "C" and by this reference
it shall be incorporated herein. In the event that the date identified as "Term
Commencement Date" depicted on Exhibit "C" hereof is different than the date
stated in Section 1.4(a) hereof, the Commencement Date of the Lease shall be
modified to the date depicted on Exhibit "C".
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5. POSSESSION.
a. If the Landlord, for any reason whatsoever, cannot deliver possession
of the Premises to the Tenant at the commencement of the term hereof, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting therefrom, but in that event all rent shall be
abated during the period between the commencement of said term and the time
when Landlord delivers possession. Notwithstanding the foregoing, in the event
that Landlord is unable to deliver possession of the Premises to Tenant by
August 1, 1999, and such delay in delivery is not caused by Tenant, then Tenant
may terminate this lease upon written notice to Landlord, provided that such
notice is delivered prior to the time that possession of the Premises is
delivered to Tenant.
b. In the event that Landlord shall permit Tenant to occupy the Premises
prior to the commencement date of the term, such occupancy shall be subject to
all the provisions of this Lease. Said early possession shall not advance the
termination date hereinabove provided.
c. Health Systems Design Space. The parties hereto acknowledge and agree
that a portion of the Premises will continue to be leased from Landlord by, and
occupied by, Health Systems Design Corp. ("HSD") until and including October
31, 1999. That portion is identified as "Parcel A" on Exhibit B attached
hereto. Tenant shall not be permitted to occupy Parcel A until it is vacated by
HSD. Notwithstanding the foregoing, Tenant shall be permitted to share with HSD
the occupancy and use of that portion of Parcel A that is identified on Exhibit
B as the "Computer Room," subject to all other terms and conditions of this
Lease, and subject to a separate agreement between Tenant and HSD as to
Tenant's and HSD's operations within the Computer Room. Until HSD vacates
Parcel A, Tenant shall provide selected HSD personnel with such access
(including keys and/or key cards) as is necessary for such HSD personnel to
utilize and occupy Parcel A. Landlord shall deliver possession of Parcel A to
Tenant on or before November 1, 1999.
d. Substituted Premises. Commencing on the Commencement Date, and
continuing until such time as HSD vacates Parcel A, Tenant shall be permitted
to temporarily occupy and use those certain premises on the Fifth Floor of the
Building that are identified on Exhibit B as "Parcel B." Tenant's temporary
occupancy of Parcel B shall be subject to all terms and conditions of this
Lease that pertain to the Premises. Tenant's occupancy of Parcel B shall
terminate, and Tenant shall vacate Parcel B, at such time that Landlord
delivers possession of Parcel A to Tenant.
6. RENT.
a. Tenant agrees to pay to Landlord as rent, without prior notice or
demand, for the Premises the amount specified in Section 1.5, adjusted, in
accordance with the terms of the following paragraph, on or before the first
day of the first full calendar month of the term hereof and a like sum on or
before the first day of each and every successive calendar month thereafter
during the term hereof, except that the first month's rent shall be paid upon
the execution hereof. Rent for any period during the term hereof which is for
less than one (1) month shall be a prorated portion of the monthly installment
herein, based upon a thirty (30) day month. Said rent shall be paid to
Landlord, without deduction, offset, counterclaim, or except as otherwise
expressly provided herein notice or demand, in lawful money of the United
States of America, at the Office of the Building, or to such other
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person or at such other place as Landlord may from time to time designate in
writing.
b. Effective as of the first day of the thirteenth (13th) and
twenty-fifth (25th) full calendar month of the initial term of this Lease, and
effective as of the first day of the thirteenth (13th) full calendar month of
the Option Period and each twelve (12) months thereafter, the base monthly
rent, exclusive of Tenant's share of Direct Expenses set forth in Article 8,
shall be increased by Three Percent (3%).
7. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum specified in
Section 1.6. Said sum shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants, and conditions of this Lease
to be kept and performed by Tenant during the term hereof. If Tenant fails to
observe or perform any provision of this Lease, including, but not limited to,
the provisions relating to the payment of rent, Landlord may (but shall not be
required to) use, apply or retain all or any part of this security deposit for
the payment of any rent or any other sum, or for the payment of any amount
which Landlord may spend or become obligated to spend, or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's failure to observe and perform its obligations under this Lease. If
any portion of said deposit is so used or applied, Tenant shall within five (5)
business days after written demand therefor, deposit cash with Landlord in an
amount sufficient to restore the security deposit separate from its general
funds, and Tenant shall not be entitled to interest on such deposit. If Tenant
shall fully and faithfully observe and perform every provision of this Lease to
be observed and performed by it, the security deposit or any balance thereof
shall be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) as follows: (a) if all or a portion of the deposit
is reasonably necessary to repair damages or to clean the Premises, within
thirty (30) days after the later of: (i) the date Landlord receives possession
of the Premises, or (ii) the date of expiration or earlier termination of this
Lease, or (b) if Landlord claims the deposit only for the purpose of remedying
Tenant's default in the payment of rent, within ten (10) business days after
the later of: (i) the date Landlord receives possession of the Premises, or
(ii) the date of expiration or earlier termination of this Lease. Landlord may
deduct from the security deposit any amount owing by Tenant with respect to
Tenant's share of Direct Expenses applicable to the last year of the Lease term
(with such share prorated in the event that the term shall end on other than
December 31). In the event of termination of Landlord's interest in this Lease,
Landlord shall transfer said deposit to Landlord's successor in interest and
thereby be relieved of any obligation to return security deposit to Tenant.
8. OPERATING EXPENSE ADJUSTMENTS. For the purposes of this Article, the
following terms are defined as follows:
Base Year: 1999.
Comparison Year: Each calendar year of the term and any extension or
holding over thereof after the Base Year.
Direct Expenses: All costs of operation, ownership, repair, maintenance,
and replacement as determined by Landlord's standard accounting practices,
consistently applied generally among office tenants of the Building, including,
but not be limited to: real property taxes and
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assessments; rent taxes and gross receipt taxes (whether assessed against the
Landlord or assessed against lessees and collected by the Landlord, or both);
depreciation on equipment, furnishings, fixtures and facilities serving the
Building; water and sewer charges; insurance premiums; utilities; costs of
maintaining, repairing, augmenting, replacing and re-routing telecommunications
cabling and ancillary equipment; janitorial services; security; labor; costs of
maintaining and repairing the exterior surfaces and roof of the Building; costs
incurred in the management of the Building; if any, air-conditioning and
heating; elevator and escalator maintenance and repair, and replacement of
components thereof in connection with such maintenance and repair; supplies;
materials; equipment; tools; and costs of maintenance, upkeep and repair of all
parking areas, storage areas and common areas (including but not limited to
lobbies, hallways, restrooms, sidewalks, landscaping and service areas).
Notwithstanding any other provision of this Article 8, Direct Expenses
shall not include:
(a) Depreciation, interest or amortization on mortgages or ground lease
payments.
(b) Real estate brokers' leasing commissions.
(c) Advertising and promotional expenses in connection with procuring
tenants.
(d) Initial leasehold improvements or alterations to tenant spaces.
(e) The cost of services directly to and provided for the sole benefit of
a specific tenant to the extent fully reimbursed to Landlord by such tenant.
(f) Costs of any items to the extent Landlord is reimbursed by insurance
proceeds. Insurance proceeds shall be excluded from Direct Expense in the year
in which they are received, except that any deductible amount under any
insurance policy shall be included within Direct Expenses.
(g) Legal and accounting expenses incurred in connection with procuring
tenants for the Building or enforcement of Building leases with a particular
tenant (in contrast to costs incurred for the benefit of the tenants in the
Building generally).
(h) Costs associated with the operating of the business of the legal
entity which constitutes Landlord as the same is separate and apart from the
cost and operation of the Building, including legal entity formation and
internal entity accounting and legal matters.
(i) Any late fees or penalties to the extent a sum of money is paid by
Landlord due to Landlord's negligence or willful misconduct (unless Landlord in
good faith disputes a charge and subsequently loses or settles that dispute).
(j) Any debt losses, rent losses, or reserves for bad debt.
(k) Costs arising from the removal of:
(1) Hazardous Materials (other than asbestos-containing materials),
as defined in Section 10.b., that was installed by Landlord, its agents, or
employees and that, at the time of installation, Landlord knew or should have
known was Hazardous Materials; or
(2) any Hazardous Materials (other than asbestos-containing
materials) in or about the Premises, Building, or Real Property (including
Hazardous Materials in the ground, water or soil) that was not placed in the
Premises, Building, or Real Property by Tenant.
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(l) Costs associated with the testing for or analysis, handling, removal,
treatment, disposal, remediation, or replacement of asbestos or
asbestos-containing materials in or about the Premises, Building, or Real
Property that was not placed in or brought upon the Premises, Building or Real
Property by Tenant, to the extent that Tenant's proportionate share of such
costs when combined with items (m)(ii) and (iii) hereinbelow in a given
calendar year exceeds three percent (3%) of the rent payable by Tenant for such
year.
(m) Costs of structural or capital improvements unless made by the
Landlord to the Building (i) for the purpose of reducing Direct Expenses, (ii)
that are required by governmental law, ordinance, regulation or mandate, not
applicable to the Building at the time of the original construction, or (iii)
for Building security or tenant life safety; provided, however, that Tenant's
proportionate share of any costs that are passed through to Tenant per
subparts (ii) and (iii) above with respect to a given calendar year shall be
limited to three percent (3%) of the rent payable by Tenant for such year.
(n) All excess profits taxes, franchise taxes, gift taxes, capital stock
taxes, inheritance and succession taxes, estate taxes, federal and state income
taxes, and other taxes applied or measured by Landlord's general or net income
(as opposed to rents, receipts, or income attributable to operations at the
Building).
If the Direct Expenses paid or incurred by the Landlord for a Comparison
Year are in excess of the Direct Expenses paid or incurred for the Base Year,
then the Tenant shall pay the percentage specified in Section 1.7 of the
increase. This percentage is that portion of the total rentable area of the
Building occupied by the Tenant hereunder. Notwithstanding the foregoing,
Tenant's share of any increase in Direct Expenses during any one Comparison
Year shall not exceed Seven Percent (7%) of the rent payable by Tenant for such
year.
Starting on the first day of the first Comparison Year, Tenant shall pay
to Landlord as additional rent, monthly in advance on the first day of each
month one-twelfth (1/12th) of its share of annual Direct Expenses as estimated
by Landlord in advance, in good faith, provided, however, until such time as
Landlord provides an estimate, payments shall be made in amount of one-twelfth
of Tenant's prior year's share of Direct Expense, and further provided, if such
estimate when provided shows that in respect of elapsed months of Comparison
Year that Tenant has underpaid, Tenant shall pay Landlord the deficiency within
ten (10) business days following receipt of the estimate. Annually, as soon as
is reasonably possible after the expiration of each Comparison Year, Landlord
shall deliver to Tenant comparative statement setting forth (i) the Direct
Expenses paid or incurred for such Comparison Year, and (ii) Direct Expenses
paid or incurred for the Base Year. If the aggregate amount of payments made by
Tenant in any Comparison Year should be less than Tenant's share of Direct
Expenses for such year, then Tenant shall pay to Landlord as additional rent
within ten (10) days following receipt of comparison statement the amount of
such deficiency. If the aggregate amount payments made by Tenant in respect of
any Comparison Year of the term should be greater than the Tenant's share of
Direct Expenses for such year, then provided Tenant is not in default, the
amount of such excess will be applied by Landlord to the next succeeding
installments of Tenant's Direct Expenses payments due hereunder; and if there
is any such excess for the last year of the term, the amount thereof will be
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refunded by Landlord to Tenant within ten (10) business days, provided Tenant is
not in default under the terms of this Lease. However, at its option, Landlord
may bill annually, and in arrears in respect of Direct Expenses. Even though the
term has expired and Tenant has vacated the Premises, when the final
determination is made of Tenant's share of Direct Expenses for the year in which
this Lease terminates, Tenant shall immediately pay any amount due in respect of
Direct Expenses. Notwithstanding anything contained in this Article, the rent
payable by Tenant shall in no event be less than the rent specified in Article 6
hereinabove.
9. USE. Tenant shall use the Premises solely for executive, administrative and
marketing offices, for software design, development and engineering (excluding
manufacturing), and for the operation of Tenant's electronic commerce Internet
site (which shall not include a commercial Internet hardware "co-location"
business), and shall not use or suffer the Premises to be used for any other
purpose without Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. Tenant shall not do or permit anything to be
done in or about the Premises nor bring or keep anything therein which will in
any way increase the existing rate of or affect any fire or other insurance upon
the Building or any of its contents, or cause cancellation of any insurance
policy covering said Building or any part thereof or any of its contents. Tenant
shall not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with the rights of other lessees or occupants
of the Building or injure or annoy them or use or allow the Premises to be used
for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit of suffer to be committed any waste in or upon the Premises.
10. COMPLIANCE WITH LAW.
a. After the earlier to occur of (i) Tenant's possession of the
Premises, or (ii) the Commencement Date, Tenant shall, at its sole cost and
expense, comply with all legal and insurance requirements now in force, or which
may hereafter be in force, arising from Tenant's use, occupancy or alteration of
the Premises, and shall faithfully observe in the use of the Premises all legal
and insurance requirements now in force or which may hereafter be in force. The
judgment of any Court of competent jurisdiction, or the admission of Tenant in
any action or proceeding against Tenant, whether Landlord be a party thereto or
not, that Tenant has violated any such legal requirement pertaining to the
Premises, shall be conclusive of that fact as between Landlord and Tenant. The
term "legal requirements" includes all federal, state, county and municipal and
other governmental statutes, laws, rules, orders, permits, licenses,
regulations, ordinances, judgments, decrees, directions and injunctions
affecting the Premises or the Building or the use or occupancy thereof, whether
now or hereafter enacted or enforced ordinary or extraordinary, foreseen or
unforeseen. The term "insurance requirements" includes all requirements imposed
by the Insurance Services Office, underwriters, and the like precedent to
obtaining and maintaining the insurance specified in Section 17 at the lowest
rate applicable to office building use and occupancy. Any work which Tenant is
obligated to perform pursuant to this Article may, at Landlord's option, be
performed by Landlord for Tenant's account in accordance with the provisions of
Article 11 of this Lease.
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b. Hazardous Materials.
(i) For purposes hereof, "Hazardous Materials" shall mean any and
all flammable explosives, radioactive materials, hazardous waste, toxic
substances or related material, including but not limited to those materials
and substances defined as "hazardous substances", "hazardous materials",
"hazardous wastes" or "toxic substances" in the Environmental Laws. For
purposes hereof, "Environmental Laws" shall include the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.
Section 9601 et seq.), the Hazardous Materials Transportation Act (39 U.S.C.
Section 1801 et seq.), the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal
Clean Water Act (33 U.S.C. Section 1251 et seq.) and the Clean Air Act (42
U.S.C. Section 7401 et seq.), and any other federal, state or local laws,
ordinances, rules or regulations and amendments thereto and regulations
thereunder now in effect or hereinafter enacted that regulate or protect the
ambient air, atmospheric conditions, groundwater, aquifers, surface water,
drinking water supplies, land surface or subsurface strata or other
environmental conditions.
(ii) Tenant agrees that during the Term of this Lease Tenant shall
not be in violation of any federal, state or local law, ordinance or regulation
relating to industrial hygiene, soil, water, or environmental conditions on,
under or about the Premises or the Building including, but not limited to, the
Environmental Laws.
(iii) Tenant further agrees that during the Term of this Lease, there
shall be no use, presence, disposal, storage, generation, release, or
threatened release of Hazardous Materials on, from or under the Premises or the
Building.
(iv) Tenant shall, at its sole cost and expense, be responsible for
the removal and/or remediation (as set forth below) of all toxic or hazardous
materials brought upon, maintained or caused to be brought onto the Building or
the Premises by Tenant, its agents, licensees, employees, customers,
contractors or invitees. Remediation shall include both structural and
non-structural work and encompass inspection, monitoring, testing, contesting,
making safe, removing, and otherwise dealing with toxic or hazardous materials.
Further, in the event Tenant's generation, transportation, storage, release,
disposal or use of Hazardous Materials in, on, under or about the Premises or
the Building results in (a) contamination of the Premises, the Building, any
soil, subsoil, groundwater, surface water or ambient air, or (b) any loss,
injury, damage or contamination of the Premises, the Building or any other
property or injury or death to any persons, then Tenant agrees to respond in
accordance with the following. Tenant agrees (a) to notify Landlord immediately
of any claim of contamination, contamination, release, loss, injury, damage or
death or otherwise, (b) after consultation with and approval by Landlord (which
approval may be given or withheld in Landlord's sole and unfettered
discretion), Tenant shall, at its sole cost and expense, remove, clean up,
repair or revitalize, in full compliance with all Environmental Laws, any
contamination, loss, injury, damage or other problem, and (c) to indemnify,
defend and hold Landlord, its agents, servants and employees, harmless for,
from and against all claims, suits, actions, causes of action, costs,
professional fees, attorneys' fees, liabilities or obligations arising from or
connected with any such contamination or loss, injury or damage or
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otherwise. The provisions of this Section shall survive termination or
expiration of this Lease and shall continue thereafter.
c. Applicable Codes. Landlord and Tenant acknowledge that certain
governmental laws, ordinances, and regulations ("Governmental Codes") presently
in effect that would otherwise be applicable to the Building may not in fact
apply to the Building because they were not applicable at the time of its
original construction; however, to the extent that Governmental Codes are
currently applicable to the Building, Landlord represents, to the best of its
current actual knowledge, that the Premises are in compliance or that Landlord
is in the process of performing compliance work to meet applicable Governmental
Codes. Tenant shall not be required to perform any compliance work to meet
Governmental Codes generally applicable to the Building (and which are not
applicable by reason of Tenant's use, occupancy or alteration of the Premises)
that exist as of the Commencement Date.
11. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements (collectively "alterations") to or of the
Premises or any part thereof without the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed. The matters to
which consent may be arbitrarily withheld include the case of alterations which
in Landlord's good faith judgment might (a) affect the Building's utility
systems (including sprinkler, electrical, mechanical, telecommunications and
plumbing), (b) increase Tenant's utility requirements, (c) cost more than
twenty-five thousand dollars ($25,000) in any twelve month period (d) affect
fire-retardant materials, or (e) result in legal requirements or insurance
requirements not applicable to the Building at the time of its original
construction mandating additional alterations to be accomplished in the Premises
and/or the Building (as would be the case, for example, when the alteration that
Tenant seeks to accomplish would result in a loss of so-called
"grandfathering"). If (x) Tenant performs any alterations, whether Landlord
consent be required therefor or not, and whether such consent be granted or not,
and/or (y) Landlord performs alterations at Tenant's request, and as a result of
such alterations legal requirements or insurance requirements not applicable to
the Building at the time of its original construction mandate additional
alterations (the "Additional Alterations") to be accomplished in the Premises
and/or the Building (as would be the case, for example, when the alteration
requested by or performed by Tenant result in a loss of so called
"grandfathering") then such Additional Alterations, whether ordinary or
extraordinary, foreseen or unforeseen, substantial or not substantial,
structural or not structural, shall be performed by Landlord at Tenant's sole
cost and expense. In the event Landlord consents to the making of alterations to
the telecommunications cabling and ancillary equipment between (a) the
demarcation point with Tenant's customer provided telecommunications equipment
and (b) the demarcation point with the applicable local telephone company, as
both demarcation points are defined from time to time by the California Public
Utilities Commission and by Landlord (said cabling and ancillary equipment
hereinafter referred to as the "Intrabuilding Network Cabling"), said
alterations shall be performed by Landlord or a contractor designated by Tenant
subject to Landlord's approval, or Landlord's contractor in the case that the
Intrabuilding Network Cabling is managed by such contractor, at Tenant's sole
cost and expense. In the event Landlord consents to the making of alterations
and/or as the case may be Additional
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Alterations are required, the alterations and Additional Alterations shall be
performed by Landlord for Tenant's account pursuant to plans and specifications
previously approved by Landlord and Tenant, and Tenant shall pay as additional
rent Landlord's cost thereof (including a reasonable charge for Landlord's
overhead and profit) prior to commencement of work, provided, however, if cost
of work is underestimated, Tenant shall reimburse Landlord a balancing amount
within ten (10) days following billing. The charge to Tenant shall include plan
preparation and all other costs incurred by Landlord prepatory to performing
the work of alteration, and whether approved plans are achieved or not. Any
alterations to or of said Premises, including, but not limited to, wall
covering, paneling and built-in cabinet work, but excepting movable furniture
and trade fixtures, shall on the expiration of the term become a part of the
realty and belong to the Landlord and shall be surrendered with the Premises.
However, Tenant shall ascertain from Landlord at least thirty (30) days prior
to the expiration or sooner termination of the term hereof, whether Landlord
desires the Premises, or any part thereof, restored to its condition prior to
the making of alterations, and if Landlord shall so desire, then Landlord,
during the final thirty (30) days of the Lease term, or at Landlord option,
after expiration of Lease term may remove any alterations, additions or
improvements made by or on behalf of Tenant, designated by Landlord to be
removed, and restore the Premises or the designated portions thereof as the
case may be, to its original condition and Tenant shall reimburse Landlord for
all reasonable costs incurred within ten (10) business days following billing.
All damage caused by the removal of trade fixtures, signs and other personal
property that Tenant is permitted to remove under the terms of this Lease shall
be repaired by Landlord, and Tenant shall reimburse Landlord all costs incurred
within ten (10) business days following billing.
Notwithstanding the foregoing, Landlord's prior consent shall not be
required for routine telecommunications wiring that can be accommodated through
and does not overburden the existing raceway distribution system, that does not
displace, disrupt or interfere with any other tenant's wiring, and that is
performed wholly within the Premises.
12. REPAIRS.
a. Except as provided by Exhibit B to this Lease, Tenant shall accept
the Premises in "as is" condition as of the date of execution of this Lease.
Tenant agrees that the Premises in such condition are in good, sanitary order,
condition and repair. Tenant shall, at Tenant's sole cost and expense, keep the
Premises and every part thereof in good condition and repair, damage covered by
Landlord's fire and extended coverage policy and ordinary wear and tear
excepted, and upon the expiration or sooner termination of this Lease shall
surrender the Premises to the Landlord in good condition, damage covered by
Landlord's fire and extended coverage policy and ordinary wear and tear
excepted. Further, Tenant shall pay to Landlord the cost of repairing or
replacing any interior or exterior glass panels caused in part or in whole by
the act of Tenant, its agents, servants, employees or invitees. Except as
specifically provided in Exhibit B to this Lease, Landlord has no obligation
whatsoever to alter, remodel, improve, repair, decorate or paint the Premises or
any part thereof and the parties hereto affirm that Landlord has made no
representations to Tenant respecting the condition of the Premises or the
Building except as specifically herein set forth.
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b. Notwithstanding the provisions of Section 12.a. hereinabove, Landlord
shall repair and maintain the roof, foundation, structural portions of the
Building, the Intrabuilding Network Cabling furnished by Landlord, and the basic
plumbing, air conditioning, heating, elevators and electrical systems, installed
or furnished by Landlord for the Building, unless such maintenance and repairs
are caused in part or in whole by the act, neglect, fault or omission of any
duty by the Tenant, its agents, servants, employees or invitees, in which case
Tenant shall pay to Landlord the reasonable cost of such maintenance and
repairs. Tenant waives the right to make repairs at Landlord's expense under any
law, statute or ordinance now or hereafter in effect inclusive of Civil Code
Sections 1941 and 1942 with respect to Landlord's repair duties and Tenant's
right to repair. Notwithstanding anything in this Lease to the contrary,
Landlord shall not in any way be liable to Tenant for failure to maintain or
repair are herein specifically required of its unless Tenant has previously
notified Landlord (notice shall comply with requirements of Section 30(3) of
this Lease) of the need for such maintenance and repairs and Landlord has failed
to commence and complete such repairs within a reasonable period of time
following receipt of such notice, provided, however, any residual liability of
Landlord shall nonetheless be subject to the provisions of Article 16 of this
Lease.
13. LIENS. Tenant shall keep the Premises and the property in which the
Premises are situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant.
14. ASSIGNMENT AND SUBLETTING. The terms "Transfer of the Premises" or
"Transfer" as used herein shall include any assignment of all or any part of
this Lease (including assignment by operation of law), subletting of all or any
part of the Premises or transfer of possession, or right of possession or
contingent right of possession of the Premises including without limitation,
concession, mortgage, hypothecation, agency, franchise, or management agreement,
or to suffer any other person (the agents and servants of Tenant excepted) to
occupy or use the Premises or any portion thereof. If Tenant is a corporation
which is not deemed a public corporation, or is an unincorporated association or
partnership, the transfer, assignment or hypothecation of any stock or interest
in such corporation, association or partnership in the aggregate in excess of
twenty percent (20%) shall be deemed a Transfer of the Premises. Tenant shall
not Transfer the Premises or any part thereof without the prior written consent
of Landlord, which consent shall not be unreasonably withheld, provided,
however, Landlord may arbitrarily withhold consent to a sublease of less than
the entire Premises. Any Transfer without such consent shall at the option of
the Landlord be void, and/or shall constitute a default under this Lease. In the
event of a Transfer, the following shall apply: on a monthly basis, any sums of
money, or other economic consideration received by Tenant from the transferee in
such month (whether or not for a period longer than one month), including higher
rent, bonuses, key money, or the like (after deducting reasonable costs of
leasing commissions and tenant improvements directly related to, and spent by
Tenant with respect to, the Transfer of the Premises) which exceed, in the
aggregate, the total sums which Tenant pays Landlord under this Lease in such
month, or the prorated portion thereof if the Premises transferred is less than
the entire Premises, shall be payable fifty percent (50%) to Landlord and fifty
percent (50%) to Tenant, and Landlord's share shall be paid with Tenant's
payment of monthly rent. Tenant shall reimburse Landlord
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as additional rent for Landlord's reasonable costs and attorney's fees incurred
in conjunction with the processing and documentation of any proposed Transfer
of the Premises, whether or not consent is granted.
Upon receiving request from Tenant for consent to a proposed Transfer (the
"Request for Consent"), but excluding a request for a sublease of less than
thirty-five percent (35%) of the area of the Premises, Landlord may, at its
sole option, elect to terminate this Lease by giving written notice to Tenant
("Transfer Termination Notice") within thirty (30) days following receipt of
the Request for Consent in which event this Lease shall terminate as to all
obligations thereafter accruing on the date specified in Landlord's notice
which in no event shall be later than one hundred twenty (120) days thereafter
unless within ten (10) days after the effective date of the Transfer
Termination Notice, Tenant by written notice to Landlord withdraws the Request
for Consent. The purpose of this paragraph is (x) to permit Landlord, at its
option, to terminate this Lease and relieve Tenant of continuing liability in
event of a proposed Transfer (y) to allow Landlord to select who will be the
next occupant of the Premises, and (z) to allocate to Landlord the opportunity
to profit from appreciation of rental if there has been an increase of rental
value of Premises. The parties acknowledge that Tenant has received
consideration from Landlord for the right of Landlord specified in this Section
and the Tenant acknowledges and agrees that Landlord would not have entered
into the Lease absent this right agreed to by Tenant herein. Tenant agrees that
it has entered into the Lease for the purpose of using the Premises for its own
purposes, so that if it no longer needs them it is reasonable for the Landlord
at its option to either (a) act reasonably on conveyance thereof to another or
(b) terminate the Lease. Tenant further acknowledges that Landlord right of
termination as aforesaid is in lieu of a Landlord right to participate in
profit (if any) resultant from a Transfer and Tenant prefers the termination
right as it relieves Tenant of continuing lease liability. Tenant waives the
provisions of Civil Code Section 1995.310 with respect to remedies available to
Tenant should Landlord fail to consent to a Transfer of the Premises.
If Landlord consents to a Transfer, the following conditions shall apply:
(a) No Transfer shall relieve Tenant of its primary obligation to pay the rent
and to perform all other obligations to be performed by Tenant hereunder. The
acceptance of rent by Landlord from any person shall not be deemed to be a
waiver by Landlord of any provision of this Lease or to be a consent to any
Transfer of the Premises. A consent to one Transfer of the Premises shall not
be deemed to be a consent to any subsequent Transfer of the Premises. If Tenant
defaults in the performance of any of the terms hereof, Landlord may proceed
directly against the transferor (or if there be more than one Transfer of the
Premises each transferor) without necessity of exhausting remedies against
Tenant. Landlord may consent to subsequent Transfers of this Lease or
amendments or modifications to this Lease with transferees, without notifying
transferor (or if there be more than one Transfer of the Premises each
transferor) and without obtaining its or their consent thereto and such action
shall not relieve any transferor of liability under this Lease as amended. (b)
If the Landlord consents to a sublease, such sublease shall not extend beyond
the expiration of the term of this Lease. (c) No Transfer shall be valid and no
transferee shall take possession of the Premises or any part thereof unless,
within ten (10) days after the execution thereof, Tenant shall deliver to
Landlord a duly executed duplicate original
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of the Transfer instrument satisfactory to Landlord which provides that (i) the
transferee assumes Tenant's obligations for the payment of rent and for the
full and faithful observation and performance of the covenants, terms and
conditions contained herein, (ii) if a sublease, such transferee will, at
Landlord's election, attorn directly to Landlord in the event Tenant's Lease is
terminated for any reason on the terms set forth in the instrument of transfer
(limited in all events to the terms of this Lease).
Notwithstanding the foregoing provisions of this Article 14, Tenant may
assign the Premises, or any portion thereof, without Landlord's consent, to any
corporation which controls, is controlled by or is under common control with
Tenant, or to any corporation resulting from the merger or consolidation with
Tenant, or to any person or entity which acquires all the stock or assets of
Tenant as a going concern of the business that is being conducted consistent
with the use provisions of Section 9 above, provided that such action shall not
release any transferor of liability under this Lease, and said assignee assumes
in writing, in full, the obligations of Tenant under this Lease (hereafter each
a "Permitted Transfer".) Said written assumption of obligations shall be
delivered to Landlord within five (5) business days of any assignment occurring
under this paragraph. In addition, any sale or transfer of the capital stock of
Tenant shall be deemed a Permitted Transfer, and shall not affect this Lease,
if (1) such sale or transfer occurs in connection with any bona fide financing
or capitalization for the benefit of Tenant as a going concern of the business
that is being conducted on the Premises, or (2) Tenant becomes a publicly
traded corporation, or (3) such sale or transfer is made to any publicly traded
corporation as a going concern of the business that is being conducted on the
Premises.
15. HOLD HARMLESS. Articles 15 and 16 are written and agreed to in respect of
the intent of the parties to assign the risk of loss whether resulting from
negligence of the parties (whether active or passive) or otherwise, to the
party who may cover the risk of such loss with insurance. Landlord shall not be
liable for, and Tenant shall indemnify, defend and hold Landlord harmless from,
any claim, demand, liability, judgment, award, fine, mechanics lien, or other
lien, loss, damage, expense, charge, or cost of any kind or character
(including reasonable attorney's fees, costs of suit, investigation costs, and
discovery costs, including costs of appeal) arising directly or indirectly from
(a) any labor dispute involving Tenant or its contractors and agents or (b)
the construction, repair, alteration, improvement, use, occupancy, or enjoyment
of the Premises or any other portion of the Building by Tenant, Tenant's
assignees, and/or subtenants and their respective contractors, agents,
licensees, or invitees (including alterations approved of by Landlord), or (c)
any breach in the performance of any obligation on Tenant's part to be
performed under this Lease or (d) loss or impairment of services (including
telephone services) which the Intrabuilding Network Cabling (as defined in
Section 11 above) are intended to provide to the Premises or (e) injuries to
and/or death of persons and damages to property occurring on or about the
Premises (hereinafter collectively "Claims") including without limitation Claims
caused by the negligence (whether active or passive) of Landlord or that of its
officers, directors, employees, partners and agents, provided, however, Tenant
shall have no obligation to indemnify or defend and indemnify Landlord from
Claims caused by the indemnitee's gross negligence, deliberate misconduct or
criminal act. In the event any action, suit or proceeding is brought against
Landlord by reason of
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any such occurrence, Tenant, upon Landlord's request will at Tenant's expense
resist and defend such action, suit or proceeding, or cause the same to be
resisted by counsel reasonably acceptable to Landlord.
Tenant releases Landlord, Landlord's authorized representatives and
Landlord's insurance designee, if any, from any claims for damage to any person
or to the Premises and the building and other improvements in which the
Premises are located, and to the fixtures, Tenant's personal property, and
improvements and alterations of Tenant, in or on the Premises and the building
and other improvements in which the Premises are located, including loss of
income, business or rents, that are caused by or result from loss or impairment
of services (including telephone services) which the Intrabuilding Network
Cabling (as defined in Section 11 above) is intended to provide, including that
no such loss or impairment shall give rise to a Tenant claim for constructive
eviction or rental abatement. The change at any time of the character of
Intrabuilding Network Cabling service shall in no wise make Landlord liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
Wherever in Articles 15 and 16 the term Landlord is used and Landlord is
to receive the benefit of a provision contained, such term shall refer not only
to Landlord but also to its officers, directors, employees, partners and
agents, and if written notice be given to Tenant thereof others in interest,
such as without limitation any ground lessor, lender, or property manager
(including any employees thereof).
Notwithstanding the foregoing, Tenant shall not be required to hold
Landlord harmless from, or indemnify Landlord against, claims that are asserted
by employees of Health Systems Design Corp. ("HSD"), or by HSD, arising out of
HSD's use and occupancy of Parcel A as defined in Section 5.c. hereof, except
to the extent that such claims arise from the gross negligence or willful
misconduct of Tenant.
16. SUBROGATION. As long as their respective insurers so permit, Landlord and
Tenant hereby mutually waive their respective rights of recovery against each
other for any loss insured by fire, extended coverage, business interruption
and other property insurance policies existing for the benefit of the
respective parties. Each party shall obtain any special endorsements, if
required by their insurer to evidence compliance with the aforementioned waiver.
17. TENANT INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force starting on the date it initially takes occupancy of the Premises and
continuing throughout the term of this Lease a policy of: (a) combined single
limit, bodily injury and property damage liability insurance insuring Landlord
and Tenant against any liability arising out of the ownership, use, occupancy
or maintenance of the Premises and all areas appurtenant thereto, the limits of
which shall not be less than one million dollars ($1,000,000) per occurrence,
(b) all risk property insurance including without limitation fire, theft,
sprinkler damage and malicious mischief covering all of Tenant's property from
time to time on or about the Premises in amount of not less than ninety (90%)
of its replacement cost with a deductible not in excess of $500.00, and (c)
business interruption insurance covering all loss and damage which Tenant may
suffer by reason of (i) the use of the Premises being lost or impaired by
reason of a fire, casualty or any of the other perils insurable under a policy
of all risk property insurance affecting the Premises or other portion of the
Building, or (ii) loss or impairment of
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services (including telephone services) which the Intrabuilding Network Cabling
(as defined in Section 11 above) is intended to provide. The limit of said
liability insurance shall not limit the liability of the Tenant hereunder. Each
liability policy shall contain cross liability endorsements and shall insure
performance by the Tenant of the indemnity provisions of this Lease. Tenant may
carry any of said insurance under a blanket policy, providing Landlord's rights
hereunder are not diminished. If Tenant shall fail to procure and maintain any
of said insurance, Landlord may, but shall not be required to, procure and
maintain same, but at the expense of Tenant. All insurance required hereunder,
shall be in companies rated A/VIII or better in "Best's Insurance Guide". Tenant
shall deliver to Landlord prior to occupancy of the Premises copies of policies
of all insurance required herein or certificates evidencing the existence and
amounts of such insurance with loss payable clauses satisfactory to Landlord.
All policies shall provide that Landlord be notified in writing by the insurer
at least twenty (20) days prior to any cancellation or expiration of such
policy, or in the amounts of insurance carried.
18. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder
beyond any applicable cure period, Landlord agrees to furnish to the Premises
during the hours of 6:00 a.m. to 6:00 p.m. Monday through Friday (excluding
holidays) and 8:30 a.m. to 2:30 p.m. Saturday ("Building Hours"), and subject
to the rules and regulations of the Building of which the Premises are a part,
electricity for normal lighting, personal computers, printers, fax machines and
copy machines typically used in a professional office of the same size as the
Premises, and fractional horsepower office machines, heat and air conditioning
required in Landlord's good faith judgment for the comfortable use and
occupation of the Premises, and janitorial service. Janitorial service shall be
provided to the Premises five (5) days per week, excluding holidays, and
excluding those portions of the Premises as to which access is prevented by
Tenant (e.g., Tenant's vaults or the special security areas designated by
Tenant (such vault and security areas to be approved by Landlord so as to not
interfere with Landlord's access to the Building structure or utility systems))
During the term of this Lease, Landlord shall maintain the quality of said
janitorial service that is in effect as of the Commencement Date. Landlord shall
also maintain and keep lighted the common stairs, common entries and toilet
rooms in the Building of which the Premises are a part. Landlord shall not be
in default hereunder, or be liable for any damages directly or indirectly
resulting from, and Tenant shall not be entitled to, any reduction of rent by
reason of Landlord's failure to furnish any of the foregoing when such failure
is caused by accident, breakage, repairs, strikes, lockouts or other labor
disturbances or labor disputes of any character, or by any other cause, similar
or dissimilar, beyond the reasonable control of Landlord. Landlord shall not be
liable under any circumstances for a loss of or injury to property or
consequential damages, however occurring, through or in connection with or
incidental to failure to furnish any of the foregoing. Wherever heat generating
machines or equipment are used in the Premises which affect the temperature, or
if Premises alterations (whether consented to or performed by Landlord or not)
adversely affect Premises heating or cooling, Landlord reserves the right to
install supplementary climate control equipment and/or rebalance and the cost
thereof, including operation and maintenance shall be paid by Tenant to
Landlord upon demand by Landlord.
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Tenant shall, at its sole cost and expense, provide, install (subject to the
provisions of Article 11), operate, maintain and repair Movin-Cool (or
equivalent) air conditioning units to the computer room. Tenant shall pay
Landlord, as additional monthly rent, Landlord's cost of all electric current
consumed for such use. Provided Tenant is not in default hereunder, if Tenant
shall require heating or air conditioning within the Premises during any times
other than Building Hours or days, Tenant shall notify Landlord in advance (no
later than 24 business hours prior) of its request for overtime heating or air
conditioning, and Tenant shall pay Landlord upon demand the amount of fifteen
dollars ($15.00) per hour (or Landlord's actual cost, whichever is less) for
fans only, and seventy-five dollars ($75.00) per hour (or Landlord's actual
cost, whichever is less) for heating or air conditioning within the Premises.
Tenant will not, without written consent of Landlord, use any apparatus or
device in the Premises, including, but without limitation thereto, electronic
data processing machines, punch card machines, and machines using in excess of
120 volts, which will in any way increase the amount of electricity usually
furnished or supplied for the use of the Premises as general office space; nor
connect with any electric current except through existing electrical outlets in
the Premises, any apparatus or device, for the purpose of using electric
current. If Tenant shall require water or electric current in excess of that
usually furnished or supplied for the use of the Premises as general office
space, Tenant shall first procure the written consent of Landlord, which shall
not be unreasonably withheld or delayed, to the use thereof, and Landlord may
cause a water meter or electrical current meter to be installed in the
Premises, so as to measure the amount of water and electric current consumed
for any such use, or may establish usage calculations by means of a consultant
selected by Landlord. The cost of any such consultants, or of any such meters
and of installation, maintenance and repair thereof, and the cost to provide
and install additional electrical equipment and/or to modify the existing
electrical system shall be at Tenant's sole cost and expense; and Tenant agrees
to pay to Landlord promptly upon demand therefor by Landlord for all such water
and electric current consumed as shown by said meters and/or consultants, at
the rates charged for such services by the local public utility furnishing the
same, plus any additional expense incurred in keeping account of the water and
electric current so consumed. Tenant shall have access to one or more of the
existing 208-volt receptacles located within the Premises for Tenant's
uninterrupted power supply as may be required for Tenant's use, subject to
Tenant's payment to Landlord, as additional monthly rent, for all electric
current consumed from said receptacles in excess of that usually consumed by
120-volt general office machines.
19. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before delinquency,
any and all taxes levied or assessed and which become payable during the term
hereof upon all Tenant's leasehold improvements, equipment, furniture, fixtures
and personal property located in the Premises; except that which has been paid
for by Landlord, and is the standard of the Building. In the event any or all of
the Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property shall be assessed and taxed with the Building, Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
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20. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with
the rules and regulations (including modifications thereof) that Landlord shall
from time to time promulgate generally as to all tenants of the Building.
Additions and modifications to rules shall be binding upon Tenant upon delivery
of a copy of them to Tenant. Landlord shall not be responsible to Tenant for
the nonperformance of any said rules by any other tenant or occupants. In the
event of a conflict between the terms of this Lease and the rules and
regulations, the terms of this Lease shall prevail.
21. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration or earlier termination of the term hereof, with
the express written consent of Landlord (which may be arbitrarily withheld) as
evidenced by acceptance of rent, such occupancy shall be a tenancy from month
to month at a rent in the amount of one hundred twenty-five percent (125%) of
the last monthly rent (inclusive of Direct Expenses), plus all other charges
payable hereunder, and upon all the terms hereof applicable to a month to month
tenancy.
22. ENTRY OF LANDLORD.
a. Entry. Without abatement of rent Landlord reserves and shall at
any and all times have the right (a) to enter the Premises, inspect the same,
supply janitorial services and any other service to be provided by Landlord to
Tenant hereunder, to submit said Premises to prospective purchasers or lessees,
to post notices of non-responsibility, and to improve, maintain and repair the
Premises (inclusive of any work mandated by the government) and (b) alter
(including reconfiguration of common area), improve and repair (inclusive of
any work mandated by the government) any portion of the Building that Landlord
may deem necessary or desirable, and may for that purpose erect scaffolding and
other necessary structures where reasonably required by the character of the
work to be performed, provided that Landlord shall endeavor not to unreasonably
interfere with the business of the Tenant. Tenant hereby waives any claim for
damages or for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned. For each of the aforesaid purposes, Landlord shall at
all times have and retain a key with which to unlock all of the doors in, upon
and about the Premises, excluding Tenant's vaults, safes and files, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency, in order to obtain entry to the
Premises without liability to Tenant except for any failure to exercise due
care for Tenant's property. Any entry by Landlord for the purposes set forth in
this Article by any of said means, or otherwise shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into,
or a detainer of, the Premises, or an eviction of Tenant from the Premises or
any portion thereof. Except as provided in Article 23 hereof, there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the
Premises or in or to fixtures, appurtenances and equipment therein.
b. Restrictions on Entry. To the extent reasonably practicable,
Landlord shall exercise its rights under this Article 22 at such times and in
such a manner as to minimize the impact on Tenant's business in and occupancy
of the Premises. Except in an emergency, or where directed by governmental
authority, or when accompanied by an authorized representative of Tenant,
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Landlord shall not enter Tenant's vaults or the special security areas
designated by Tenant (such vault and security areas to be approved by Landlord
so as to not interfere with Landlord's access to the Building structure or
utility systems).
c. Method of Entry. For entry as permitted by this Article 22,
Landlord shall at all times have a key or, if applicable, a card key with which
to unlock all the doors in the Premises, excluding Tenant's vaults, safes, and
special security areas designated by Tenant (such vault and security ares to be
approved by Landlord so as to not interfere with Landlord's access to the
Building structure or utility systems). In an emergency situation, or where
directed by governmental authority, Landlord shall have the right to use any
means that Landlord considers proper to open the doors in and to the Premises.
Any such entry into the Premises shall not be considered a forcible or unlawful
entry into, or a detainer of, the Premises or an actual or constructive
eviction of Tenant from any portion of the Premises.
d. Emergency Entry. Notwithstanding any other provision of this
Article 22, Landlord and Landlord's agents may enter the Premises without any
advance notice when necessary to address emergency situations, or where
directed by governmental authority. For purposes of this Article, an emergency
situation is one that Landlord reasonably believes poses a threat of imminent
bodily harm, property damage, property loss, or disruption or loss of
electrical or telecommunications services. If Landlord makes an emergency or
government-directed entry onto the Premises when no authorized representative
of Tenant is present, Landlord shall provide telephone notice (unless prohibited
by governmental mandate or restriction) to Tenant as soon as reasonably
possible within four (4) hours after entry (provided telephone service has not
been impaired) after that entry and shall take reasonable steps to secure the
Premises until a representative of Tenant arrives at the Premises.
e. Janitorial Entry. Landlord shall provide Tenant from time to time
of janitorial personnel who are authorized to perform janitorial work within
the Premises. Tenant shall provide a card key for each such authorized
janitorial worker, which cards shall be used to access those areas of the
Premises that are to be cleaned.
23. RECONSTRUCTION. In the event the Premises or the portion of the Building
necessary for Tenant's occupancy are damaged by fire or other perils, provided
that insurance proceeds sufficient to pay the cost of restoration of damage
will be available, Landlord agrees to forthwith repair the same subject to the
provisions of this Article hereinafter set forth; and this Lease shall remain in
full force and effect, except that Tenant shall be entitled to a proportionate
reduction of the rent while such repairs are being made, such proportionate
reduction to be based upon that fraction, numerator of which is the area of
Premises damaged and the denominator of which is the size of the Premises,
provided however, if the damage is due to the fault or neglect of Tenant or its
employees, reduction of rent shall be limited to the amount of any lost rents
insurance applicable to the Premises and collected by Landlord.
If the Premises are not restored within one hundred twenty (120) days
after the date of casualty, Tenant shall have the right, upon written notice to
Landlord, to immediately terminate this Lease, provided that such notice
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is delivered to Landlord prior to the date upon which restoration of the
Premises is completed.
If, in Landlord's good faith opinion, (a) such repairs cannot be made
within ninety (90) days or (b) insurance proceeds sufficient to pay for such
work are not reasonably available, Landlord may elect, upon notice to Tenant
within sixty (60) days after the date of such fire or other casualty, to repair
or restore such damage, in which event this Lease shall continue in full force
and effect, but the rent shall be partially abated as hereinafter in this
Section provided. If Landlord does not so elect to make such repairs, this
Lease shall terminate as of the date of such fire or other casualty. Tenant
waives California Civil Code Sections 1932(2) and 1933(4) providing for
termination of hiring upon destruction of the thing hired. In the event the
Premises or the Building is destroyed to the extent of not less than ten
percent (10%) of replacement cost thereof, Landlord may elect to terminate the
Lease, whether the Premises be injured or not. Notwithstanding anything to the
contrary contained in this Article, Landlord shall not have any obligation
whatsoever to repair, reconstruct or restore the Premises when the damage
resulting from any casualty covered under this Article occurs during the last
twelve (12) months of the term of this Lease or any extension thereof. Landlord
shall not be required to repair any injury or damage by fire or other cause, or
to make any repairs or replacements of any panels, decoration, office fixtures,
railings, floor covering, partitions, or any other property installed in the
Premises by Tenant. Tenant shall not be entitled to any compensation or damages
from Landlord for loss of the use of the whole or any part of the Premises,
Tenant's personal property or any inconvenience or annoyance occasioned by such
damage, repair, reconstruction or restoration.
24. DEFAULT.
a. Tenant Default. As used in this Lease, the term "rent" means all
sums required to be paid by Tenant to Landlord under the terms of this Lease,
whether denominated as rent or not. The occurrence of any one or more of the
following events shall constitute a default and breach of this Lease by Tenant.
(i) The vacating or abandonment of the Premises by Tenant.
(ii) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder within five (5) business days
of when due.
(iii) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by the Tenant, other than described in Article 24.a.(ii) above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof by Landlord to Tenant; provided, however, that if the nature of
Tenant's default is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(iv) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt, or a petition or reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
or the appointment of a trustee or a receiver to take
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possession of substantially all of Tenant's assets located at the Premises or
of Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged in thirty (30)
days.
(v) The default by Tenant, (or if Tenant be more than one, any
party named as Tenant) or by any person or entity which, directly or
indirectly, controls, is controlled by, or is under common control with Tenant
(or if Tenant be more than one, any thereof) under any other lease (including
any lease which has terminated or is to terminate in connection with Tenant's
occupancy of the Premises) with Landlord, or with any person or entity which is
affiliated with Landlord or which, directly or indirectly, controls, is
controlled by or is under common control with Landlord, or which is managed by
the managing agent utilized by Landlord for the Building.
b. Landlord Default. Landlord's failure to perform any of its
obligations under this Lease shall constitute a default by Landlord under the
Lease if the failure continues for thirty (30) days after written notice of the
failure from Tenant to Landlord. Notwithstanding the foregoing, if the required
performance cannot reasonably be completed within thirty (30) days Landlord's
failure to perform shall not constitute a default under the Lease if Landlord
undertakes to cure the failure within thirty (30) days and diligently and
continuously attempts to complete this cure as soon as reasonably possible.
c. Rent Abatement. If it is commercially unreasonable for Tenant to
use, and Tenant does not use, all or part of the Premises (the "Affected Area")
as a result of an Abatement Event, as defined in subsection 24d, then effective
as of the date upon which Tenant delivers to Landlord a notice notifying
Landlord of the Abatement Event and of Tenant's having ceased using the
Affected Area (the "Abatement Event Notice"), the Rent payable under this Lease
shall be abated or reduced on a daily basis for such time that Tenant, because
of such Abatement Event, continues to be prevented from using, and does not
use, the Affected Area, in the proportion that the Rentable Area of the
Affected Area bears to the total Rentable Area of the Premises, except as
otherwise provided in subsection 24d. Such abatement or reduction shall cease
as of the day after the date upon which the Abatement Event is cured.
d. Abatement Event. An "Abatement Event" is:
(i) Landlord's performance of or failure to perform any repair,
maintenance, or alteration that renders all or a portion of the Premises
untenantable, except where such repair, maintenance or alteration arises from
(A) the restoration of the Premises or Building as provided in Section 23, or
(B) Tenant's negligence or intentional tort;
(ii) Any failure of or interruption in utilities or services
required, pursuant to section 18 above, to be supplied by Landlord to the
Premises; except if such failure is caused by (A) Tenant's use of the utilities
in excess of that permitted under this Lease, or (B) Tenant's negligence or
intentional tort;
(iii) Any failure of Landlord to provide Tenant with access to the
Premises; except where such failure arises out of (A) an event of Tenant's
default specified in Section 24 of the Lease, (B) Tenant's negligence or
intentional tort; or
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(iv) Tenant is prohibited from occupying the Premises or Building by
governmental mandate for health and/or safety reasons not arising from Tenant's
negligence or intentional tort.
(e) Termination. If it is commercially unreasonable for Tenant to use,
and Tenant does not use, the Premises, as a result of an Abatement Event, for
one hundred twenty (120) days after Landlord's receipt of an Abatement Event
Notice, Tenant may terminate this Lease, by giving written notice (the
"Termination Notice") to Landlord (such notice to be delivered prior to the
earlier of: (i) the date upon which the Abatement Event is cured, or (ii) the
date upon which Tenant re-occupies the Affected Area). In the event that Tenant
chooses to so terminate, it may at its option, which option shall be specified
in the Termination Notice, terminate as to either one of the following:
(i) The Affected Area, in which event the Rent payable by Tenant
shall be adjusted accordingly and the parties shall amend this Lease to reflect
the adjusted Base Rent; the adjusted Tenant's Proportionate Share; and the
adjusted Rentable Area of; or
(ii) The entire Premises.
The Termination Notice shall specify a date upon which the termination of
the Lease, as to the Affected Area or the entire Premises, shall be effective,
which date shall be not later than sixty (60) days after the date upon which
the Termination Notice is received by Landlord.
f. Conflicts. Subsections 24a-f shall control over any contrary
provision of this Lease, except Sections 15 ("Hold Harmless"), 23
("Reconstruction"), 30(14) ("Limitation Upon Landlord") and 30(21) ("Mortgagee
Protection").
25. REMEDIES IN DEFAULT. In the event of Tenant default, Landlord may at any
time thereafter, with or without notice or demand and without limiting Landlord
in the exercise of a right or remedy which Landlord may have by reason of such
default:
a. Terminate Tenant's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event, Landlord shall
be entitled to recover from Tenant (a) the worth at the time of the award of
the unpaid rent which had been earned at the time of such termination; (b) the
worth at the time of award of amount by which the unpaid rent which would have
been earned after termination until the time of award exceeds the amount of
such rent loss that Tenant proves could have been reasonably avoided; (c) the
worth at the time of award of the amount by which the unpaid rent for the
balance of the term of this Lease after the time of award exceeds the amount of
such rent loss that Tenant proves could be reasonably avoided; and (d) any
other amount necessary to compensate Landlord for all the detriment proximately
caused by Tenant's failure to perform its obligations under this Lease or which
in the ordinary course of things would be likely to result therefrom. The
"worth at the time of award" of the amounts referred to in clauses (a) and (b)
above is computed by allowing interest at the rate of ten percent (10%) per
annum, or, if a higher rate is legally permissible, at the highest rate legally
permitted. The "worth at the time of award" of the amount referred to in clause
(c) above is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%). Damages recoverable by Landlord shall include, but not limited to,
expenses of
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reletting, including necessary renovation and alteration of the Premises, any
real estate commission actually paid, and that portion of the leasing
commission paid by Landlord and applicable to the unexpired term of this Lease.
b. Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Premises. In
such event Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it
becomes due hereunder. Acts of maintenance or preservation or efforts to relet
the Premises or the appointment of a receiver upon initiative of Landlord to
protect Landlord's interest under this Lease shall not constitute a termination
of Tenant's right to possession.
c. Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the State in which the Premises are located.
d. Tenant waives any right of redemption or reinstatement of Lease under
any present or future case law or statutory provision (including Code of Civil
Procedures Sections 473 and 1179, and Civil Code Section 3275) in the event
Tenant is dispossessed from the Premises for any reason. This waiver applies to
future statutes enacted in addition or in substitution to this statute
specified herein.
e. If the Tenant shall fail to pay any sum of money, required to be paid
by it hereunder or shall fail to perform any other act on its part to be
performed hereunder and such failure shall have become an event of default as
provided herein, the Landlord may, but shall not be obligated to do so, and
without waiving or releasing the Tenant from any such obligation, make such
payment or perform any such other act on the Tenant's part to be made or
performed as provided herein. All sums so paid by the Landlord and all
necessary incidental costs shall be deemed additional rent hereunder and shall
be payable to the Landlord immediately.
f. Notwithstanding anything to the contrary in this Section 25, in the
event that Tenant is in default and the Premises are vacated or abandoned by
Tenant, Landlord shall act commercially reasonably with respect to efforts to
re-lease the Premises.
26. EMINENT DOMAIN. If more than twenty-five (25%) percent of the Premises
shall be taken or appropriated by any public or quasi-public authority under
the power of eminent domain, either party hereto shall have the right, at its
option, to terminate this Lease, and Landlord shall be entitled to any and all
income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such public or quasi-public use or purpose, and Tenant
shall have no claim for the value of any unexpired term of this Lease. If
either less than or more than twenty-five (25%) percent of the Premises is
taken, and neither party elects to terminate as herein provided, the rent
thereafter to be paid shall be equitably reduced. If any part of the Building
other than the Premises may be so taken or appropriated, Landlord shall have
the right at its option to terminate this Lease and shall be entitled to the
entire award as above provided. Tenant waives the provisions of Code of Civil
Procedure Section 1265.130, allowing either party to petition the Superior
Court to terminate this Lease in the event of a partial taking of the Premises
by condemnation.
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27. OFFSET STATEMENT AND FINANCE. Tenant shall at any time and from time to
time within ten (10) days following notice from Landlord execute, acknowledge,
and deliver to Landlord a certificate certifying that (a) this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease as so modified is in full
force and effect), (b) the date to which the rent and other sums payable
hereunder have been paid, (c) that there are no uncured defaults on the part of
the Landlord hereunder, or specifying such defaults if any are claimed, and (d)
such other matters as may be reasonably requested by Landlord. Any such
statement may be relied upon by any prospective purchaser or encumbrancer of
all or any portion of the Building. If Landlord desires to finance or refinance
the Premises or the Building, or any part thereof, Tenant shall deliver to any
lender designated by Landlord such financial statements of Tenant as may be
reasonably required by such lender.
28. PARKING. Tenant is authorized in common with others authorized by Landlord
to use the parking facilities of the Building, if any, subject to the monthly
parking rates, rules and regulations, and any other charges of Landlord, or any
operator for such parking facilities which may be established or altered by
Landlord or the operator at any time or from time to time during the term
hereof.
29. AUTHORITY OF PARTIES. The individual(s) executing this Lease on behalf of
Tenant warrant that each has been duly authorized to execute and deliver this
Lease on behalf of and by Tenant and that by delivery hereof each warrants that
execution by no other signatory is necessary to bind Tenant and that each will
indemnify and defend Landlord from any claim to the contrary, or loss suffered
by reason thereof.
30. GENERAL PROVISIONS.
(1) Plats and Riders. Clauses, plats and riders, if any, signed by the
Landlord and the Tenant and endorsed on or affixed to this Lease are a part
hereof.
(2) Waiver. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant
of any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular rent so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of such rent.
(3) Notices. All notices and demands, requests, consents, approvals,
authorizations, offers, appointments or designations under this Lease by either
party to the other (collectively "notices") shall be given in writing, (1)
personally to an officer or director of such party, (2) by depositing same in
the United States mail, postage prepaid, certified mail, return receipt
requested or (3) by reputable air courier service which provides written
evidence of delivery, directed to the addresses for the parties as specified
herein, or at such other place as either party may from time to time designate
in a notice to the other party. Notices shall be deemed effective (a) upon
receipt if personally delivered; (b) seventy-two (72) hours after properly
deposited in the United States mail if sent by certified mail; and (c)
twenty-four (24) hours after delivery to a courier service if
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the notice is by air courier service. Initial notices addresses are as
specified in Section 1.2.
(4) Joint Obligation. If there be more than one Tenant the obligations
hereunder imposed upon Tenants shall be joint and several.
(5) Marginal Headings. The marginal headings and Article titles to the
Articles of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(6) Time. Time is of the essence of this Lease.
(7) Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(8) Recordation. Tenant shall not record this Lease.
(9) Quiet Possession. Upon Tenant paying the rent reserved hereunder and
observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to (a) all the
provisions of this Lease, and (b) the effect of any covenants, conditions,
restrictions, easements, mortgages, deeds of trust, under leases, ground
leases, and any other matters or documents of record or of which Tenant has
knowledge.
(10) Late Charges. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent or other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from Tenant shall not
be received by Landlord or Landlord's designee within ten (10) days after such
amount is due, then Tenant shall pay to Landlord a late charge equal to five
percent (5%) of such overdue amount. The parties hereby agree that such late
charges represent a fair and reasonable estimate of the cost that Landlord will
incur by reason of the late payment by Tenant.
(11) Prior Arrangements. This Lease contains all of the agreements of the
parties hereto with respect to any matters covered or mentioned in this Lease,
and no prior agreements or understandings pertaining to any such matters shall
be effective for any purpose. Landlord has made no representations inclusive of
those concerning (a) the condition of the Premises or the Building or (b) their
compliance with governmental requirements except, if at all as stated in this
Lease. No provision of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective
successors in interest. This Lease shall not be effective or binding on any
party until fully executed by both parties hereto.
(12) Inability to Perform. Except as provided in Article 5 above, this
Lease and the obligations of the Tenant hereunder shall not be affected or
impaired because the Landlord is unable to fulfill any of its obligations
hereunder or is delayed in doing so, if such inability or delay is caused by
reason of strike, labor troubles, acts of God, work required by the government,
insurers and/or lenders, or any other cause beyond the reasonable control of
the Landlord.
(13) Attorney's Fees. In the event of any action or proceeding brought by
either party against the other under this Lease, the prevailing party
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shall be entitled to have and recover reasonable attorney's fees, costs of
suit, investigation costs and discovery costs, including costs of appeal.
(14) Limitation Upon Landlord. If during the term of this Lease, Landlord
shall sell or assign its interest in the Building, or the Premises, then from
and after the effective date of sale, Landlord shall be released and discharged
from any and all obligations and responsibilities under this Lease. If Landlord
is in default of this Lease, and as a consequence Tenant recovers a money
judgement against Landlord, the judgement shall be satisfied only out of the
proceeds of sale received on execution of the judgement and levy against the
right, title and interest of the Landlord in the Building, and out of the rent
or other income from such real property receivable from the Landlord or out of
the consideration received by Landlord from the sale or other disposition of
all or any part of Landlord's right, title and interest in the Building.
Neither the Landlord nor any of the partners comprising the partnership
designated as Landlord (if Landlord is a partnership) or any of the co-tenants
(if Landlord be a tenancy in common) or the officers or directors thereof (if
Landlord be a corporation) shall be personally liable for any deficiency.
(15) Subordination, Attornment. This Lease, at Landlord's option, shall be
subordinate to any mortgage, deed of trust, ground lease or any other
hypothecation for security now or hereafter placed upon the Building, and to
all advances made on the security therefor and to all renewals, modifications,
consolidations, replacements and extensions thereof. However, if any mortgagee,
trustee or ground lessor shall elect to have this Lease prior to the lien of
its mortgage, deed of trust, or ground lease, and shall give written notice
thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of
trust or ground lease, whether this Lease is dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof. Tenant agrees to execute any documents required to effectuate such
subordination or to make this Lease prior to the lien of any mortgage, deed of
trust or ground lease, as the case may be. The provisions of this Article to
the contrary notwithstanding, and so long as Tenant is not in default
hereunder, this Lease shall remain in full force and effect for the full term
hereof. Tenant shall attorn to any purchaser at any judicial foreclosure sale,
or non-judicial trustee's sale, or to any grantee or transferee designated in
any Deed given in lieu of foreclosure upon request of such purchaser or
transferee.
(16) Name. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
(17) Severability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and such other provision shall remain in full force and effect.
(18) Cumulative Remedies. The various rights, options, election powers,
and remedies of Landlord contained in this Lease shall be construed as
cumulative and no one of them exclusive of any others or of any legal or other
remedy which Landlord might otherwise have in the event of breach of default,
and the exercise of one right or remedy by Landlord shall not in any way impair
its right to any other right or remedy.
(19) Choice of Law. This Lease shall be governed by the laws of the State
in which the Premises are located.
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(20) Signs and Auctions. Tenant shall not place or suffer to be placed or
maintained on the Premises or the Building any interior or exterior sign,
advertisement, decoration, marquee or window covering or awning that is visible
from the exterior of the Premises without the prior written consent of Landlord
which Landlord reserves the right to withhold in its sole judgment. Use of
Premises for auctions is prohibited.
(21) Mortgagee Protection. Tenant agrees to give any Mortgagee(s) and/or
Trust Deed Holders, by Registered Mail, a copy of any Notice of Default served
upon the Landlord, provided that prior to such notice Tenant has been notified,
in writing (by way of Notice of Assignment of Rents and Lease, or otherwise),
of the address of such Mortgagees and/or Trust Deed Holders. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the Mortgagees and/or Trust Deed Holders shall
have an additional thirty (30) days within which to cure such default or if
such default cannot be cured within that time, then such additional time as may
be necessary if within such thirty (30) days, and Mortgagee and/or Trust Deed
Holder has commenced and is diligently pursuing the remedies necessary to cure
such default (including but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure), in which event this Lease shall
not be terminated while such remedies are being so diligently pursued. The
voluntary or other surrender of this Lease by Tenant, or a mutual cancellation
thereof, shall not work as a merger, and shall, at the option of Landlord,
terminate all or any existing subleases or subtenancies, or may, at the option
of Landlord, operate as an assignment to Landlord of any or all such subleases
or subtenancies.
(22) Accord and Satisfaction. No payment by Tenant or receipt by Landlord
of a lesser amount of rent than due, shall be deemed to be other than on
account of the earliest due rent, nor shall any endorsement or statement on any
check or any letter accompanying any such check or payment be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or payment or
pursue any other remedy.
(23) Interest. In the event any rent is not paid promptly when due, such
rent shall bear interest at the rate of ten percent (10%) per annum.
(24) Lease to be Signed. The preparation and submission of a draft or
execution copies of this Lease by either party to the other shall not
constitute an offer nor shall either party be bound to any of the terms of this
Lease or the entirety of the Lease itself until both parties have fully
executed a final document and an original signature document has been received
by both parties. Until such time as described in the previous sentence, either
party is free to terminate any agreements (whether in writing or oral) with no
obligation to the other.
(25) Survival. All Tenant obligations (including without limitation
liability to (a) indemnify and defend Landlord in respect of events occurring
during the Lease term, (b) make payments to Landlord in respect of accrued
charges (including those which have not yet been billed) and (c) to make
repairs (inclusive of those relating to return of Premises to Landlord) which
are accrued at the expiration or earlier termination of this Lease shall
survive the expiration or earlier termination of this Lease, provided however,
following return of Premises to Landlord, Landlord may perform
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accrued but undischarged Tenant obligations and Tenant will reimburse Landlord
for all costs in good faith incurred.
31. BROKERS. Tenant warrants that it has had no dealing with any real estate
broker or agent in connection with the negotiation of this Lease excepting only
the broker named in Section 1.8, and it knows of no other real estate broker or
agent who is entitled to a commission in connection with this Lease. In the
event any claim is made for brokerage commissions, finder's fees or similar
compensation by any person or entity other than the broker named in Section 1.8
as the result of acts or action of Tenant, Tenant hereby agrees to, and shall
indemnify and hold Landlord harmless for, from and against all such claims,
including costs, expenses and attorneys fees incurred by Lessor in connection
with any such claim.
32. INTENTIONALLY OMITTED.
33. EARLY TERMINATION. Tenant shall have the one-time right to terminate this
Lease effective at any time between the end of the sixteenth (16th) and the end
of the twenty-fourth (24th) full calendar months after the Commencement Date of
this Lease (the "Early Termination Date") subject to all of the following
conditions:
a. Tenant shall not have been habitually in default, and shall not have
defaulted with respect to any material term or condition of the Lease, and such
default is beyond the expiration of any applicable cure period as of the date
Tenant exercises said option;
b. Tenant shall notify Landlord in writing no less than ninety (90) days
prior to the Early Termination Date ("Termination Notice");
c. As of the Early Termination Date, this Lease shall terminate as to
all obligations accruing thereafter; and
d. In the event Tenant does not exercise said right to terminate in the
specific manner set forth in this Section 33, then this Lease shall not
terminate, and all of Tenant's rights under this Section 33 shall expire and be
null and void.
34. RIGHT OF FIRST REFUSAL. In the event that Landlord receives an acceptable
bona fide offer from a third party (a "Third Party Offer") to lease space on
the thirteenth (13th) or fourteenth (14th) floors of the Building (such space
as to which an offer shall have been received being referred to herein as the
"Expansion Space"), then Landlord shall notify Tenant in writing (the
"Expansion Notice") of the terms of the proposed offer to lease and shall give
Tenant the right to lease the Expansion Space on the same terms contained in
the proposal. Such right must be exercised by Tenant in writing within five (5)
business days following receipt by Tenant of the Expansion Notice, provided
that:
a. If Tenant shall have been in habitual default or shall have defaulted
with respect to any material term or condition of the Lease, and such default
is beyond the expiration of any applicable cure period as of the date Tenant
exercises said option, then this paragraph shall be void and of no further
force and effect, and,
b. The right granted herein is personal to the original Tenant executing
this Lease, or to the recipient of a Permitted Transfer, and notwithstanding
anything to the contrary in the Lease, the rights contained in this paragraph
are not assignable or transferable by such original Tenant, and,
c. Landlord grants the rights contained in this paragraph in
consideration of Tenant's strict compliance with the provisions hereof,
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including without limitation, the manner of timing and exercise of such right,
and,
d. Tenant shall execute a lease amendment which depicts the same terms
contained in the Expansion Notice not later than five (5) business days
following its receipt thereof, and,
e. In the event Tenant does not exercise its right of first refusal or
execute a lease amendment within the time period provided hereinabove, then all
of Tenant's rights pursuant to this paragraph with respect to the particular
Expansion Space shall lapse and forever terminate.
35. OPTION TO EXPAND. Tenant shall have the option to lease the following
parcels within the Building, upon the same terms and conditions, including
rental rate, that apply to the Premises: (a) Suite 1426 on the 14th Floor,
consisting of approximately 6,595 square feet, and/or Suite 1410 on the 14th
Floor, consisting of approximately 3,463 square feet, or (b) such parcel of
space on the 13th Floor as shall be mutually approved by Landlord and Tenant,
or (c) all rentable space on the 13th Floor, consisting of approximately 14,247
square feet (the "Option Space(s)"). Such space as to which Tenant exercises
such option shall be referred to herein as the "Option Space." Such right must
be exercised by Tenant in a writing delivered to Landlord (the "Option
Notice"), and shall be subject to all of the following conditions:
a. The Option Notice must be delivered to Landlord prior to the
earlier of: (i) the ninetieth (90th) day after the Commencement Date, or (ii)
the date upon which Landlord receives a Third Party Offer (as defined in
Section 34 above) as to any of the Expansion Space(s), and,
b. The effective date for the lease of the Option Space(s) shall be
the earlier to occur of: (i) November 1, 1999, or (ii) the date upon which
Tenant accepts possession of the Option Space(s), and,
c. If Tenant shall have defaulted with respect to any of the terms and
conditions of the Lease, and such default is beyond the expiration of any
applicable cure period as of the date Tenant exercises said option, then this
paragraph shall be void and of no further force and effect, and,
d. The right granted herein is personal to the original Tenant
executing this Lease, and notwithstanding anything to the contrary in the
Lease, the rights contained in this paragraph are not assignable or
transferable by such original Tenant, and,
e. Landlord grants the rights contained in this paragraph in
consideration of Tenant's strict compliance with the provisions hereof,
including without limitation, the manner of timing and exercise of such right,
and,
f. Tenant shall execute a lease amendment which adds the Option
Space(s) to the Premises not later than five (5) business days following its
receipt thereof, and,
g. In the event Tenant does not deliver an Option Notice within the
time period set forth in Section 35.a. above, or does not execute a lease
amendment within the time period provided in Section 35.f. above, then all of
Tenant's rights pursuant to this paragraph shall lapse and forever terminate.
36. OPTION TO EXTEND TERM.
a. Option. Tenant shall have the right to extend the initial term
hereof for One (1) additional consecutive period of Sixty (60) months ("Option
Period"), commencing immediately upon the expiration of the initial term
hereof, upon the same terms and conditions as are stated in this Lease
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except for base rent. Following the exercise of the option with respect to the
Option Period, Tenant shall have no further right to extend the term. Tenant's
exercise of said option shall be subject to all of the following conditions:
(i) Tenant shall exercise said option by written notification to
Landlord no later than Six (6) months prior to the expiration of the initial
term.
(ii) The option granted in this Section is personal to the original
Tenant executing this Lease document, and notwithstanding anything to the
contrary contained in the Lease, the rights contained herein are not assignable
or transferable by such original named Tenant, except that such rights shall be
deemed transferred to the beneficiary of a "Permitted Transfer" as defined in
Section 14 above.
(iii) Landlord grants the rights contained in this Section to
Tenant in consideration of Tenant's strict compliance with the provisions
hereof, including manner of exercise of option.
(iv) If Tenant shall have defaulted with respect to any of the
terms and conditions of the Lease, and such default is beyond the expiration of
any applicable cure period as of the date Tenant exercises said option, then
this Section shall be void and of no further force and effect.
(v) Time is of the essence regarding the timeliness of exercise of
the option set forth in this Section, so that if the option is not exercised
within the time period specified in subpart (a)(i) of this Section it shall
lapse and be null and void.
(b) Base Monthly Rent Applicable at Beginning of Option Period.
Effective as of the first day of the Option Period, the base monthly rent,
exclusive of Tenant's share of Direct Expenses set forth in Article 8, shall be
increased to the greater of the following:
(i) One Hundred Three Percent (103%) of the monthly rent in effect
at the end of the initial term of this Lease, or
(ii) The square footage of the Premises multiplied by the average
per-square-foot monthly rental rate contained in all new leases that shall have
been executed with respect to comparable space within the Building within the
ninety (90) days immediately preceding the commencement of the Option Period
(or within the one hundred twenty (120) days immediately preceding the
commencement of the Option Period if no such leases have been executed within
the ninety (90) days immediately preceding the commencement of the Option
Period); or if no such leases have been executed, the then rental rate being
quoted by Landlord for comparable space in the Building. For purposes of this
Section 36.b.(ii), "comparable space" shall refer to premises that are on the
seven (7) uppermost floors of the Building, and that also have tenant
improvements, and durations of lease terms, comparable to those in the Premises.
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(c) Option Period Tenant Improvements. If, at the time that Tenant
notifies Landlord of its intent to exercise said option to extend the term,
Tenant also requests that Landlord perform tenant improvements within the
Premises, Landlord and Tenant shall negotiate in good faith regarding the scope
of work and the costs thereof to be paid by Tenant, pursuant to plans and
specifications approved by Landlord and Tenant.
IN WITNESS WHEREOF, the parties have executed this instrument as of the date
first stated above.
LANDLORD: TENANT:
1330 BROADWAY CYBERGOLD, INC., a California corporation
By: /s/ MYRON ZIMMERMAN By: /s/ A. NATHANIEL GOLDHABER
-------------------------- -------------------------------------
Myron Zimmerman
Print Name: A. Nathaniel Goldhaber
-----------------------------
Title: CEO
----------------------------------
By: /s/ STEVE FARBER
-------------------------------------
Print Name: Steve Farber
-----------------------------
Title: COO
----------------------------------
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EXHIBIT A
RULES AND REGULATIONS
1330 BROADWAY BUILDING
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside
or inside of the Building without the written consent of Landlord first had
and obtained and Landlord shall have the right to remove any such sign,
placard, picture, advertisement, name or notice without notice to and at
the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly
from outside the Premises; provided, however, that Landlord may furnish and
install a Building standard window covering at all exterior windows. Tenant
shall not without prior written consent of Landlord cause or otherwise
sunscreen any windows.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the Tenant who, or whose employees or invitees
shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without the prior notice to Landlord and all such moving of the
same into or out of the Building shall be done at such time and in such
manner as Landlord shall designate. Landlord shall have the right to
prescribe the weight, size and position of all safes and other heavy
equipment brought into the Building and also the times and manner of moving
the same in and out of the Building. Safes and other heavy objects shall,
if considered necessary by Landlord, stand on supports of such thickness as
is necessary to property distribute the weight. Landlord will not be
responsible for loss of or damage to any such safe or property from any
cause and all damage done to the Building by moving
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or maintaining any such safe or other property shall be repaired at the
expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises
to be occupied or used in a manner offensive or objectionable to the
Landlord or other occupants of the Building by reason of noise, odors
and/or vibrations, or interfere in any way with other tenants or those
having business therein, nor shall any animals or birds be brought in or
kept in or about the Premises or the Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing
clothes, for lodging, or for any improper, objectionable or immoral
purposes. Notwithstanding the foregoing, Tenant shall be permitted the use
of two (2) portable microwave ovens for the use of its employees.
9. Tenant shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any
method of heating other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced and connected to Landlord's cabling
and ancillary equipment. No boring or cutting for wires will be allowed
without the consent of the Landlord. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject
to the approval of Landlord. The introduction of Intrabuilding Network
Cabling for Tenant's telecommunications service shall be performed by
Landlord, or Landlord's designated contractor, at Tenant's sole cost and
expense.
11. On Sundays and legal holidays, and on other days between 6:00 PM and 7:30
AM the following day, access to the Building or to the halls, corridors,
elevators or stairways in the Building, or to the Premises may be refused
unless the person seeking access is known to the person or employee of the
Building in charge and has a pass or is properly identified. The Landlord
shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement, or other commotion, the Landlord
reserves the right to prevent access to the Building during the
continuance of the same by closing of the doors or otherwise, for the
safety of the tenants and protection of property in the Building and the
Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
13. No coin-operated vending machines, or machines inconsistent with the
permitted use of the Premises, shall be installed, maintained or operated
upon the Premises without the written consent of the Landlord.
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14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building
of which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions
of the Building, and the public facilities, and heating, as well as
facilities furnished for the common use of the tenants, in such manner as
it deems best for the benefit of the tenants generally.
18. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the Premises.
19. Tenant agrees to place a plastic protective-type mat under all rolling
chairs in Tenants Premises. Said mats shall be paid for by Tenant and
placed under chairs immediately upon occupancy.
20. No bicycles shall be permitted in the lobby, elevators, stairways,
hallways or any other part of the Building, except in designated areas in
the parking garage.
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EXHIBIT B
CYBERGODL, INC.
1330 BROADWAY
SUITE 1200
Construction obligations to be performed by Landlord:
1. Touch up paint;
2. Repair broken ceiling tiles;
3. Shampoo carpet;
4. Stretch carpet as needed.
[CYBERGOLD MAP]
EXHIBIT B - PAGE 1 OF 2
<PAGE> 36
EXHIBIT B
CYBERGOLD, INC.
1330 BROADWAY
SUITE 515
Construction obligations to be performed by Landlord:
1. Touch up paint;
2. Repair ceiling tiles where needed;
3. Shampoo carpet.
[CYBERGOLD, INC. MAP]
EXHIBIT B - PAGE 2 OF 2
<PAGE> 37
EXHIBIT C
ACKNOWLEDGMENT OF COMMENCEMENT
1.1 (a) Landlord: 1330 BROADWAY
(b) Tenant CYBERGOLD, INC., A CALIFORNIA CORPORATION
1.2 Location of Premises: 1330 Broadway, Suite 1200
Oakland, California 94612
1.3 Date of Acceptance:_______________________________________________________
1.4 Term Commencement Date:___________________________________________________
1.5 Rent Commencement Date:___________________________________________________
The above terms are incorporated into this Acknowledgment of Commencement
as indicated above and referenced herein.
This Acknowledgment of Commencement is made with reference to that certain
lease agreement (the "Lease") between the party designated in Section 1.1(a) as
Landlord ("Landlord") and the party designated in Section 1.1(b) hereof as
Tenant ("Tenant") dated as of July 15, 1999, regarding the certain premises
generally located as set forth in Section 1.2 hereof all as is more
particularly set forth in the Lease (the "Premises"). Tenant certifies to
Landlord and the holders of any indebtedness secured by the Building the
following:
2.1 Tenant accepted possession of the Premises on the date set forth in
Section 1.3 and acknowledges that the Premises are as represented by Landlord
and in good and sanitary order, condition and repair; and that the
improvements, if any, required to be constructed for Tenant by Landlord under
the Lease have been constructed and are satisfactorily completed in all
respects.
2.2 That all conditions of the Lease to be performed by Landlord as a
prerequisite to its full effectiveness, except punchlist items per Exhibit B to
the Lease, have been satisfied and that Landlord has fulfilled all its duties
of an inducement nature.
2.3 That the Commencement Date of the term is as set forth in Section 1.4
hereof.
2.4 That the Lease is in full force and effect and the same represents the
entire agreement between Landlord and Tenant concerning the Premises.
2.5 That there are no existing defenses or offsets which Tenant has against the
enforcement of the Lease by Landlord and no offsets or credits against rental.
2.6 That the minimum rental obligation of said Lease shall be presently in
effect and that all rentals, charges and other obligations on the part of
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Tenant under the Lease commenced to accrue on the date specified in Section 1.5.
2.7 That the undersigned Tenant has not made any prior assignment,
hypothecation, or pledge of said Lease or the rents thereunder.
LESSEE: CYBERGOLD, INC., a California corporation
By:
- -----------------------------------------
Print Name:
- -----------------------------------------
Title:
- -----------------------------------------
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EXHIBIT 10.14
CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
MAY 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale of Stock...............................................................1
1.1 Sale and Issuance of Series C Preferred Stock...................................1
1.2 Closing.........................................................................1
1.3 Subsequent Sale of Series C Preferred Stock.....................................1
2. Representations and Warranties of the Company............................................2
2.1 Organization, Good Standing and Qualification...................................2
2.2 Capitalization and Voting Rights................................................2
2.3 Subsidiaries....................................................................3
2.4 Authorization...................................................................3
2.5 Valid Issuance of Preferred and Common Stock....................................3
2.6 Governmental Consents...........................................................4
2.7 Offering........................................................................4
2.8 Litigation......................................................................4
2.9 Proprietary Information and Inventions Agreement................................4
2.10 Patents and Trademarks.........................................................4
2.11 Compliance with Other Instruments..............................................5
2.12 Agreements; Action.............................................................5
2.13 Related-Party Transactions.....................................................6
2.14 Permits........................................................................6
2.15 Environmental and Safety Laws..................................................7
2.16 Manufacturing and Marketing Rights.............................................7
2.17 Disclosure.....................................................................7
2.18 Registration Rights............................................................7
2.19 Corporate Documents............................................................7
2.20 Title to Property and Assets...................................................7
2.21 Financial Statements...........................................................7
2.22 Changes........................................................................8
2.23 Employee Benefit Plans.........................................................9
2.24 Tax Returns....................................................................9
2.25 Labor Agreements and Actions; Employee Compensation............................9
2.26 Insurance.....................................................................10
2.27 Section 83(b) Elections.......................................................10
3. Representations and Warranties of the Investors.........................................10
3.1 Authorization..................................................................10
3.2 Purchase Entirely for Own Account..............................................10
3.3 Disclosure of Information......................................................10
3.4 Investment Experience..........................................................10
3.5 Accredited Investor............................................................11
3.6 Restricted Securities..........................................................11
3.7 Further Limitations on Disposition.............................................11
3.8 Legends........................................................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4. Conditions of Investors' Obligations at Closing.........................................12
4.1 Representations and Warranties.................................................12
4.2 Performance....................................................................12
4.3 Compliance Certificate.........................................................12
4.4 Qualifications.................................................................12
4.5 Proceedings and Documents......................................................12
4.6 Proprietary Information and Inventions Agreements..............................12
4.7 Bylaws; Board of Directors.....................................................12
4.8 Restated Articles..............................................................12
4.9 Investors' Rights Agreement....................................................13
4.10 Opinion of Company Counsel....................................................13
5. Conditions of the Company's Obligations at Closing......................................13
5.1 Representations and Warranties.................................................13
5.2 Payment of Purchase Price......................................................13
5.3 Qualifications.................................................................13
7. Miscellaneous...........................................................................13
6.1 Survival of Warranties.........................................................13
6.2 Successors and Assigns.........................................................13
6.3 Governing Law..................................................................13
6.4 Counterparts...................................................................13
6.5 Titles and Subtitles...........................................................14
6.6 Notices........................................................................14
6.7 Finder's Fee...................................................................14
6.8 Expenses.......................................................................14
6.9 Amendments and Waivers.........................................................14
6.10 Severability..................................................................14
6.11 Corporate Securities Law......................................................15
6.12 Aggregation of Stock..........................................................15
6.13 Entire Agreement..............................................................15
6.14 Waiver of Conflicts...........................................................15
</TABLE>
SCHEDULE A Schedule of Investors
SCHEDULE B Schedule of Exceptions
EXHIBIT A Amended and Restated Articles of Incorporation
EXHIBIT B Amended and Restated Investors' Rights Agreement
EXHIBIT C Opinion of Counsel for the Company
ii
<PAGE> 4
CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT is made as of the 15th
day of May, 1998, 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."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series C Preferred Stock.
(a) The Company shall adopt and file with the Secretary of
State of California on or before the Closing (as defined below) the Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit A (the
"Restated Articles").
(b) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally and not jointly, to purchase at the Closing or
pursuant to SECTION 1.3 and the Company agrees to sell and issue to each
Investor at the Closing or pursuant to Section 1.3, that number of shares of the
Company's Series C Preferred Stock set forth opposite such Investor's name on
Schedule A hereto for the purchase price set forth thereon (the "Purchase
Price").
(c) On or prior to the Closing, the Company shall have
authorized (i) the sale and issuance to the Investors of the Series C Preferred
Stock and (ii) the issuance of the shares of Common Stock to be issued upon
conversion of the Series C Preferred Stock (the "Conversion Shares"). The Series
C Preferred Stock and the Conversion Shares shall have the rights, preferences,
privileges and restrictions set forth in the Restated Articles.
1.2 Closing. The purchase and sale of the Series C Preferred Stock
shall take place at the offices of Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP, 155 Constitution Drive, Menlo Park, California 94025, at 10:00
A.M., on May 15, 1998, or at such other time and place as the Company and
Investors acquiring in the aggregate more than half the shares of Series C
Preferred Stock sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Initial Closing"). At the Closings
(as defined below), the Company shall deliver to each Investor a certificate
representing the Series C Preferred Stock that such Investor is purchasing
against payment of the Purchase Price therefor by check, wire transfer,
cancellation of indebtedness, or any combination thereof.
1.3 Subsequent Sale of Series C Preferred Stock. At any time on or
before the sixtieth (60th) day following the Initial Closing, the Company may
sell up to the balance of the authorized number of shares of Series C Preferred
Stock not sold at the Initial Closing. All such sales shall be made on the terms
and conditions set forth in this Agreement, at closings to take place at such
times and places as the Company and the purchasers may mutually agree (the
"Subsequent Closings"), and any such purchaser shall execute and become a party
to this
<PAGE> 5
Agreement and that certain Amended and Restated Investors' Rights Agreement
dated May 15, 1998, by and among the Company and the Investors, the form of
which is attached hereto as Exhibit B (the "Investors' Rights Agreement") and
shall have the rights and obligations hereunder and thereunder (the Initial
Closing and Subsequent Closings are collectively referred to as the "Closing" or
the "Closings"). The purchasers at any Subsequent Closing and the number of
shares of Series C Preferred Stock to be purchased by each such purchaser at any
Subsequent Closing shall be mutually agreed upon by the Company, VantagePoint
Venture Partners and Alta Partners. In addition, the Schedule of Investors will
be amended to add the names and number of shares of Series C Preferred Stock
sold pursuant to this paragraph 1.3 and each purchaser thereof shall be deemed
to be an "Investor" for all purposes under this Agreement.
2. Representations and Warranties of the Company. The Company
hereby represents and warrants to each Investor that, except as set forth on a
Schedule of Exceptions (the "Schedule of Exceptions") furnished each Investor
and special counsel for the Investors and attached hereto as Schedule B, which
exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of the
Company consists, or will consist immediately prior to the Closing, of:
(a) Preferred Stock. 13,330,000 shares of Preferred Stock
(the "Preferred Stock"). The Preferred Stock consists of 3,185,000 shares of
Series A Preferred Stock (the "Series A Preferred Stock"), of which 3,000,000
shares are issued and outstanding, 2,144,971 shares of Series B Preferred Stock
(the "Series B Preferred Stock"), of which 2,117,471 are issued and outstanding
and 8,000,029 shares of Series C Preferred Stock (the "Series C Preferred
Stock"), none of which will be outstanding immediately prior to the Closing and
up to all of which may be sold pursuant to this Agreement. The rights,
privileges and preferences of the Preferred Stock will be as stated in the
Company's Restated Articles.
(b) Common Stock. 21,670,000 shares of common stock (the
"Common Stock"), of which 5,997,751 shares are issued and outstanding.
(c) The outstanding shares of Common Stock and Preferred
Stock are all duly and validly authorized and issued, fully paid and
nonassessable, and were issued in accordance with the registration or
qualification provisions of the Securities Act of 1933, as amended (the "Act")
and any relevant state securities laws or pursuant to valid exemptions
therefrom.
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(d) Except for (i) the conversion privileges of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, (ii) the
rights provided in Section 2.4 of the Investors' Rights Agreement, (iii)
warrants to purchase up to an aggregate of 27,500 shares of Series B Preferred
Stock, (iv) warrants to purchase up to an aggregate of 250,000 shares of Common
Stock, (v) options to purchase up to an aggregate of 185,000 shares of Series A
Preferred Stock and (vi) currently outstanding options to purchase 1,227,000
shares of Common Stock granted to employees and other service providers pursuant
to the Company's 1996 Stock Option Plan (the "Option Plan"), there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. In addition to the aforementioned options currently
outstanding under the Option Plan, the Company has reserved an additional
375,249 shares of its Common Stock for purchase upon exercise of options to be
granted in the future under the Option Plan. The Company is not a party or
subject to any agreement or understanding, and, to the best of the Company's
knowledge, there is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the Investors' Rights Agreement,
the performance of all obligations of the Company hereunder and thereunder, and
the authorization, issuance (or reservation for issuance), sale and delivery of
the Series C Preferred Stock being sold hereunder and the Common Stock issuable
upon conversion of the Series C Preferred Stock has been taken or will be taken
prior to the Closing, and this Agreement and the Investors' Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 Valid Issuance of Preferred and Common Stock. The Series C
Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the Series C Preferred Stock purchased under
this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Articles, will be duly and
validly issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and the
Investors' Rights Agreement and under applicable state and federal securities
laws.
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2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except (i) the filing of the Restated Articles
with the Secretary of State of California; and (ii) the filing pursuant to
Section 25102(f) of the California Corporate Securities Law of 1968, as amended,
and the rules thereunder, which filing will be effected within fifteen (15) days
of the sale of the Series C Preferred Stock hereunder, or such other
post-closing securities filings as may be required.
2.7 Offering. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series C Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of any applicable state
and federal securities laws, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
2.8 Litigation. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, overtly threatened against
the Company that questions the validity of this Agreement or the Investors'
Rights Agreement, or the right of the Company to enter into such agreements, or
to consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions, suits, proceedings or investigations
pending or, to the Company's knowledge, threatened involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
2.9 Proprietary Information and Inventions Agreement. Each employee,
officer and consultant of the Company has executed a Proprietary Information and
Inventions Agreement in substantially the form provided to special counsel to
the Investors. The Company is not aware that any of its employees, officers or
consultants are in violation thereof, and the Company will use its best efforts
to prevent any such violation.
2.10 Patents and Trademarks. To the best of its knowledge (but
without having conducted any special investigation or patent search), the
Company has sufficient title and ownership of, or right to use, all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted without any conflict with or infringement of the
rights of others. There are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity,
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except, in either case, for standard end-user, object code, internal use
software license and support/maintenance agreements. The Company has not
received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement or the
Investors' Rights Agreement, nor the carrying on of the Company's business by
the employees of the Company, nor the conduct of the Company's business as
proposed, will, to the best of the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees is
now obligated. The Company does not believe it is or will be necessary to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws, or in any material respect of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company. The execution, delivery
and performance of this Agreement and the Investors' Rights Agreement, and the
consummation of the transactions contemplated hereby and thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.12 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby and
by the Investors' Rights Agreement, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations
outside the normal course of business (contingent or otherwise) of, or payments
to the Company in excess of, $50,000, or (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company (other
than the license of the Company's software and products in the ordinary course
of business), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services.
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(c) The Company has not (i) declared or paid any dividends
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money borrowed
or any other liabilities individually in excess of $10,000 or, in the case of
indebtedness and/or liabilities individually less than $10,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws that adversely affects its business as now conducted
or as proposed to be conducted, its properties or its financial condition.
(f) The Company has not engaged in the past three (3) months
in any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
2.13 Related-Party Transactions. No employee, officer, or director of
the Company or member of his or her immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the best of the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees, officers, or directors of the Company and members of their
immediate families may own stock in publicly traded companies that may compete
with the Company. No member of the immediate family of any officer or director
of the Company is directly or indirectly interested in any material contract
with the Company.
2.14 Permits. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
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2.15 Environmental and Safety Laws. To the best of its knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.16 Manufacturing and Marketing Rights. The Company has not granted
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
2.17 Disclosure. The Company has fully provided each Investor with
all the information that such Investor has requested for deciding whether to
purchase the Series C Preferred Stock and all information that the Company
believes is reasonably necessary to enable such Investor to make such decision.
To the best of its knowledge, neither this Agreement, the Investors' Rights
Agreement, nor any other statements or certificates made or delivered in
connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
2.18 Registration Rights. Except as provided in the Investors' Rights
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.19 Corporate Documents. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Restated Articles and Bylaws
of the Company are in the form previously provided to special counsel for the
Investors.
2.20 Title to Property and Assets. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.21 Financial Statements. The Company has delivered to each Investor
its unaudited financial statements (balance sheet, income statement and
statement of cash flows) as at December 31, 1997 and for the fiscal year then
ended and its unaudited financial statements (balance sheet and statement of
operations) as at and for the three-month period ended March 31, 1998 (the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other, except that the
unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject to normal year-end audit
adjustments. Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business
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subsequent to March 31, 1998 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.22 Changes. Since March 31, 1998 there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract
or arrangement by which the Company or any of its assets or properties is bound
or subject;
(f) any material change in any compensation arrangement or
agreement with any employee;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of the Company; and the Company, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
officer;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable;
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(k) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company;
(m) to the best of the Company's knowledge, any other event
or condition of any character that might materially and adversely affect the
assets, properties, financial condition, operating results or business of the
Company (as such business is presently conducted and as it is proposed to be
conducted); or
(n) any agreement or commitment by the Company to do any of
the things described in this Section 2.22.
2.23 Employee Benefit Plans. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.24 Tax Returns. The Company has filed all tax returns and reports
(including information returns and reports) as required by law. These returns
and reports are true and correct in all material respects, except to the extent
that a reserve has been reflected on the Financial Statements in accordance with
generally accepted accounting principles. The Company has paid all taxes and
other assessments due, except those contested by it in good faith that are
listed in the Schedule of Exceptions.
2.25 Labor Agreements and Actions; Employee Compensation. The Company
is not bound by or subject to (and none of its assets or properties is bound by
or subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to the
best of the Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each officer and employee
of the Company is terminable at the will of the Company. To the best of its
knowledge, the Company has complied in all material respects with all applicable
state and federal equal employment opportunity and other laws related to
employment. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, or other employee compensation
agreement.
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2.26 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.27 Section 83(b) Elections. To the best of the Company's knowledge,
all individuals who have purchased unvested shares of the Company's Common Stock
have timely filed elections under Section 83(b) of the Code and any analogous
provisions of applicable state tax laws.
3. Representations and Warranties of the Investors. Each Investor
hereby represents and warrants that:
3.1 Authorization. Such Investor has full power and authority to
enter into this Agreement and the Investors' Rights Agreement, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
such Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Series C Preferred Stock to be received by such Investor and
the Common Stock issuable upon conversion thereof (collectively, the
"Securities") will be acquired for investment for such Investor's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, such Investor further represents that such Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series C Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series C Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.
3.4 Investment Experience. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series C
Preferred Stock. If other than an individual, Investor also represents it has
not been organized for the purpose of acquiring the Series C Preferred Stock.
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3.5 Accredited Investor. Such Investor is an "accredited investor"
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreement are then applicable, and:
(a) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by an Investor that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, if the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he or she were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
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(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
(c) Any legend required by the Blue Sky laws of any other
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
4. Conditions of Investors' Obligations at Closing. The obligations
of each Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Qualifications. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
4.5 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
4.6 Proprietary Information and Inventions Agreements. Each employee
of and consultant to the Company shall have entered into a Proprietary
Information and Inventions Agreement in the form previously provided to special
counsel for the Investors.
4.7 Bylaws; Board of Directors. The Bylaws of the Company shall
provide that the Board of Directors of the Company shall consist of six (6)
persons. Initially, the Board of Directors will be composed of Jay Chiat, A.
Nathaniel Goldhaber, Garrett Gruener, Regis McKenna, Alan Salzman and Peter
Sealey.
4.8 Restated Articles. The Company shall have adopted and filed with
the Secretary of State of California the Restated Articles in the form attached
hereto as Exhibit A.
12
<PAGE> 16
4.9 Investors' Rights Agreement. The Company and each Investor shall
have entered into the Investors' Rights Agreement in the form attached as
Exhibit B.
4.10 Opinion of Company Counsel. Each Investor shall have received
from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP ("Gunderson
Dettmer"), counsel for the Company, an opinion, dated as of the Initial Closing,
in the form attached hereto as Exhibit C.
5. Conditions of the Company's Obligations at Closing. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have delivered the
purchase price specified in Sections 1.2 or 1.3.
5.3 Qualifications. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
6. Miscellaneous.
6.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
6.2 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 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.
6.3 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.
6.4 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.
13
<PAGE> 17
6.5 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.
6.6 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.
6.7 Finder's Fee. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
6.8 Expenses. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement. The Company shall reimburse the reasonable fees and expenses of
Cooley Godward LLP, special counsel for the Investors, not to exceed fifteen
thousand dollars ($15,000), upon receipt of a bill therefor. If any action at
law or in equity is necessary to enforce or interpret the terms of this
Agreement, the Investors' Rights Agreement, or the Restated Articles, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
6.9 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
a majority of the Common Stock issuable or issued upon conversion of the Series
C Preferred Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
6.10 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.
14
<PAGE> 18
6.11 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
6.12 Aggregation of Stock. All shares of the Preferred Stock 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.
6.13 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
6.14 Waiver of Conflicts. Each party to this Agreement acknowledges
that Gunderson Dettmer, counsel for the Company, has in the past and may
continue to perform legal services for certain of the Investors in matters
unrelated to the transactions described in this Agreement, including the
representation of such Investors in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (1) acknowledges that
they have had an opportunity to ask for information relevant to this disclosure;
(2) acknowledges that Gunderson Dettmer represented the Company in the
transaction contemplated by this Agreement and has not represented any
individual Investor or any individual shareholder or employee of the Company in
connection with such transaction; and (3) gives its informed consent to
Gunderson Dettmer's representation of certain of the Investors in such unrelated
matters and to Gunderson Dettmer's representation of the Company in connection
with this Agreement and the transactions contemplated hereby.
15
<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CYBERGOLD, INC.
By: /s/ A. Nathaniel Goldhaber
-------------------------------------
President
Address: 2921 Adeline Street
Berkeley, California 94703
<PAGE> 20
ALTA CALIFORNIA PARTNERS, L.P.
By: Alta California Management
Partners, L.P.
By: /s/ Garrett Gruener
-------------------------------------
General Partner
ALTA EMBARCADERO PARTNERS, LLC
By: /s/ Garrett Gruener
-------------------------------------
Member
Address:
--------------------------------
--------------------------------
--------------------------------
Telephone:
------------------------------
Facsimile:
------------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 21
VANTAGEPOINT VENTURE PARTNERS 1996
By: VantagePoint Associates LLC
By: /s/ Alan Salzman
-------------------------------------
Managing Member
Address:
--------------------------------
--------------------------------
--------------------------------
Telephone:
------------------------------
Facsimile:
------------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 22
GC&H INVESTMENTS
By: /s/ John L. Cardoza
-------------------------------------
Print Name:
-----------------------------
Title:
----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Telephone:
------------------------------
Facsimile:
------------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 23
By: /s/ Jay Chiat
-------------------------------------
Jay Chiat
Title:
----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Telephone:
------------------------------
Facsimile:
------------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 24
By: /s/ E.S. Fishburne
-------------------------------------
E.S. Fishburne
Title:
----------------------------------
By: /s/ P.M. Fishburne
-------------------------------------
P.M. Fishburne
Title:
----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Telephone:
------------------------------
Facsimile:
------------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 25
By: /s/ Regis McKenna
-------------------------------------
Regis McKenna
Title:
----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Telephone:
------------------------------
Facsimile:
------------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 26
REESE M. JONES 1996 CHARITABLE
REMAINDER UNITRUST
By: /s/ Reese M. Jones
-------------------------------------
Reese M. Jones
Trustee
Address:
--------------------------------
--------------------------------
--------------------------------
Telephone:
------------------------------
Facsimile:
------------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 27
By: /s/ John Steuart
-------------------------------------
` John Steuart
Title:
----------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Telephone:
------------------------------
Facsimile:
------------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 28
THE ZINSMEYER TRUSTS PARTNERSHIP
By: /s/ Andrew R. Zinsmeyer
-------------------------------------
Andrew R. Zinsmeyer
Managing Partner
Address:
--------------------------------
--------------------------------
--------------------------------
Telephone:
------------------------------
Facsimile:
------------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 29
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF TOTAL PURCHASE
NAME AND ADDRESS SHARES PURCHASED PRICE OF SHARES
- ---------------- ---------------- ---------------
<S> <C> <C>
ALTA CALIFORNIA PARTNERS, L.P. 3,223,068 $2,932,991.88
ALTA EMBARCADERO PARTNERS, LLC 73,635 67,007.85
VANTAGEPOINT VENTURE PARTNERS 1996 2,472,528 2,250,000.48
GC&H INVESTMENTS 54,945 49,999.95
</TABLE>
<PAGE> 30
SCHEDULE B
SCHEDULE OF EXCEPTIONS
<PAGE> 31
CYBERGOLD, INC.
SCHEDULE OF EXCEPTIONS TO THE
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
DATED MAY 15, 1998
The following are exceptions to the representations and warranties made
by CyberGold, Inc. (the "Company") in Section 2 of the Series C Preferred Stock
Purchase Agreement dated May 15, 1998 (the "Agreement") among the Company and
the Investors listed on Schedule A thereto (collectively, the "Investors"),
which exceptions shall be deemed to be representations and warranties as if made
under the Agreement. To the extent any exception is disclosed pursuant to any
specific section of the Agreement designated below, it shall be deemed to be
disclosed for any and all purposes required pursuant to the Agreement. (Where
the terms of a lease, contract or other disclosure item have been summarized or
described in this Schedule of Exceptions, such summary or description does not
purport to be a complete statement of the material terms of such lease, contract
or other item.) Terms defined in the Agreement shall have the same meanings when
used herein unless otherwise defined.
Section 2.2 Capitalization and Voting Rights
The Company has entered into two equipment lease lines with LINC Capital
Management ("LINC") for the leasing of computer equipment and other personal
property. The first equipment lease line, entered into on March 27, 1997, is for
an aggregate principal amount of up to $350,000 and has been fully used. A
warrant to purchase 17,500 shares of Series B Preferred Stock was issued to LINC
in connection with this lease line. The second equipment lease line, entered
into on March 31, 1998, is for an aggregate principal amount of up to $150,000,
of which approximately $67,261 is still available. A warrant to purchase up to
10,000 shares of Series B Preferred Stock was issued to LINC in connection with
this second lease line. The exact number of shares for which this warrant to
purchase up to 10,000 shares of Series B Preferred Stock may be exercised
depends upon how much of the available principal that the Company draws down
under the lease line. As of May 1, 1998, the warrant was exerciseable for
approximately 60% of the total amount, or 6,000 shares.
John Holland, a former employee of the Company, resigned from his
employment with the Company before reaching his one-year cliff vesting date.
Nathaniel Goldhaber, the Company's Chief Executive Officer, intends to request
that the Board of Directors permit Mr. Holland to exercise his option as if it
had vested on a monthly basis so that Mr. Holland would be vested in options to
purchase approximately 15,000 shares of the Company's Common Stock. It is
anticipated that the Board will discuss this issue at its next meeting.
The Company entered into a letter agreement with Abe Frumkin dated June
9, 1997, with respect to matters relating to Mr. Frumkin providing services to
the Company. Pursuant to the letter agreement, the Company, among other things,
agreed to grant Mr. Frumkin options to purchase 70,000 shares of the Company's
Common Stock if Mr. Frumkin is elected to the Company's Board of Directors
within twelve months of the date of the letter agreement.
<PAGE> 32
On January 16, 1998, the Company entered into a Settlement and Release
Agreement with Joseph Schlessinger. This agreement provided for the payment of
certain severance benefits and the acceleration of Mr. Schlessinger's options
such that he vested in options to purchase an aggregate of 39,062 shares of
Common Stock, exerciseable for up to three months following his termination. Mr.
Schlessinger indicated to the Company that he intended to exercise the options.
However, Mr. Schlessinger did not complete and return the necessary exercise
paperwork to the Company within the required three-month period.
The Company has entered into a consulting agreement with Dr. Peter
Sealey, a director of the Company, whereby Dr. Sealey will be compensated for
his services in the form of Series C Preferred Stock. A copy of this agreement
has been provided to special counsel to the Investors.
Nathaniel Goldhaber, the Company's Chief Executive Officer and a member
of the Company's Board of Directors, has made certain arrangements regarding the
transfer of the shares of the Company's capital stock that he owns for estate
planning purposes. Such arrangements do not violate Mr. Goldhaber's obligations
under the Amended and Restated Investors' Rights Agreement.
Section 2.8 Litigation
The Company holds the domain name, "attn.com." On February 3, 1998, the
Company received a letter from AT&T indicating that the Company's use of this
domain name may infringe AT&T's trademarks. The domain name is not currently in
use, and there has been no further action with regard to this matter. A copy of
this letter has been provided to special counsel for the Investors.
On April 7, 1998, the Company received a letter from Haight, Brown &
Bonesteel, L.L.P., counsel for Terran Systems ("Terran") alleging that the
Company owed Terran, an executive recruiting firm, the sum of $18,400 as
consideration for the placement of a candidate with the Company. The Company
believes that this matter may be resolved without recourse to litigation. Copies
of all correspondence have been provided to special counsel for the Investors.
On March 17, 1998, the Company received a letter from Remedy Temp, Inc.
("Remedy") alleging that the Company owed Remedy payment in the amount of $2800
for the placement of an employee with the Company. On April 23, 1998, the
Company contacted Remedy seeking documentation with regard to such claim. To
date, the Company has received no such documentation. A copy of the March 17,
1998 letter has been provided to special counsel for the Investors.
In 1996, the Company was sued by Maritz Corporation regarding alleged
trademark infringement. The case was settled in 1996.
<PAGE> 33
Section 2.10 Patents and Trademarks
On April 2, 1998, the Company received a letter from its patent attorney
stating that its trademark application for the mark CyberGold has been delayed
due to a processing error by the Patent and Trademark Office.
Pursuant to an Assignment Agreement dated December 9, 1995, A. Nathaniel
Goldhaber and Gary Fitts assigned to the Company the full and exclusive right to
the "Attention Brokerage" process. Messrs. Goldhaber and Fitts are members of
the Company's Board of Directors.
Section 2.12 Agreements; Action
The Company has entered into the following agreements and has taken the
following actions:
1. The Company has sold and issued shares of its Series A
Preferred Stock to investors of the Company pursuant to a Series A
Preferred Stock Purchase Agreement, dated July 2, 1996. Certain of those
investors were and continue to be directors and shareholders of the
Company.
2. The Company has sold and issued shares of its Series B
Preferred Stock to investors of the Company pursuant to a Series B
Preferred Stock Purchase Agreement, dated June 12, 1997 (the "Series B
Purchase Agreement"). Certain of those investors were and continue to be
directors and shareholders of the Company.
3. Pursuant to a Note Purchase Agreement dated January 15,
1997, the Company issued Convertible Promissory Notes in the aggregate
amount of $1,000,000 to A. Nathaniel Goldhaber, Alafi Capital Company,
John Steuart, Regis McKenna, Jay Chiat, Charles Finney and Paul Levine
and Burgess Lea Levine, JTWROS. The outstanding principal and interest
under such notes converted into shares of Series B Preferred Stock in
connection with the transactions contemplated by the Series B Purchase
Agreement.
4. The Company has sold and issued Common Stock and/or
issued options to purchase Common Stock to its directors, officers and
certain of its employees and consultants.
5. The Company leases premises located at 2921 Adeline
Street, Berkeley, California from Weilman, Treloar & Co. (the "Lessor")
pursuant to that certain Commercial Lease and Deposit Receipt between
the Company and Lessor dated December 20, 1995. The current monthly rent
is $11,245.
6. The Company leases various equipment financed through
Sun Microsystems Finance. The current monthly payment under the lease
for the equipment totals approximately $8,400.
7. Pursuant to a sale-and-leaseback transaction in March
1997, the Company sold to and now leases computer equipment from LINC
Capital Management. The
<PAGE> 34
current monthly payment under the lease for the computer equipment
totals approximately $8,210.
8. Pursuant to a sale-and-leaseback transaction in January
1998, the Company sold to and now leases computer equipment from LINC
Capital Management. The current monthly payment under such lease totals
approximately $3,187.
9. Pursuant to a sale-and-leaseback transaction in March
1998, the Company leases computer equipment and other personal property
from LINC Capital Management. The current monthly payment under such
lease totals approximately $2,762.
10. The Company has entered into a service agreement with
AboveNet Communications, Inc. The current monthly payment pursuant to
this service agreement is approximately $1,960.
11. The Company, America Online ("AOL") and Digital
Marketing Services, a subsidiary of AOL ("DMS"), have held preliminary
discussions regarding a potential alliance and/or a business
combination, including the possibility of a merger of the Company's
incentive marketing business with DMS. These discussions are ongoing.
12. The Company has entered into a partnering agreement with
Audits & Surveys Worldwide ("ASW") regarding market research on-line.
13. The Company has entered into agreements with Visa and
the First National Bank of Omaha. Under the terms of this agreement, the
Company may not enter into a similar agreement with a competitor of Visa
for a period of up to two years.
14. The Company has entered into a reseller agreement with
Earthlink.
15. The Company has entered into an agreement with
Interactive Coupons.
16. The Company has entered into an agreement with
CyberSource.
Section 2.13 Related-Party Transactions
Peter Sealey is a director of the Company and serves as a marketing
consultant. Dr. Sealey is also a consultant to Visa, one of the Company's
partners.
Abe Frumkin serves as VP Business Development as well as a partner in
the Philadelphia law firm Eckert, Seamans. The Company pays Eckert, Seamans not
more than $12,500 per month for Mr. Frumkin's services. The Company also
reimburses Mr. Frumkin for reasonable travel and lodging expenses incurred in
connection with services to the Company.
The Company is contemplating a future marketing or licensing
relationship with InterTrust Technologies Corporation ("InterTrust"). Nathaniel
Goldhaber is a shareholder of InterTrust, and Duncan Davidson, who holds options
to purchase 25,000 shares of the Company's Common Stock, is an InterTrust
executive.
<PAGE> 35
Section 2.14 Permits
The Company has determined that certain of its software licenses are not
current. The Company estimates that it is delinquent on these licenses and that
the Company will be required to make payments aggregating approximately $40,000
to bring all software licenses current.
Section 2.16 Manufacturing and Marketing Rights
The Company has entered into a reseller agreement with Earthlink, and
reseller agreements with a number of corporations are pending.
Section 2.20 Title to Property and Assets
As disclosed above, the Company leases substantially all of its
equipment pursuant to leases with Sun Microsystems Finance and LINC Capital
Management.
Section 2.23 Employee Benefit Plans
The Company has established a 401(k) plan.
Section 2.25 Employee Compensation
Certain officers of the Company have received a salary reduction as a
cash conservation measure. The Company has made oral representations that the
salary reductions will be made up through the payment of cash or stock upon the
closing of the Series C Preferred Stock financing. The total amount of the
deficit is approximately $35,000 to $50,000.
Since the date of incorporation, Nathaniel Goldhaber has not received a
salary or any other direct compensation in return for his duties as Chairman and
Chief Executive Officer of the Company. While no compensation is due or payable
for Mr. Goldhaber's services to date, this arrangement will not continue
indefinitely, and the Company expects that the Board of Directors will develop
an appropriate compensation plan in the future.
<PAGE> 1
EXHIBIT 10.15
CYBERGOLD, INC.
SERIES C PREFERRED
STOCK PURCHASE AGREEMENT
August 19, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Purchase and Sale of Stock...............................................................1
1.1 Sale and Issuance of Series C Preferred Stock...................................1
1.2 Closing.........................................................................1
2. Representations and Warranties of the Company............................................2
2.1 Organization, Good Standing and Qualification...................................2
2.2 Authorization...................................................................2
2.3 Valid Issuance of Preferred and Common Stock....................................2
2.4 Governmental Consents...........................................................2
2.5 Offering........................................................................3
3. Representations and Warranties of the Investors..........................................3
3.1 Authorization...................................................................3
3.2 Purchase Entirely for Own Account...............................................3
3.3 Disclosure of Information.......................................................3
3.4 Investment Experience...........................................................3
3.5 Accredited Investor.............................................................4
3.6 Restricted Securities...........................................................4
3.7 Further Limitations on Disposition..............................................4
3.8 Legends.........................................................................5
4. California Commissioner of Corporations..................................................5
4.1 Corporate Securities Law........................................................5
5. Restrictions on Transfer.................................................................5
5.1 Market Stand-Off................................................................5
6. Conditions of Investor's Obligations at Closing..........................................6
6.1 Representations and Warranties..................................................6
6.2 Performance.....................................................................6
6.3 Qualifications..................................................................6
7. Conditions of the Company's Obligations at Closing.......................................6
7.1 Representations and Warranties..................................................6
7.2 Payment of Purchase Price.......................................................6
7.3 Qualifications..................................................................6
8. Miscellaneous............................................................................7
8.1 Survival of Warranties..........................................................7
8.2 Successors and Assigns..........................................................7
8.3 Governing Law...................................................................7
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
8.4 Counterparts....................................................................7
8.5 Titles and Subtitles............................................................7
8.6 Notices.........................................................................7
8.7 Finder's Fee....................................................................7
8.8 Expenses........................................................................8
8.9 Amendments and Waivers..........................................................8
8.10 Severability...................................................................8
8.11 Aggregation of Stock...........................................................8
8.12 Entire Agreement...............................................................8
</TABLE>
SCHEDULE A - Schedule of Investors
ii
<PAGE> 4
CYBERGOLD, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT is made as of August
19, 1998, 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."
RECITALS
A. The Investors have previously rendered services to the Company
in return for which they have not yet received compensation.
B. The Board of Directors of the Company has previously approved
the issuance of Series C Preferred Stock to the Investors as payment-in-kind for
such services rendered.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Company and the Investor, hereby agree as follows:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series C Preferred Stock.
(a) Subject to the terms and conditions of this
Agreement, each Investor agrees, severally and not jointly, to purchase at the
Closing (as defined below) and the Company agrees to sell and issue to each
Investor at the Closing, that number of shares of the Company's Series C
Preferred Stock set forth opposite such Investor's name on Schedule A hereto for
the purchase price set forth thereon (the "Purchase Price").
(b) On or prior to the Closing, the Company shall
have authorized (i) the sale and issuance to the Investors of the Series C
Preferred Stock and (ii) the issuance of the shares of Common Stock to be issued
upon conversion of the Series C Preferred Stock (the "Conversion Shares"). The
Series C Preferred Stock and the Conversion Shares shall have the rights,
preferences, privileges and restrictions set forth in the Amended and Restated
Articles of Incorporation of the Company, as amended from time to time (the
"Restated Articles").
1.2 Closing. The purchase and sale of the Series C Preferred
Stock shall take place at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California, at
10:00 A.M., on August 19, 1998, or at such other time and place as the Company
and Investors acquiring in the aggregate more than half of the shares of Series
C Preferred Stock sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Closing"). Promptly after the
Closing the
<PAGE> 5
Company shall deliver to each Investor a certificate representing the Series C
Preferred Stock that such Investor is purchasing against payment of the Purchase
Price therefor by services previously rendered by such Investor to the Company.
2. Representations and Warranties of the Company. The Company
hereby represents and warrants to each Investor that:
2.1 Organization, Good Standing and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted.
2.2 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Series C Preferred Stock
being sold hereunder and the Common Stock issuable upon conversion of the Series
C Preferred Stock has been taken or will be taken prior to the Closing, and this
Agreement constitutes a valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
2.3 Valid Issuance of Preferred and Common Stock. The Series
C Preferred Stock that is being purchased by the Investors hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon conversion of the Series
C Preferred Stock purchased under this Agreement has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Restated Articles, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws.
2.4 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except the filing pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
thereunder, which filing will be effected within 15 days of the sale of the
Series C Preferred Stock hereunder, or such other post-closing filings as may be
necessary.
2.5 Offering. Subject in part to the truth and accuracy of
each Investor's representations set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Series C Preferred Stock as contemplated by this
Agreement are exempt from the registration
2
<PAGE> 6
requirements of the Act, and neither the Company nor any authorized agent acting
on its behalf will take any action hereafter that would cause the loss of such
exemption.
3. Representations and Warranties of the Investors. Each Investor
hereby represents and warrants that:
3.1 Authorization. Such Investor has full power and
authority to enter into this Agreement, and such Agreement constitutes its valid
and legally binding obligation, enforceable in accordance with its terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
3.2 Purchase Entirely for Own Account. This Agreement is
made with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series C Preferred Stock to be received by such
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series C Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series C Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.
3.4 Investment Experience. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series C
Preferred Stock. If other than an individual, Investor also represents it has
not been organized for the purpose of acquiring the Series C Preferred Stock.
3.5 Accredited Investor. Such Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC") Rule
501 of Regulation D, as presently in effect.
3
<PAGE> 7
3.6 Restricted Securities. Such Investor understands that
the Securities it is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Act, only in certain limited circumstances. In this
connection, such Investor represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by Section 3.7 and Section 5 hereof provided and to the extent Section 3.7 and
Section 5 are then applicable, and:
(a) There is then in effect a Registration Statement
under the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, such Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company that such disposition will not require registration of such shares under
the Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Paragraphs (a)
and (b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor that is a partnership to a partner of
such partnership or a retired partner of such partnership who retires after the
date hereof, or to the estate of any such partner or retired partner or the
transfer by gift, will or intestate succession of any partner to his or her
spouse or to the siblings, lineal descendants or ancestors of such partner or
his or her spouse, if the transferee agrees in writing to be subject to the
terms hereof to the same extent as if he or she were an original Investor
hereunder.
3.8 Legends. It is understood that the certificates
evidencing the Securities may bear one or all of the following legends:
(a) "These securities have not been registered under
the Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
4
<PAGE> 8
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
(c) Any legend required by the Blue Sky laws of any
other state to the extent such laws are applicable to the shares represented by
the certificate so legended.
4. California Commissioner of Corporations.
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES
THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH
SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF
SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
5. Restrictions on Transfer.
5.1 Market Stand-Off. Each Investor 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 such Investor 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 5 shall apply only to the
Company's initial public offering of equity securities and shall not apply to
the sale of any shares to an underwriter pursuant to an underwriting agreement,
and shall only be applicable to the Investors 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 5 and shall have
the right, power and authority to enforce the provisions hereof as though they
were a party hereto.
6. Conditions of Investor's Obligations at Closing. The obligations
of each Investor under Section 1.1(a) of this Agreement are subject to the
fulfillment on or before the
5
<PAGE> 9
Closing of each of the following conditions, the waiver of which shall not be
effective against any Investor who does not consent thereto:
6.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
6.2 Performance. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
6.3 Qualifications. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
7. Conditions of the Company's Obligations at Closing. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
7.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
7.2 Payment of Purchase Price. The Investor shall have
delivered the purchase price specified in Section 1.1(a).
7.3 Qualifications. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
8. Miscellaneous.
8.1 Survival of Warranties. The warranties, representations
and covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
8.2 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 Series C Preferred Stock sold hereunder or any
Common Stock issued on conversion thereof). Nothing in this
6
<PAGE> 10
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.
8.3 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.
8.4 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.
8.5 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.
8.6 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.
8.7 Finder's Fee. Each party represents that it neither is
nor will be obligated for any finders' fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless the Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
8.8 Expenses. Each party shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement or the Restated Articles, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
8.9 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
a majority of the Common Stock issuable or issued upon conversion of the Series
C Preferred Stock purchased hereunder. Any amendment or waiver
7
<PAGE> 11
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
8.10 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.
8.11 Aggregation of Stock. All shares of the Series C
Preferred Stock of the Company held or acquired (or Common Stock issued on
conversion thereof) by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
8.12 Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
8
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
CYBERGOLD, INC.
By: /s/ A. Nathaniel Goldhaber
-------------------------------------
President and Chief Executive Officer
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
DATED AUGUST 19, 1998
<PAGE> 13
INVESTORS:
By: /s/ Mark Searle
-------------------------------------
Address:
----------------------------------------
----------------------------------------
----------------------------------------
By: /s/ Peter Sealey
-------------------------------------
Address:
----------------------------------------
----------------------------------------
----------------------------------------
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
DATED AUGUST 19, 1998
<PAGE> 14
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF SERIES C PREFERRED STOCK VALUE
- ---------------- --------------------------- -----
<S> <C> <C>
Mark Searle 5,495 $ 5,000.00
Peter Sealey 8,242 $ 7,500.00
TOTAL 13,737 $12,500.00
</TABLE>
S-1
<PAGE> 1
EXHIBIT 10.16
CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
MAY 18, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Purchase and Sale of Stock and Warrants..................................................1
1.1 Sale and Issuance...............................................................1
1.2 Closing.........................................................................1
2. Representations and Warranties of the Company............................................2
2.1 Organization, Good Standing and Qualification...................................2
2.2 Capitalization and Voting Rights................................................2
2.3 Subsidiaries....................................................................3
2.4 Authorization...................................................................3
2.5 Valid Issuance of Stock and Warrants............................................3
2.6 Governmental Consents...........................................................4
2.7 Offering........................................................................4
2.8 Litigation......................................................................4
2.9 Proprietary Information and Inventions Agreement................................4
2.10 Patents and Trademarks.........................................................4
2.11 Compliance with Other Instruments..............................................5
2.12 Agreements; Action.............................................................5
2.13 Related-Party Transactions.....................................................6
2.14 Permits........................................................................6
2.15 Environmental and Safety Laws..................................................7
2.16 Manufacturing and Marketing Rights.............................................7
2.17 Disclosure.....................................................................7
2.18 Registration Rights............................................................7
2.19 Corporate Documents............................................................7
2.20 Title to Property and Assets...................................................7
2.21 Financial Statements...........................................................7
2.22 Changes........................................................................8
2.23 Employee Benefit Plans.........................................................9
2.24 Tax Returns....................................................................9
2.25 Labor Agreements and Actions; Employee Compensation............................9
2.26 Insurance.....................................................................10
2.27 Section 83(b) Elections.......................................................10
3. Representations and Warranties of the Investors.........................................10
3.1 Authorization..................................................................10
3.2 Purchase Entirely for Own Account..............................................10
3.3 Disclosure of Information......................................................10
3.4 Investment Experience..........................................................11
3.5 Accredited Investor............................................................11
3.6 Restricted Securities..........................................................11
3.7 Further Limitations on Disposition.............................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.8 Legends........................................................................12
4. Conditions of Investors' Obligations at Closing.........................................12
4.1 Representations and Warranties.................................................12
4.2 Performance....................................................................12
4.3 Compliance Certificate.........................................................12
4.4 Qualifications.................................................................12
4.5 Proceedings and Documents......................................................13
4.6 Proprietary Information and Inventions Agreements..............................13
4.7 Bylaws; Board of Directors.....................................................13
4.8 Restated Articles..............................................................13
4.9 Investors' Rights Agreement....................................................13
4.10 Opinion of Company Counsel....................................................13
5. Conditions of the Company's Obligations at Closing......................................13
5.1 Representations and Warranties.................................................13
5.2 Payment of Purchase Price......................................................13
5.3 Qualifications.................................................................13
6. Miscellaneous...........................................................................13
6.1 Survival of Warranties.........................................................14
6.2 Successors and Assigns.........................................................14
6.3 Governing Law..................................................................14
6.4 Counterparts...................................................................14
6.5 Titles and Subtitles...........................................................14
6.6 Notices........................................................................14
6.7 Finder's Fee...................................................................14
6.8 Expenses.......................................................................14
6.9 Amendments and Waivers.........................................................15
6.10 Severability..................................................................15
6.11 Corporate Securities Law......................................................15
6.12 Aggregation of Stock..........................................................15
6.13 Entire Agreement..............................................................15
6.14 Waiver of Conflicts...........................................................15
</TABLE>
SCHEDULE A Schedule of Investors
SCHEDULE B Schedule of Exceptions
EXHIBIT A Amended and Restated Articles of Incorporation
EXHIBIT B Form of Warrant to Purchase Series D Preferred Stock
EXHIBIT C Amended and Restated Investors' Rights Agreement
EXHIBIT D Opinion of Counsel for the Company
ii
<PAGE> 4
CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK AND WARRANT PURCHASE 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."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock and Warrants.
1.1 Sale and Issuance.
(a) The Company shall adopt and file with the Secretary of
State of California on or before the Closing (as defined below) the Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit A (the
"Restated Articles").
(b) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally and not jointly, to purchase at the Closing, and
the Company agrees to sell and issue to each Investor at the Closing, that
number of shares of the Company's Series D Preferred Stock and a warrant to
purchase up to that number of shares of the Company's Series D Preferred Stock
set forth opposite such Investor's name on Schedule A hereto for the purchase
price set forth thereon (the "Purchase Price").
(c) On or prior to the Closing, the Company shall have
authorized (i) the sale and issuance to the Investors of the Series D Preferred
Stock, (ii) the sale and issuance to the Investors of the warrants to purchase
Series D Preferred Stock (the "Warrants"), (iii) the issuance of the shares of
Series D Preferred Stock to be issued upon exercise of the Warrants (the
"Warrant Shares") and (iv) the issuance of the shares of Common Stock to be
issued upon conversion of the Series D Preferred Stock and the Warrant Shares
(the "Conversion Shares"). The Series D Preferred Stock, the Warrant Shares and
the Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Restated Articles. The Warrants shall be issued in
the form attached hereto as Exhibit B.
1.2 Closing. The purchase and sale of the Series D Preferred
Stock shall take place at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California 94025,
at 10:00 a.m., on May 18, 1999, or at such other time and place as the Company
and Investors acquiring in the aggregate more than half the shares of Series D
Preferred Stock sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Closing"). At the Closing, the
Company shall deliver to each Investor (a) a certificate representing the Series
D Preferred Stock that such Investor is purchasing and (b) a Warrant to purchase
that number of shares of Series D Preferred Stock set forth opposite such
Investor's name on Schedule A hereto, against payment of the Purchase Price
therefor by check, wire transfer or any combination thereof.
<PAGE> 5
2. Representations and Warranties of the Company. The Company
hereby represents and warrants to each Investor that, except as set forth on a
Schedule of Exceptions (the "Schedule of Exceptions") furnished each Investor
and special counsel for the Investors and attached hereto as Schedule B, which
exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 Organization, Good Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of
the Company consists, or will consist immediately prior to the Closing, of:
(a) Preferred Stock. 17,180,000 shares of Preferred Stock
(the "Preferred Stock"). The Preferred Stock consists of 3,185,000 shares of
Series A Preferred Stock (the "Series A Preferred Stock"), of which 3,000,000
shares are issued and outstanding, 2,144,971 shares of Series B Preferred Stock
(the "Series B Preferred Stock"), of which 2,092,471 are issued and outstanding,
8,000,029 shares of Series C Preferred Stock (the "Series C Preferred Stock"),
of which 6,283,792 are issued and outstanding and 3,850,000 shares of Series D
Preferred Stock (the "Series D Preferred Stock"), none of which will be
outstanding immediately prior to the Closing and up to all of which may be sold
pursuant to this Agreement. The rights, privileges and preferences of the
Preferred Stock will be as stated in the Company's Restated Articles.
(b) Common Stock. 25,520,000 shares of common stock (the
"Common Stock"), of which 6,143,518 shares are issued and outstanding.
(c) The outstanding shares of Common Stock and Preferred
Stock are all duly and validly authorized and issued, fully paid and
nonassessable, and were issued in accordance with the registration or
qualification provisions of the Securities Act of 1933, as amended (the "Act")
and any relevant state securities laws or pursuant to valid exemptions
therefrom.
(d) Except for (i) the conversion privileges of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock, (ii) the rights provided in Section 2.4 of the Investors'
Rights Agreement (as defined below), (iii) outstanding warrants to purchase up
to 22,500 shares of Series B Preferred Stock, (iv) an outstanding warrant to
purchase up to 250,000 shares of Common Stock, (v) warrants to purchase shares
of Series D Preferred Stock to be issued hereunder, (vi) outstanding options to
purchase up to an aggregate of 185,000 shares of Series A Preferred Stock and
(vii) currently outstanding options to purchase 2,534,507 shares of Common Stock
granted to employees and other service providers pursuant to the Company's 1996
Stock Option Plan (the "Option Plan"), there are not outstanding any options,
warrants, rights (including conversion or preemptive
2
<PAGE> 6
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. In addition to the aforementioned options currently
outstanding under the Option Plan, the Company has reserved an additional
621,975 shares of its Common Stock for purchase upon exercise of options to be
granted in the future under the Option Plan. Except for a voting provision
contained in the Investors' Rights Agreement, the Company is not a party or
subject to any agreement or understanding, and, to the best of the Company's
knowledge, there is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Amended and
Restated Investors' Rights Agreement by and among the Company the investors
listed on Schedule A thereto and A. Nathaniel Goldhaber, dated May 18, 1999 (the
"Investors' Rights Agreement"), the performance of all obligations of the
Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of (a) the Series D Preferred Stock
and the Warrants being sold hereunder, (b) the Warrant Shares issuable upon
exercise of the Warrants and (c) the Conversion Shares has been taken or will be
taken prior to the Closing, and this Agreement and the Investors' Rights
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Investors' Rights Agreement may be
limited by applicable federal or state securities laws.
2.5 Valid Issuance of Stock and Warrants. The Series D Preferred
Stock and the Warrants that are being purchased by the Investors hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Warrants and the Investors'
Rights Agreement and under applicable state and federal securities laws. The
Warrant Shares issuable upon exercise of the Warrants and the Conversion Shares
issuable upon conversion of the Series D Preferred Stock purchased under this
Agreement or upon conversion of the Warrant Shares have been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Restated Articles and/or the Warrants, will be duly and validly issued, fully
paid, and nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws.
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2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except (i) the filing of the Restated Articles
with the Secretary of State of California; and (ii) the filing pursuant to
Section 25102(f) of the California Corporate Securities Law of 1968, as amended,
and the rules thereunder, which filing will be effected within fifteen (15) days
of the Closing, or such other post-closing securities filings as may be
required.
2.7 Offering. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series D Preferred Stock and the Warrants as
contemplated by this Agreement are exempt from the registration requirements of
any applicable state and federal securities laws, and neither the Company nor
any authorized agent acting on its behalf will take any action hereafter that
would cause the loss of such exemption.
2.8 Litigation. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, overtly threatened against
the Company that questions the validity of this Agreement or the Investors'
Rights Agreement, or the right of the Company to enter into such agreements, or
to consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions, suits, proceedings or investigations
pending or, to the Company's knowledge, threatened involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
2.9 Proprietary Information and Inventions Agreement. Each
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement in substantially the form provided to
special counsel to the Investors. The Company is not aware that any of its
employees, officers or consultants are in violation thereof, and the Company
will use its best efforts to prevent any such violation.
2.10 Patents and Trademarks. To the best of its knowledge (but
without having conducted any special investigation or patent search), the
Company has sufficient title and ownership of, or right to use, all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted without any conflict with or infringement of the
rights of others. There are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of
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any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity, except, in either case, for standard
end-user, object code, internal use software license and support/maintenance
agreements. The Company has not received any communications alleging that the
Company has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of his or her best efforts to promote
the interests of the Company or that would conflict with the Company's business
as proposed to be conducted. Neither the execution nor delivery of this
Agreement or the Investors' Rights Agreement, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed, will, to the best of the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees (or people
it currently intends to hire) made prior to their employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws, or in any material respect of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company. The execution, delivery
and performance of this Agreement and the Investors' Rights Agreement, and the
consummation of the transactions contemplated hereby and thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.12 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby
and by the Investors' Rights Agreement, there are no agreements, understandings
or proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations
outside the normal course of business (contingent or otherwise) of, or payments
to the Company in excess of, $50,000, or (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company
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(other than the license of the Company's software and products in the ordinary
course of business), or (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services.
(c) The Company has not (i) declared or paid any dividends
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money borrowed
or any other liabilities individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws that adversely affects its business as now conducted
or as proposed to be conducted, its properties or its financial condition.
(f) The Company has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with or into
any such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Company.
2.13 Related-Party Transactions. No employee, officer, or
director of the Company or member of his or her immediate family is indebted to
the Company, nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them. To the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. No member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
material contract with the Company.
2.14 Permits. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial
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condition of the Company, and the Company believes it can obtain, without undue
burden or expense, any similar authority for the conduct of its business as
planned to be conducted. The Company is not in default in any material respect
under any of such franchises, permits, licenses, or other similar authority.
2.15 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.16 Manufacturing and Marketing Rights. The Company has not
granted rights to manufacture, produce, assemble, license, market, or sell its
products to any other person and is not bound by any agreement that affects the
Company's exclusive right to develop, manufacture, assemble, distribute, market
or sell its products.
2.17 Disclosure. The Company has fully provided each Investor
with all the information that such Investor has requested for deciding whether
to purchase the Series D Preferred Stock and the Warrants and all information
that the Company believes is reasonably necessary to enable such Investor to
make such decision. To the best of its knowledge, neither this Agreement, the
Investors' Rights Agreement, nor any other statements or certificates made or
delivered in connection herewith or therewith contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein not misleading.
2.18 Registration Rights. Except as provided in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.19 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by the Investors), the Restated Articles
and Bylaws of the Company are in the form previously provided to special counsel
for the Investors.
2.20 Title to Property and Assets. The Company owns its property
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens that arise in the ordinary course of business
and do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.21 Financial Statements. The Company has delivered to each
Investor its unaudited financial statements (balance sheet, income statement and
statement of cash flows) as at December 31, 1998 and for the fiscal year then
ended and its unaudited financial statements (balance sheet and statement of
operations) as at and for the three-month period ended March 31, 1999 (the
"Financial Statements"). The Financial Statements have been prepared in
accordance
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with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and with each other, except that the unaudited
Financial Statements may not contain all footnotes required by generally
accepted accounting principles. The Financial Statements fairly present the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein, subject to normal year-end audit
adjustments. Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to March 31, 1999 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company. Except as disclosed in the Financial Statements, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
generally accepted accounting principles.
2.22 Changes. Since March 31, 1999 there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material
contract or arrangement by which the Company or any of its assets or properties
is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
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(h) any resignation or termination of employment of any
key officer of the Company; and the Company, to the best of its knowledge, does
not know of the impending resignation or termination of employment of any such
officer;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company;
(m) to the best of the Company's knowledge, any other
event or condition of any character that might materially and adversely affect
the assets, properties, financial condition, operating results or business of
the Company (as such business is presently conducted and as it is proposed to be
conducted); or
(n) any agreement or commitment by the Company to do any
of the things described in this Section 2.22.
2.23 Employee Benefit Plans. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.24 Tax Returns. The Company has filed all tax returns and
reports (including information returns and reports) as required by law. These
returns and reports are true and correct in all material respects, except to the
extent that a reserve has been reflected on the Financial Statements in
accordance with generally accepted accounting principles. The Company has paid
all taxes and other assessments due, except those contested by it in good faith
that are listed in the Schedule of Exceptions.
2.25 Labor Agreements and Actions; Employee Compensation. The
Company is not bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the best of the Company's knowledge, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or other
labor dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity
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involving its employees. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. The employment of each officer
and employee of the Company is terminable at the will of the Company. To the
best of its knowledge, the Company has complied in all material respects with
all applicable state and federal equal employment opportunity and other laws
related to employment. The Company is not a party to or bound by any currently
effective employment contract, deferred compensation agreement, bonus plan,
incentive plan, profit sharing plan, retirement agreement, or other employee
compensation agreement.
2.26 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.27 Section 83(b) Elections. To the best of the Company's
knowledge, all individuals who have purchased unvested shares of the Company's
Common Stock have timely filed elections under Section 83(b) of the Code and any
analogous provisions of applicable state tax laws.
3. Representations and Warranties of the Investors. Each
Investor hereby represents and warrants that:
3.1 Authorization. Such Investor has full power and authority to
enter into this Agreement and the Investors' Rights Agreement, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series D Preferred Stock and the Warrant to be
received by such Investor, the Warrant Shares issuable upon exercise of the
Warrant and the Conversion Shares (collectively, the "Securities") will be
acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, such Investor further represents that such Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series D Preferred Stock and the Warrant. Such Investor
further represents that it has had an opportunity
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to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Series D Preferred Stock and the Warrant and
the business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Investors to
rely thereon.
3.4 Investment Experience. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series D
Preferred Stock and the Warrant. If other than an individual, Investor also
represents it has not been organized for the purpose of acquiring the Series D
Preferred Stock and the Warrant.
3.5 Accredited Investor. Such Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC") Rule
501 of Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreement are then applicable, and:
(a) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and
(b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor
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that is a partnership to a partner of such partnership or a retired partner of
such partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will or intestate succession
of any partner to his or her spouse or to the siblings, lineal descendants or
ancestors of such partner or his or her spouse, if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he or she
were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
(c) Any legend required by the Blue Sky laws of any other
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
4. Conditions of Investors' Obligations at Closing. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective against any Investor who
does not consent thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Qualifications. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
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4.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
4.6 Proprietary Information and Inventions Agreements. Each
employee of and consultant to the Company shall have entered into a Proprietary
Information and Inventions Agreement in the form previously provided to special
counsel for the Investors.
4.7 Bylaws; Board of Directors. The Bylaws of the Company shall
provide that the Board of Directors of the Company shall consist of eight (8)
persons. After the Closing, the Board of Directors will be composed of Chris
Alafi, Jay Chiat, A. Nathaniel Goldhaber, Garrett Gruener, Regis McKenna, Alan
Salzman and Peter Sealey, and there shall be one (1) vacancy.
4.8 Restated Articles. The Company shall have adopted and filed
with the Secretary of State of California the Restated Articles in the form
attached hereto as Exhibit A.
4.9 Investors' Rights Agreement. The Company and each Investor
shall have entered into the Investors' Rights Agreement in the form attached as
Exhibit C.
4.10 Opinion of Company Counsel. Each Investor shall have
received from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
("Gunderson Dettmer"), counsel for the Company, an opinion, dated as of the
Closing, in the form attached hereto as Exhibit D.
5. Conditions of the Company's Obligations at Closing. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have
delivered the purchase price specified in Section 1.2.
5.3 Qualifications. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6. Miscellaneous.
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6.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
6.2 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 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.
6.3 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.
6.4 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.
6.5 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.
6.6 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.
6.7 Finder's Fee. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees or
representatives is responsible.
6.8 Expenses. The Company shall pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and performance
of this Agreement. The Company shall reimburse the reasonable fees and expenses
of each of Cooley Godward LLP,
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special counsel for the Investors, and Ice Miller Donadio & Ryan, special
counsel for CGI, LLC, not to exceed five thousand dollars ($5,000) and fifteen
thousand dollars ($15,000), respectively, upon receipt of bills therefor. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the Warrants, the Investors' Rights Agreement, or the Restated
Articles, the prevailing party shall be entitled to reasonable attorney's fees,
costs and necessary disbursements in addition to any other relief to which such
party may be entitled.
6.9 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
a majority of the Common Stock issuable or issued upon conversion of the Series
D Preferred Stock issued and sold hereunder. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
6.10 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.
6.11 Corporate Securities Law. THE SALE OF THE SECURITIES THAT
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
6.12 Aggregation of Stock. All shares of the Preferred Stock 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.
6.13 Entire Agreement. This Agreement and the documents referred
to herein constitute the entire agreement among the parties and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
6.14 Waiver of Conflicts. Each party to this Agreement
acknowledges that Gunderson Dettmer, counsel for the Company, has in the past
performed, and may continue to perform, legal services for certain of the
Investors in matters unrelated to the transactions described in this Agreement,
including the representation of such Investors in venture capital financings and
other matters. Accordingly, each party to this Agreement hereby (1)
15
<PAGE> 19
acknowledges that they have had an opportunity to ask for information relevant
to this disclosure; (2) acknowledges that Gunderson Dettmer represented the
Company in the transaction contemplated by this Agreement and has not
represented any individual Investor or any individual shareholder or employee of
the Company in connection with such transaction; and (3) gives its informed
consent to Gunderson Dettmer's representation of certain of the Investors in
such unrelated matters and to Gunderson Dettmer's representation of the Company
in connection with this Agreement and the transactions contemplated hereby.
16
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
CYBERGOLD, INC.
By: /s/ A. Nathaniel Goldhaber
-----------------------------------
President
Address: 2921 Adeline Street
Berkeley, California 94703
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 21
ALTA CALIFORNIA PARTNERS, L.P.
By: Alta California Management Partners,
L.P.
By: /s/ Garrett Gruener
-----------------------------------
General Partner
ALTA EMBARCADERO PARTNERS, LLC
By: /s/ Garrett Gruener
------------------------------------
Member
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 22
VANTAGEPOINT VENTURE PARTNERS 1996
By: VantagePoint Associates LLC
By: /s/ Alan Salzman
------------------------------------
Managing Member
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 23
ALAFI CAPITAL CORPORATION
By /s/ Christopher Alafi
-----------------------------------
Print Name:
-----------------------------
Title: General Partner
---------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 24
/s/ Jay Chiat
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 25
E.S. FISHBURNE AND PATRICIA M.
FISHBURNE, JTWROS
By: /s/ E.S. Fishburne
-----------------------------------
By: /s/ Patricia M. Fishburne
-----------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 26
/s/ A. Nathaniel Goldhaber
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 27
/s/ Regis McKenna
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 28
LEVINE FAMILY TRUST
By: /s/ Burgess Lea Levine
-----------------------------------
Print Name:
-----------------------------
Title:
----------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 29
REESE M. JONES 1996 CHARITABLE
REMAINDER UNITRUST
By: /s/ Reese M. Jones
-----------------------------------
Print Name:
-----------------------------
Title:
----------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 30
/s/ Frank and Marsia Richards
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 31
/s/ Daniel J. Schwinn
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 32
/s/ Peter Sealey
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 33
/s/ John Steuart
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 34
/s/ Bradford C. Webb
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 35
/s/ Bruce R. Katz
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 36
/s/ Walter Link
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 37
/s/ Joshua Mailman
----------------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 38
ZINSMEYER TRUSTS PARTNERSHIP
By: /s/ Andrew R. Zinsmeyer
------------------------------------
Print Name:
------------------------------
Print Title:
-----------------------------
Address: 7777 Bonhomme Street, Suite 1400
Clayton, Missouri 63105-1301
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 39
GC&H INVESTMENTS
By: /s/ John L. Cardoza
------------------------------------
Print Name:
-----------------------------
Title:
----------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 40
OSPREY VENTURES, L.P.
By: /s/ David M. Stastny
-----------------------------------
Print Name:
-----------------------------
Title:
----------------------------------
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 41
CGI, LLC
By: CG Investors, LLC
Its Manager
By /s/ Phillip E. Himelstein
-----------------------------------
Managing Member
Address:
----------------------------
----------------------------
----------------------------
Telephone:
----------------------------
Facsimile:
----------------------------
SIGNATURE PAGE TO CYBERGOLD, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE> 42
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF SERIES D NUMBER OF TOTAL
NAME AND ADDRESS PREFERRED STOCK WARRANT SHARES PURCHASE PRICE
- ---------------- --------------- -------------- --------------
<S> <C> <C> <C>
ALAFI CAPITAL COMPANY 311,855 93,557 $ 810,823.00
9 Commodore Drive, #405
Emeryville, CA 94608
ALTA CALIFORNIA PARTNERS, L.P. 656,162 196,849 $1,706,021.20
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ALTA EMBARCADERO PARTNERS, LLC 14,990 4,497 $ 38,974.00
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
CGI, LLC 384,615 -- $ 999,999.00
c/o Phillip Himelstein
8910 Purdue Road, Suite 230
Indianapolis, IN 46268
JAY CHIAT 38,462 11,539 $ 100,001.20
420 E. 54th Street
New York, NY 10022
E.S. FISHBURNE AND PATRICIA M
FISHBURNE (JTWROS) 17,305 5,192 $ 44,993.00
2373 Wulfert Road
Sanibel, FL 33957
GC&H INVESTMENTS 9,293 2,788 $ 24,161.80
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
A. NATHANIEL GOLDHABER 76,923 23,077 $ 199,999.80
261 Stonewall Road
Berkeley, CA 94705
REESE M. JONES 1996 CHARITABLE 27,060 8,118 $ 70,356.00
REMAINDER UNITRUST
1037 Vallejo Street
San Francisco, CA 94133
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF SERIES D NUMBER OF TOTAL
NAME AND ADDRESS PREFERRED STOCK WARRANT SHARES PURCHASE PRICE
- ---------------- --------------- -------------- --------------
<S> <C> <C> <C>
BRUCE R. KATZ 192,308 -- $ 500,000.80
c/o Rosewood Stone Group
2320 Marinship Way, 2nd Floor
Sausalito, CA 94965
LEVINE FAMILY TRUST 16,415 4,925 $ 42,679.00
14080 Nacogdoches Road
PMB248
San Antonio, TX 78247
WALTER LINK 96,154 -- $ 250,000.40
c/o Fischer Gnehm & Notz
Schoental Str. 21
CH-8004 Zurich
Switzerland
JOSHUA MAILMAN 96,154 -- $ 250,000.40
c/o Sirius Business Corp.
150 East 58th Street, 14th Floor
New York, NY 10155
REGIS MCKENNA 22,020 6,606 $ 57,252.00
1409 Galloway Court
Sunnyvale, CA 94087
OSPREY VENTURES, L.P. 384,615 -- $ 999,999.00
3000 Sand Hill Road
Building 3, Suite 110
Menlo Park, CA 94025
FRANK RICHARDS AND MARSIA RICHARDS 2,114 634 $ 5,496.40
25 Cherry Street
Denver, CO 80220
DANIEL J. SCHWINN 25,448 7,634 $ 66,164.80
62 Commonwealth Avenue, #9
Boston, MA 02116
PETER SEALEY 2,240 672 $ 5,824.00
13513 Country Way
Los Altos Hills, CA 94022
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF SERIES D NUMBER OF TOTAL
NAME AND ADDRESS PREFERRED STOCK WARRANT SHARES PURCHASE PRICE
- ---------------- --------------- -------------- --------------
<S> <C> <C> <C>
JOHN STEUART 8,638 2,591 $ 22,458.80
2033 Hearst Avenue
Berkeley, CA 94709
VANTAGE POINT VENTURE PARTNERS 1996 671,152 201,346 $1,744,995.20
1001 Bay Hill Drive, Suite 100
San Bruno, CA 94066
BRADFORD C. WEBB 5,000 1,500 $ 13,000.00
1215 S. Kihei Road, No. 245
P.O. Box 959
Kihei, HI 96753
ZINSMEYER TRUSTS PARTNERSHIP 18,000 5,400 $ 46,800.00
7777 Bonhomme Avenue, Suite 1400
Clayton, MO 63105
TOTAL 3,076,923 576,925 $7,999,999.80
</TABLE>
<PAGE> 45
SCHEDULE B
SCHEDULE OF EXCEPTIONS
<PAGE> 46
CYBERGOLD, INC.
SCHEDULE OF EXCEPTIONS TO THE
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
DATED MAY 18, 1999
The following are exceptions to the representations and
warranties made by CyberGold, Inc. (the "Company") in Section 2 of the Series D
Preferred Stock and Warrant Purchase Agreement dated May 18, 1999 (the
"Agreement") among the Company and the Investors listed on Schedule A thereto
(collectively, the "Investors"), which exceptions shall be deemed to be
representations and warranties as if made under the Agreement. To the extent any
exception is disclosed pursuant to any specific section of the Agreement
designated below, it shall be deemed to be disclosed for any and all purposes
required pursuant to the Agreement. (Where the terms of a lease, contract or
other disclosure item have been summarized or described in this Schedule of
Exceptions, such summary or description does not purport to be a complete
statement of the material terms of such lease, contract or other item.) Terms
defined in the Agreement shall have the same meanings when used herein unless
otherwise defined.
Section 2.1 Organization, Good Standing and Qualification
The Company has sales personnel in the states of Connecticut and Texas
but is not yet qualified to do business as a foreign corporation in such states.
The Company intends to become qualified to do business in such states and does
not believe that the failure to be so qualified will have a material adverse
effect on its business or properties.
Section 2.2 Capitalization and Voting Rights
The Company has entered into two equipment lease lines with LINC Capital
Management ("LINC") for the leasing of computer equipment and other personal
property. The first equipment lease line, entered into on March 27, 1997, is for
an aggregate principal amount of up to $350,000 and has been fully used. A
warrant to purchase 17,500 shares of Series B Preferred Stock was issued to LINC
in connection with this lease line. The second equipment lease line, entered
into on March 31, 1998, is for an aggregate principal amount of up to $150,000
and has been fully used. A warrant to purchase up to 5,000 shares of Series B
Preferred Stock was issued to LINC in connection with this second lease line.
Nathaniel Goldhaber, the Company's Chief Executive Officer and a member
of the Company's Board of Directors, has made certain arrangements regarding the
transfer of the
<PAGE> 47
shares of the Company's capital stock that he owns for estate planning purposes.
Such arrangements do not violate Mr. Goldhaber's obligations under the
Investors' Rights Agreement.
The Company has extended the exercise period for Abe Frumkin's options
to purchase Common Stock in order to allow Mr. Frumkin to exercise such options
for a period up to 18 months following his termination of service with the
Company.
See Schedule 2.12.
Section 2.8 Litigation
On April 7, 1998, the Company received a letter from Haight, Brown &
Bonesteel, L.L.P., counsel for Terran Systems ("Terran") alleging that the
Company owed Terran, an executive recruiting firm, the sum of $18,400 as
consideration for the placement of a candidate with the Company. On June 25,
1998, Terran filed suit against the Company in municipal court in the
Berkeley/Albany judicial district of the County of Alameda seeking damages in
the amount of $18,400 plus interest at the rate of 18% per annum since December
4, 1997. On May 13, 1999, the Company agreed to pay Terran $12,000 in settlement
of this matter.
The Company holds the domain name, "attn.com." On February 3, 1998, the
Company received a letter from AT&T indicating that the Company's use of this
domain name may infringe AT&T's trademarks. The domain name is not currently in
use, and there has been no further action with regard to this matter.
On March 17, 1998, the Company received a letter from Remedy Temp, Inc.
("Remedy") alleging that the Company owed Remedy payment in the amount of $2800
for the placement of an employee with the Company. On April 23, 1998, the
Company contacted Remedy seeking documentation with regard to such claim. This
matter was settled on October 30, 1998, and the Company paid Remedy $1,250
pursuant to the settlement agreement.
In 1996, the Company was sued by Maritz Corporation regarding alleged
trademark infringement. The case was settled in 1996 in the Company's favor.
See Schedule 2.10.
Section 2.10 Patents and Trademarks
The Company has been issued a trademark for the "CYBERGOLD" mark.
The Company has applied for international trademark protection for the
"CYBERGOLD" mark. The Company's trademark application for the mark in Japan was
unsuccessful as the Company was informed that the mark had been previously
reserved in the class for which the Company had applied.
<PAGE> 48
Pursuant to an Assignment Agreement dated December 9, 1995, A. Nathaniel
Goldhaber and Gary Fitts assigned to the Company the full and exclusive right to
the "Attention Brokerage" process. Mr. Goldhaber is a director and the Company's
President and Chief Executive Officer, Mr. Fitts is currently an employee of the
Company.
The Company has been issued the following U.S. patents:
Patent #5,794,210 for 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.
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.
The Company has notified several competitors and other third parties
that it believes may currently, or may have the potential to, infringe on the
Company's patents.
The Company has sent a letter to MyPoints.com ("MyPoints") alleging
patent infringement of the Company's Attention Brokerage patent. MyPoints has
acknowledged recipt of this letter and settlement discussions are ongoing.
The Company has had discussion with one of its competitors, Netcentives,
regarding the scope of each company's activities with respect to a patent held
by the other. There has been no formal exchange regarding this matter, and the
Company may explore the possibility of cross-licensing the two patents.
On March 15, 1999, Netcentives sent the Company a letter regarding the
Company's use of Netcentives' name in meta tags on the Company's web site. The
Company has since ceased this practice, and there has been no further activity
with respect to this matter.
Section 2.11 Compliance with Other Instruments
The Company has an agreement with Audits & Surveys Worldwide ("ASW"),
dated March 17, 1997 (the "ASW Agreement"). Under the terms of the ASW
Agreement, ASW has the exclusive right to use the Company's database for survey
and analytical purposes during the term of the agreement. The Company believes
that ASW breached the terms of the ASW Agreement as of August 1, 1998. On March
15, 1999, the Company entered into an agreement with Maritz Marketing Research
(the "Maritz Agreement") granting Maritz Markerting Research the right to use
the Company's database for survey and analytical purposes.
<PAGE> 49
The Company has an agreement with CyberCash, Inc. ("CyberCash"), dated
March 28, 1997 (the "CyberCash Agreement"), under which the Company may have
been deemed to be in breach of a covenant not to compete. The CyberCash
Agreement has subsequently been modified by a Memorandum of Understanding
entered into between the Company and CyberCash, dated June 18, 1998.
See Schedule 2.12.
Section 2.12 Agreements; Action
The Company has entered into the following agreements and has taken the
following actions:
1. The Company has sold and issued shares of its Series A
Preferred Stock to investors of the Company pursuant to a
Series A Preferred Stock Purchase Agreement, dated July 2,
1996. Certain of those investors were and continue to be
directors and shareholders of the Company.
2. The Company has sold and issued shares of its Series B
Preferred Stock to investors of the Company pursuant to a
Series B Preferred Stock Purchase Agreement, dated June
12, 1997 (the "Series B Purchase Agreement"). Certain of
those investors were and continue to be directors and
shareholders of the Company.
3. Pursuant to a Note Purchase Agreement dated January 15,
1997, the Company issued Convertible Promissory Notes in
the aggregate amount of $1,000,000 to A. Nathaniel
Goldhaber, Alafi Capital Company, John Steuart, Regis
McKenna, Jay Chiat, Charles Finnie and Paul Levine and
Burgess Lea Levine, JTWROS. The outstanding principal and
interest under such notes converted into shares of Series
B Preferred Stock in connection with the transactions
contemplated by the Series B Purchase Agreement.
4. The Company has sold and issued shares of its Series C
Preferred Stock to investors of the Company pursuant to a
Series C Preferred Stock Purchase Agreement, dated May 15,
1998 (the "Series C Purchase Agreement"). Certain of those
investors were and continue to be directors, officers and
shareholders of the Company.
5. The Company has sold and issued Common Stock and/or issued
options to purchase Common Stock to its directors,
officers and certain of its employees and consultants.
<PAGE> 50
6. The Company has issued options to purchase 75,000 and
110,000 shares of Series A Preferred Stock, respectively,
to Abe Frumkin and Victor Imbibo.
7. The Company has an arrangement with Allen Weinberg
regarding the potential reduction in the number of options
granted to Mr. Weinberg.
8. On May 10, 1999, the Board granted John Steuart an option
to purchase up to 200,000 shares of Common Stock with an
exercise price of $2.60 per share. 100,000 shares vest
over two years, and 100,000 shares vest over four years.
In addition, 50,000 shares will accelerate and vest
immediately upon the closing of a firm underwritten
offering of the Company's Common Stock.
9. On May 10, 1999, the Board granted Steve Farber an option
to purchase up to 300,000 shares of Common Stock with an
exercise price of $2.60 per share. The option shares vest
based on the accomplishment of specific performance
milestones. The Company has also agreed to pay Mr. Farber
cash bonuses upon attaining certain performance
milestones. In addition, 50,000 shares of Mr. Farber's
existing option to purchase up to 200,000 shares will
accelerate and vest immediately upon the closing of a firm
underwritten offering of the Company's Common Stock.
10. The Company currently leases premises located at 2921
Adeline Street, Berkeley, California from Weilman, Treloar
& Co. (the "Lessor") in a holdover capacity following the
expiration of that certain Commercial Lease and Deposit
Receipt between the Company and Lessor dated December 20,
1995. The current monthly rent is $16,000.
11. The Company has entered into a lease for premises located
at 436 14th Street, Oakland, California with Central
Building LLC (the "Lessor") pursuant to that certain
Standard Office Lease between the Company and Lessor dated
March 25, 1999. The Company expects to begin occupying
approximately 9,000 square feet of such premises in June
1999 at an initial monthly rent of approximately $14,000.
The Company expects to take possession of an additional
6,000 square feet in August 1999 for an additional $9,000
per month. The lease has an initial term of five years.
12. Pursuant to sale-and-leaseback transactions in March 1997,
January 1998 and March 1998, the Company sold to and now
leases computer equipment and other personal property from
LINC Capital Management. The current monthly payments
under such leases totals approximately $16,440.
13. The Company has entered into that certain Senior Loan and
Security Agreement No. 6209 with Phoenix Leasing
Incorporated, dated December
<PAGE> 51
10, 1998, establishing a secured credit line of up to
$400,000. The Company has currently drawn down
approximately $214,022 on this credit line.
14. The Company has entered into an August 1998 service
agreement with AboveNet Communications, Inc. The current
monthly payment pursuant to this service agreement is
approximately $3200.
15. The Company has entered into agreements with Visa and the
First National Bank of Omaha, dated September 12, 1997, as
amended. Under the terms of this agreement, the Company
may not enter into a similar agreement with a competitor
of Visa for a period of up to two years.
16. The Company has a reseller agreement with EarthLink
Network, Inc., an internet service provider ("EarthLink"),
dated October 29, 1997 (the "EarthLink Agreement"). Under
the term of the EarthLink Agreement, the Company must not
market other internet service providers on the EarthLink
Mall, and the Company cannot send emails soliciting
internet service providers competitive to EarthLink to any
members who join CyberGold via EarthLink.
17. On August 10, 1998, the Company entered into a Letter
Agreement with EarthLink (the "EarthLink Letter
Agreement") in connection with its micropayments business.
Under the EarthLink Letter Agreement, the Company may not
promote AT&T, MCI, WorldCom or any internet service
providers other than EarthLink on the Company's website
during the one-year term of the agreement (with an option
for an additional year).
18. On November 20, 1998, the Company entered into an
agreement with MBNA (the "MBNA Agreement") in connection
with proposed cash incentives to acquire credit cards.
Under the MBNA Agreement, MBNA has an exclusive
arrangement to produce co-branded Visa cards for the users
of CyberGold.
19. The Company has entered into an agreement with Interactive
Coupons.
20. The Company has entered into agreements with CyberSource
Corporation, dated October 19, 1998.
21. The Company has entered into a Marketing Participation
Agreement, dated November 25, 1998, with Buena Vista
Internet Commerce Group, which operates The Disney Store
Online and The ESPN Store Online.
22. The Company has entered into an Advertising Agreement,
dated June 25, 1998, with Net Market, a division of
Cendant Membership Services, Inc.
<PAGE> 52
23. The Company has entered into an advertising agreement with
Autobytel.com, dated November 17, 1998.
24. The Company has an agreement with Maritz Marketing
Research (the "Maritz Agreement"), dated March 15, 1999.
Under the terms of the Maritz Agreement, Maritz Marketing
Research has the right to use the Company's database for
survey and analytical purposes.
25. The Company has entered into an Incentive Promotion
Agreement with Quintel under which the Company received an
advance payment of $100,000. The Company may earn up to
$1,000,000 under this agreement.
26. The Company has entered into a Memorandum of Understanding
with Qwest, dated November 3, 1998 ("Qwest MOU"), for
custom marketing services. The Company has already earned
$300,000 under this MOU and may earn up to an additional
$150,000 thereunder.
27. The Company has also entered into membership acquisition
agreements with Web Clients, USA.net, Lycos,
InfoSpace.com, Inc., LifeMinders.com, Inc. and cool
savings.com inc.
See Schedules 2.11 and 2.13.
Section 2.13 Related-Party Transactions
The Company is involved in the following related-party transactions with
certain portfolio companies of VantagePoint Venture Partners and Alta Partners,
each of which are affiliated with directors of the Company:
1. Atrieva, a company in which VantagePoint Venture Partners
invests, has advertised with the Company.
2. Lycos, a company in which VantagePoint Venture Partners holds
stock, has a vending relationship with the Company.
3. @Backup, a company in which Alta Partners invests, has
advertised with the Company.
4. ByFaith.com, a company in which Alta Partners invests, has a
vending relationship with the Company.
Nathaniel Goldhaber, the Company's Chief Executive Officer, John
Steuart, the Company's Chief Financial Officer, and Garret Gruener, a director
of the Company, are personal
<PAGE> 53
investors and otherwise affiliated with Ask Jeeves, a company that advertises
with CyberGold and with which the Company has a vending relationship.
Peter Sealey is a director of the Company and serves as a marketing
consultant. Dr. Sealey is also a consultant to Visa, one of the Company's
partners.
The Company is contemplating a future marketing or licensing
relationship with InterTrust Technologies Corporation ("InterTrust"). Nathaniel
Goldhaber is a shareholder of InterTrust, and Duncan Davidson, who holds options
to purchase 25,000 shares of the Company's Common Stock, is an executive of
InterTrust.
Nathaniel Goldhaber, the Company's Chief Executive Officer, loaned
$100,000 to Gary Fitts, one of the Company's employees, in connection with the
purchase of a home. Mr. Fitts pledged his CyberGold options as security for the
loan.
Section 2.14 Permits
Certain of the Company's software licenses may not be current. However,
the Company believes that any amount of money necessary to bring all software
licenses current would not be material to the Company.
Section 2.16 Manufacturing and Marketing Rights
The Company has granted reseller rights to certain companies, such as
Free Range Media and EarthLink. To date, such agreements have not been material
to the Company.
See Schedule 2.12.
Section 2.20 Title to Property and Assets
As disclosed above, the Company leases a substantial portion of its
equipment pursuant to leases with LINC Capital Management.
Section 2.22 Changes
F. Christophe Kolb, the Company's former Vice President of Product
Marketing, resigned in April 1999.
See Schedule 2.12.
<PAGE> 54
Section 2.23 Employee Benefit Plans
The Company has established a 401(k) plan.
Section 2.25 Labor Agreements and Actions; Employee Compensation
Since the date of incorporation, Nathaniel Goldhaber has not received a
salary or any other direct compensation in return for his duties as Chairman and
Chief Executive Officer of the Company. While no compensation is due or payable
for Mr. Goldhaber's services to date, this arrangement will not continue
indefinitely, and the Company expects that the Board of Directors will develop
an appropriate compensation plan in the future.
<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.
August 6, 1999 ARTHUR ANDERSEN LLP
San Francisco, California
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